<PAGE> 1
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|X| Preliminary proxy statement |_| Confidential, for Use of
Commission Only (as permitted
by Rule 14a-6(e)(2))
|_| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
OIS OPTICAL IMAGING SYSTEMS, INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant
Payment of filing fee (Check the appropriate box):
| | No fee required.
|x| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, PAR VALUE $.01 PER SHARE.
(2) Aggregate number of securities to which transaction applies:
97,468,429.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(set forth the amount on which the
filing fee is calculated and state how it was determined): THE
AVERAGE OF THE HIGH AND LOW PRICES FOR THE OIS OPTICAL IMAGING
SYSTEMS, INC. COMMON STOCK AS OF JANUARY 6 WAS $.02345.
(4) Proposed maximum aggregate value of transaction: $2,285,635, BASED ON
THE INFORMATION CONTAINED IN ITEMS 2 AND 3 ABOVE.
(5) Total fee paid: $457.
|_| Fee previously paid with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
Amount previously paid:
(1) Form, Schedule or Registration Statement No.:
(2) Filing Party:
(3) Date Filed:
<PAGE> 2
OIS OPTICAL IMAGING SYSTEMS, INC.
47050 Five Mile Road
Northville, Michigan 48167
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on February [ ], 1999
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of OIS Optical Imaging Systems, Inc. ("OIS" or the "Company")
will be held at [NAME OF MEETING PLACE AND ADDRESS], on [FEBRUARY ], 1999 at
10:00 a.m. local time, for the following purposes:
1. To elect seven (7) directors to serve until the next
Annual Meeting and until their respective successors
have been duly elected and qualified;
2. To ratify and approve the appointment of Arthur
Andersen LLP, as the Company's independent auditors
for the fiscal year ended June 30, 1999;
3. To consider and act upon a proposal to amend the
Company's Restated Certificate of Incorporation to
allow for acts of the Company to be approved by
written consent of its stockholders in lieu of a
special meeting of its stockholders;
4. To consider and act upon a proposal to approve and
adopt the Plan of Liquidation and Dissolution
attached as Exhibit A to the Proxy Statement;
5. To consider and transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Holders of the Company's common stock, par value $.01 per share (the
"Common Stock") and the Company's Series B Cumulative Preferred Stock, par value
$.01 per share, at the close of business on January __, 1999, the record date
fixed by the Company's Board of Directors (the "Board of Directors"), are
entitled to notice of and to vote at the Annual Meeting. The Board of Directors
urges that all stockholders of record exercise their right to vote at the Annual
Meeting personally or by proxy. Accordingly, we are sending you the attached
Proxy Statement (the "Proxy Statement") and the enclosed proxy card (the "Proxy
Card").
Whether or not you plan to attend the Annual Meeting, it is important
that your shares be represented. Accordingly, the Board of Directors and
management urges each stockholder to read the Proxy Statement carefully and
thereafter to complete, date and sign the enclosed Proxy Card and return it
promptly in the enclosed self-addressed, postage-paid envelope.
Registered stockholders will be asked for identification. If you are a
beneficial owner of the Company's Common Stock held "in street name" by a bank,
broker or other fiduciary or nominee you will need proof of ownership to be
admitted to the Annual Meeting. A recent brokerage statement or letter from the
broker or bank are examples of proof of ownership.
Your prompt response will be appreciated.
By Order of the Board of Directors
Charles C. Wilson
Secretary
Northville, Michigan
January [ ], 1999
<PAGE> 3
OIS OPTICAL IMAGING SYSTEMS, INC.
47050 Five Mile Road
Northville, Michigan 48167
PROXY STATEMENT
This Proxy Statement and the accompanying form of proxy (the "Proxy")
is being furnished in connection with the solicitation of Proxies by the Board
of Directors (the "Board" or "Board of Directors") of OIS Optical Imaging
Systems, Inc. ("OIS" or the "Company") to be used at the Annual Meeting of
Stockholders on [FEBRUARY ], 1999 (the "Annual Meeting") to be held at 10:00
a.m. local time at [NAME AND ADDRESS OF MEETING PLACE]. This Proxy Statement and
the enclosed Proxy together with the Annual Report on Form 10-K for the fiscal
year ended June 30, 1998 (the "10-K Report") are first being mailed to
stockholders on or about January __1999.
At the Annual Meeting, stockholders will be asked to consider and vote
upon the following items:
1. To elect seven (7) directors to serve until the next
Annual Meeting and until their respective successors
have been duly elected and qualified;
2. To ratify and approve the appointment of Arthur
Andersen LLP, as the Company's independent auditors
for the fiscal year ended June 30, 1999;
3. To consider and act upon a proposal to amend the
Company's Restated Certificate of Incorporation to
allow for acts of the Company to be approved by
written consent of its stockholders in lieu of a
special meeting of its stockholders;
4. To consider and act upon a proposal to approve and
adopt the Plan of Liquidation and Dissolution
attached as Exhibit A to this Proxy Statement;
5. To consider and transact such other business as may
properly come before the Annual Meeting or any
adjournment thereof.
The Board of Directors is proposing for approval by the stockholders at
the Annual Meeting a Plan of Liquidation and Dissolution of the Company (the
"Plan"), a copy of which is attached as Exhibit A to this Proxy Statement. The
Plan provides, in part, that, if the requisite stockholder approval is received
(such time of approval deemed the "Effective Date"), the officers and directors
of the Company will initiate the complete liquidation and subsequent dissolution
of the Company. After the Effective Date, OIS will not engage in any business
activities except for the purpose of preserving the value of its assets,
prosecuting and defending suits by or against OIS, adjusting and winding up its
business and affairs, selling and liquidating its properties and assets,
including its intellectual property and other intangible assets, paying its
creditors and making distributions to stockholders, if any, in accordance with
the Plan. If advisable for any reason to complete the liquidation and
distribution of the Company's assets to its stockholders pursuant to the Plan,
the Board of Directors may at any time transfer to a liquidating trust the
remaining assets of the Company. The liquidating trust would then succeed to all
of the assets, liabilities and obligations of the Company. The Board of
Directors may appoint one or more individuals or corporate persons to act as
trustee or trustees of such liquidating trust. Approval of the Plan by the
stockholders of the Company also will constitute the approval by such
stockholders of any appointment and compensation of such trustees. Because of
the existing debt and other obligations of OIS, including the satisfaction of
the liquidation preference (the "Liquidation Preference") of the holders of the
Company's Series B Cumulative Preferred Stock, par value $.01 per share (the
"Series B Preferred"), OIS does not believe that the holders of its Common
Stock, par value $.01 per share (the "Common Stock") will receive any proceeds
from a liquidation. See "Approval of Plan of Liquidation and Dissolution" for a
summary description of the Plan. Once the liquidation of OIS's property and
assets is substantially completed, or at such earlier time as determined by the
Board of Directors, the officers of the Company will promptly execute and file a
certificate of dissolution with the Secretary of State of the State of Delaware.
THE BOARD OF DIRECTORS, AFTER CAREFUL REVIEW AND CONSIDERATION OF THE
TERMS OF THE PLAN, BELIEVES THAT THE LIQUIDATION OF THE COMPANY IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE IN FAVOR OF THE APPROVAL OF THE PLAN.
<PAGE> 4
VOTING
Shares represented by duly executed and unrevoked Proxies in the
enclosed form received by the Board of Directors will be voted at the Annual
Meeting in accordance with the specifications made therein by the stockholders,
unless authority to do so is withheld. If no specification is made, shares
represented by duly executed and unrevoked Proxies in the enclosed form will be
voted "FOR" the election as directors of the nominees listed herein, "FOR"
ratification of Arthur Andersen LLP as the Company's independent auditors for
the fiscal year ending June 30, 1999, "FOR" the proposed amendment to the
Company's Restated Certificate of Incorporation and "FOR" adoption of the Plan
and, with respect to any other matter that may properly come before the Annual
Meeting, in the discretion of the persons voting the respective Proxies. The
Board of Directors currently knows of no other business that will be presented
for consideration at the Annual Meeting. Each stockholder who has executed a
Proxy and returned it to the Board of Directors may revoke the Proxy by notice
in writing to the Secretary of the Company, or by attending the Annual Meeting
in person and requesting the return of the Proxy, in either case at any time
prior to the voting of the Proxy. Presence at the Annual Meeting does not itself
revoke the Proxy.
Only authorized holders of record at the close of business on January [
], 1999 (the "Record Date") of shares of (i) the Common Stock and (ii) the
Series B Preferred will be entitled to vote at the Annual Meeting. Each
outstanding share of Common Stock is entitled to one vote and each outstanding
share of Series B Preferred is entitled to 350 votes on each matter presented at
the Annual Meeting. On [JANUARY __, 1999] there were 97,468,429 shares of Common
Stock and 91,137 shares of Series B Preferred outstanding, respectively.
VOTE REQUIRED
Provided a quorum is present, the election of the director nominees
requires a plurality of the votes cast in person or by proxy at the Annual
Meeting. Under Delaware law, shares as to which a stockholder abstains or
withholds from voting on the election of directors and shares as to which a
broker indicates that it does not have discretionary authority to vote ("Broker
Non-Votes") on the election of directors will not be counted as voting thereon
and therefore will not affect the election of the nominees receiving a plurality
of the votes cast.
Provided a quorum is present, the affirmative vote of a majority of the
votes cast with respect to the holders of shares of Common Stock and Series B
Preferred issued and outstanding and entitled to vote is required for the
ratification of the Company's independent accountants for fiscal 1999. Under
Delaware law, abstentions and Broker Non-Votes are counted as present in
determining whether the quorum requirement is satisfied. Abstentions and Broker
Non-Votes have the same legal effect as a vote against ratification of the
Company's independent accountants.
Provided a quorum is present, pursuant to the Company's Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
80% of the voting power of all shares of stock of the Company entitled to vote
are required for the approval of the amendment of the Company's Restated
Certificate of Incorporation to allow for action by written consent of the
stockholders and for the approval of the Plan. Under Delaware law, abstentions
and Broker Non-votes are counted as present in determining whether the quorum
requirement is satisfied. Abstentions and Broker Non-votes have the same legal
effect as a vote against the approval of the foregoing.
GD Investments Corp. ("GDIC"), an affiliate of Guardian Industries
Corp. ("Guardian") and holder of all of the outstanding shares of Series B
Preferred, has informed the Company that it intends to vote all of the
77,562,451 shares of Common Stock and 91,137 shares of Series B Preferred it
owns, or approximately 84.6% of the total amount of votes afforded holders of
the Company's voting stock, "for" the election of all of the director nominees,
and "for" all of the other proposals contained herein, including the adoption of
the Plan. In addition, William Davidson, the President of Guardian and holder of
1,000,000 shares of Common Stock, has informed the Company that he intends to
vote all of his shares "for" the election of all of the director nominees and
all of the other proposals, including the adoption of the Plan.
The Company will bear all the costs of solicitation of Proxies. In
addition to the use of the mail, Proxies may be solicited by personal contact or
telephone by certain directors, officers and employees of the Company, without
payment of additional compensation for doing so. The Company may reimburse
brokers or other persons holding stock in their names or in the names of
nominees for their expenses in sending proxy soliciting material to beneficial
owners.
2
<PAGE> 5
CERTAIN INFORMATION RELATING TO THE COMPANY
For information concerning the Company's business, properties, and
legal proceedings incidental to the Company's business, see Item 1 "Business,"
Item 2 "Properties" and Item 3 "Legal Proceedings" respectively, in the 10-K
Report. Items 1, 2 and 3 of the 10-K Report are incorporated herein by reference
and made a part of this Proxy Statement. For information regarding certain
selected financial data concerning the Company, See Item 6 "Selected Financial
Data" in the 10-K Report, which Items are incorporated herein by reference and
made a part of this Proxy Statement.
For a discussion of the Company's financial condition, changes in
financial condition and results of operations, see Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
10-K Report, which Item is incorporated herein by reference and made a part of
this Proxy Statement.
The financial statements of the Company as of June 30, 1998 and for the
year then ended can be found in Item 8 "Financial Statements and Supplementary
Data" to the 10-K Report, which Item is incorporated herein by reference and
made a part of this Proxy Statement. The financial statements of the Company as
of and for the three months ended September 30, 1998 are set forth herein,
beginning on page 28.
3
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of January 6, 1999, the beneficial
ownership of shares of Common Stock and Series B Preferred by each person (i)
known to OIS to be the beneficial owner of more than five percent (5%) of each
such class of stock (ii) each director or director nominee, (iii) each Named
Executive Officer (as defined below) and (iv) executive officers and directors
as a group. All shares are owned directly except as otherwise indicated.
<TABLE>
<CAPTION>
Common Stock Series B Preferred
-------------------------------------- -------------------------------
Amount and
Amount and Nature of Percent
Nature of Percent of Beneficial of
Name and Address of Owner Beneficial Ownership(1) Class Ownership Class
- ------------------------- ----------------------- ---------- ---------- -------
<S> <C> <C> <C> <C>
GD Investments Corp. 77,562,451 79.6% 91,137 100%
2300 Harmon Road
Auburn Hills, MI 48326
William Davidson 78,562,451(2) 80.6% 91,137(3) 100%
2300 Harmon Road
Auburn Hills, MI 48326
Ralph J. Gerson 20,108(4) -- --
c/o OIS Optical Imaging Systems, Inc. (13)
47050 Five Mile Road
Northville, Michigan 48167
Jeffrey A. Knight 310,000(5) -- --
c/o OIS Optical Imaging Systems, Inc. (13)
47050 Five Mile Road
Northville, Michigan 48167
C.K. Prahalad 20,000(6) -- --
c/o OIS Optical Imaging Systems, Inc. (13)
47050 Five Mile Road
Northville, Michigan 48167
Rex Tapp 146,400(7) -- --
c/o OIS Optical Imaging Systems, Inc. (13)
47050 Five Mile Road
Northville, Michigan 48167
Robert M. Teeter 25,000(8) -- --
c/o OIS Optical Imaging Systems, Inc. (13)
47050 Five Mile Road
Northville, Michigan 48167
Scott V. Thomsen 91,250(9) -- --
c/o OIS Optical Imaging Systems, Inc. (13)
47050 Five Mile Road
Northville, Michigan 48167
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
Common Stock Series B Preferred
----------------------------------------- --------------------------------
Amount and Amount and
Nature of Percent of Nature of Percent
Name and Address of Owner Beneficial Ownership(1) Class Beneficial Owner of Class
- ------------------------- -------------------- ----- ---------------- --------
<S> <C>
Charles C. Wilson 120,650(10) -- --
c/o OIS Optical Imaging Systems, Inc. (13)
47050 Five Mile Road
Northville, Michigan 48167
Mark S. Wrighton 26,000(11) -- --
c/o OIS Optical Imaging Systems, Inc. (13)
47050 Five Mile Road
Northville, Michigan 48167
Peter Joel C. Young 46,000(12) -- --
c/o OIS Optical Imaging Systems, Inc. (13)
47050 Five Mile Road
Northville, Michigan 48167
All executive officers and directors
as a group 805,408 -- --
(9 persons) (13)
</TABLE>
- ------------------------------
(1) Under the rules of the Securities and Exchange Commission, a person
is deemed to be the beneficial owner of a security if that person has
the right to acquire beneficial ownership of such security within 60
days, whether through the exercise of options or warrants or through
the conversion of another security.
(2) Of these shares, William Davidson owns 1,000,000 shares directly and
is deemed to beneficially own all of the shares owned directly by GD
Investments Corp.
(3) Of these shares, William Davidson is deemed to beneficially own all
shares owned directly by GD Investments Corp.
(4) Of these shares, 4,608 are owned by Mr. Gerson's children.
(5) Of these shares, 307,000 shares are owned indirectly by Jeffrey A.
Knight as a general partner of a limited partnership which has a 0.5%
interest in OIS. Mr. Knight disclaims beneficial ownership of such
shares held by the partnership.
(6) These 20,000 shares represent shares underlying exercisable options.
(7) Of these shares, 75,000 represent shares underlying exercisable
options.
(8) Of these shares 15,000 represent shares underlying exercisable
options.
(9) Of these shares 26,250 represent shares underlying exercisable
options.
(10) Of these shares, 53,250 represent shares underlying exercisable
options.
(11) Of these shares, 25,000 represent shares underlying exercisable
options.
(12) Of these shares, 5,000 represent shares underlying exercisable
options.
(13) Less than 1%.
5
<PAGE> 8
PROPOSAL NO. 1: ELECTION OF DIRECTORS
At the Annual Meeting, seven (7) directors are to be elected to serve
until the next annual meeting of stockholders and until their successors are
elected and qualified. Unless authority to vote for directors is withheld in the
Proxy, it is the intention of the persons named therein to vote "FOR" the
re-election of the nominees set forth below. The persons designated as proxies
will have discretion to cast votes for other persons in the event any nominee
for director is unable to serve. At present, it is not anticipated that any
nominee will be unable to serve.
DIRECTOR NOMINEES
The following table sets forth the name, age and principal occupation
of each director of the Company, all of whom are nominees.
<TABLE>
<CAPTION>
Name Age Position Held with OIS
- ---- --- ----------------------
<S> <C> <C>
Charles C. Wilson 46 President, Chief Financial Officer, Secretary &
Director
Ralph J. Gerson 48 Chairman & Director
Jeffrey A. Knight 47 Director
C.K. Prahalad 57 Director
Robert M. Teeter 59 Director
Mark S. Wrighton 49 Director
Peter Joel C. Young 38 Director
</TABLE>
Charles C. Wilson was first elected to the Board of Directors in
November 1991 and is a Guardian designee. Mr. Wilson has been OIS's Executive
Vice President and Chief Financial Officer since November 1991. As of January 1,
1999, Mr. Wilson also became President of OIS. From July 1987 until joining OIS,
Mr. Wilson was the Vice President and Treasurer of Guardian Photo, Inc.
Ralph J. Gerson was first elected to the Board of Directors in November
1992, is the Chairman of the Board and is a Guardian designee. Mr. Gerson has
been Guardian's Executive Vice President and a member of the Guardian Board of
Directors since 1988.
Jeffrey A. Knight was first elected to the Board of Directors in
November 1991 and is a Guardian designee. Since 1989, Mr. Knight has been Group
Vice President-Finance and Chief Financial Officer of Guardian.
C.K. Prahalad was first elected to the Board of Directors in February
1995. Dr. Prahalad is a Harvey C. Fruehauf Professor of Business Administration
at The University of Michigan.
Robert Teeter was first elected to the Board of Directors in February
1995. Mr. Teeter is President of Coldwater Corporation of Ann Arbor, Michigan.
Mark S. Wrighton was first elected to the Board of Directors in
February 1995. Dr. Wrighton is the Chancellor of Washington University in St.
Louis, Missouri. From October 1990 to June 1995, Dr. Wrighton was Provost and
Ciba-Geigy Professor of Chemistry at The Massachusetts Institute of Technology
in Cambridge, Massachusetts.
Peter Joel C. Young was first elected to the Board of Directors in
November 1991. Mr. Young is currently Chief Executive Officer of Harry London
Candies Inc. of North Canton, Ohio. From March 1991 through August 1993, Mr.
Young was the Director of International Business Development of Guardian.
6
<PAGE> 9
INFORMATION REGARDING THE BOARD OF DIRECTORS
AND ITS COMMITTEES
COMPENSATION OF DIRECTORS
OIS has established an annual director compensation program that
consists of $15,000 basic compensation, an additional $1,000 for each board
meeting attended by the director, an additional $500 for each committee meeting
attended by the director and the grant of options to purchase 5,000 shares of
Common Stock within five years from the date of grant at the market price of the
Common Stock on the date of grant. All Guardian designees have waived all
director compensation.
MEETINGS AND COMMITTEES
During the fiscal year ended June 30, 1998, there were four meetings
and one special meeting held by the Board of Directors. All directors
participated in 75% or more of the meetings of the Board of Directors and
committees on which they served.
The Audit Committee of the Board of Directors (the "Audit Committee")
currently consists of Mark S. Wrighton, Peter J.C. Young, both independent
directors, and Charles C. Wilson (ex officio). The principal duties of the Audit
Committee are to (a) recommend selection of OIS's independent public
accountants, (b) review with the independent public accountants the results of
their audits, (c) review with the independent public accountants and management
OIS's financial reporting and operating controls and the scope of audits and (d)
make recommendations concerning OIS's financial reporting, accounting practices
and policies and financial, accounting and operating controls and safeguards.
The Compensation Committee of the Board of Directors (the "Compensation
Committee") met once during the fiscal year ended June 30, 1998, and currently
consists of Mark S. Wrighton and Ralph J. Gerson. The principal duties of the
Compensation Committee are to make recommendations concerning, and to review,
the compensation packages of OIS's executive officers and key personnel.
During fiscal 1998, the Board of Directors established an Advisory
Committee, consisting of Mark S. Wrighton (Chairman), C.K. Prahalad and Peter
J.C. Young, to oversee and review all proposed transactions with (i) current and
proposed sources of financing for the Company, including the Company's banking
relationships and (ii) prospective financing sources or potential investors in,
or purchasers of, the Company. Each member of the Advisory Committee was granted
options to purchase 5,000 shares of Common Stock within five years of the date
of grant at the market price of such Common Stock on the date of grant, except
for the Chairman of the Advisory Committee who was granted options to purchase
10,000 shares of Common Stock on the same terms.
The Stock Option Plan Committee of the Board of Directors currently
consists of Ralph J. Gerson, Jeffrey A. Knight and Peter Joel C. Young, who met
once during the fiscal year ended June 30, 1998, and also took action by
unanimous consent. The principal duties of the Stock Option Plan Committee are
to make, administer, and interpret all rules and regulations that it deems
necessary to administer OIS stock option plans and to recommend and make awards
of stock options and restricted stock under the plans. Members of the Stock
Option Plan Committee are not eligible for awards under the plans.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE ENTIRE SLATE OF NOMINEES IN PROPOSAL NO. 1.
7
<PAGE> 10
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the Chief Executive Officer and two
other executive officers of OIS serving at the end of fiscal 1998 (collectively,
the "Named Executive Officers").
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Rex Tapp 48 President and Chief Executive Officer
Charles C. Wilson (1) 46 Executive Vice President, Chief Financial Officer and
Secretary
Scott V. Thomson 34 Vice President, Engineering and Fab Operations
</TABLE>
- -------------------
(1) See "Proposal No. 1: Election of Directors - Director Nominees" for
Mr. Wilson's biographical information.
Rex Tapp was the President and Chief Executive Officer of OIS from
December 1991 to December 31, 1998 when he resigned from such positions. Mr.
Tapp was also the Director of Technical Development for Guardian Industries
Corp. until July 1, 1995. Mr. Tapp served on the Board of Directors from
November 1991 until December 1998.
Scott V. Thomsen joined OIS in September 1994 as Director of Technical
Development. In July 1995 he assumed the position of Director of Product
Engineering and in June 1997 was appointed Vice President Engineering and Fab
Operations. From December 1989 until joining OIS, Mr. Thomsen was employed by
the Satellite Systems Operations Division of Honeywell, Inc. as a technical
director and computer systems design engineer on the space shuttle cockpit and
trainer programs.
8
<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows compensation paid, with respect to the three
most recent fiscal years, to the Named Executive Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other All
Annual Restricted Other
Name and Compen- Stock Options LTIP Compen-
Principal Salary Bonus sation Awards(1) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- -------------- ---- -------- ------ ------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rex Tapp, CEO & 1998 $190,050 --- (3) --- 135,000 $23,000(8)
President(2) 1997 $190,050 --- (3) --- 20,000 $23,000(8)
1996 $181,000 --- (3) $225,000(4) 50,000 $23,000(8)
Charles C. Wilson, 1998 $150,000 --- --- --- 40,000 $12,685(8)
Executive Vice 1997 $150,500 --- --- $ 70,313(6) 12,500 $12,685(8)
President & CFO(5) 1996 $144,500 --- --- $184,500 35,000 $12,685(8)
Scott V. Thomsen, 1998 $150,000 --- --- --- 90,000 $12,800(8)
Vice President 1997 $136,154 --- --- $ 70,313(7) 12,500 $ 6,500(8)
Engineering and 1996 $109,692 --- --- $202,500 20,000 $ 6,500(8)
Fab Operations
</TABLE>
- ---------------------------------
(1) Represents the market value of restricted stock on the date of
grant.
(2) As of December 31, 1998, Mr. Tapp resigned from the positions of
Chief Executive Officer and President of the Company.
(3) The aggregate amount of other compensation is less than 10% of the
total of salary and bonus.
(4) As of June 30, 1998, Mr. Tapp held 53,100 restricted shares with a
market value of $49,807.
(5) As of January 1, 1999, Mr. Wilson also became the Company's
President.
(6) As of June 30, 1998, Mr. Wilson held 62,800 restricted shares with
a market value of $58,906. Of these 62,800 restricted shares, Mr.
Wilson will forfeit 25,000 shares granted on February 18, 1997, if
he does not remain an employee through October 13, 1999.
(7) As of June 30, 1998, Mr. Thomsen held 60,000 restricted shares
with a market value of $60,970. Of these 65,000 shares, Mr.
Thomsen will forfeit the 25,000 shares granted on February 18,
1997, if he does not remain an employee through October 13, 1999.
(8) Amount is for the cost of premiums for split-dollar life insurance
provided by OIS.
9
<PAGE> 12
The following tables show grants, exercises and fiscal year-end values
of stock options for the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value At Assumed Annual
Rates of Stock Option
Appreciation for Option
Term
Individual Grants
- ---------------------------------------------------------------------------------------------- --------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base Expiration
Name Granted (#) In Fiscal Year Price($/SH)(1) Date 5% ($) 10% ($)
---- ----------- -------------- -------------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Rex Tapp 50,000 5.9 1.50 04/27/2008 47,167 119,531
20,000(2) 2.4 1.13 02/17/2007 12,154 29,904
50,000(2) 5.9 1.13 01/15/2006 25,920 61,865
15,000(2) 1.8 1.13 03/08/2005 6,797 15,878
Charles C. Wilson 40,000 4.7 1.50 04/27/2008 37,734 95,625
12,500(2) 1.5 1.13 02/17/2007 7,596 18,690
35,000(2) 4.1 1.13 01/15/2006 18,144 43,306
12,000(2) 1.4 1.13 03/08/2005 5,437 12,702
Scott V. Thomsen 90,000 10.7 1.50 04/27/2008 84,901 215,155
12,500(2) 1.5 1.13 02/17/2007 7,596 18,690
20,000(2) 2.4 1.13 01/15/2006 10,368 24,146
</TABLE>
- --------------------------------
(1) Represents the market price of the shares on the date of grant or
the date of repricing, as applicable.
(2) Represents outstanding options that were repriced as of April 3,
1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End (#) FY-End ($)
Shares
Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
---- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Rex Tapp -0- -0- 40,000/95,000 -0-
Charles C. Wilson -0- -0- 29,500/70,000 -0-
Scott V. Thomsen -0- -0- 10,000/112,500 -0-
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
TEN-YEAR OPTION/SAR REPRICINGS
Number of Market Price
Securities of Stock At Exercise Price
Underlying time of At time of Length of Original
Options/SARs Repricing or Repricing or New Option Term Remaining
Repriced or Amendment Amendment Exercise at Date of Repricing
Name Date Amended (#) ($) ($) Price ($) or Amendment
- ---- ---- ----------- ------------ --------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Rex Tapp 4/3/1998 15,000 1.125 5.375 1.125 approx. 83 months
50,000 1.125 4.625 1.125 approx. 93 months
20,000 1.125 2.813 1.125 approx. 106 months
Charles C. Wilson 4/3/1998 12,000 1.125 5.375 1.125 approx. 83 months
35,000 1.125 4.625 1.125 approx. 93 months
12,500 1.125 2.813 1.125 approx. 106 months
Scott V. Thomsen 4/3/1998 20,000 1.125 4.625 1.125 approx. 93 months
12,500 1.125 2.813 1.125 approx. 106 months
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Scott
Thomsen, Vice President - Engineering and Fab Operations, on August 26, 1998,
whereby the Company agreed to continue Mr. Thomsen's employment at his current
compensation level (base salary and benefits) during the 12 month period
following any shutdown of the manufacturing operations of the Company and to pay
Mr. Thomsen a bonus of $50,000 six months after the commencement of such period.
Upon the expiration of the agreement and the termination of his employment, Mr.
Thomsen is entitled to a severance payment of $50,000, as well as the
forgiveness of a $50,000 relocation loan from the Company. The agreement also
provides that if Mr. Thomsen's employment with the Company (or any successor to
the Company's business) is terminated within 18 months following a change of
control of the Company, Mr. Thomsen is entitled to a $150,000 severance payment
and forgiveness of the $50,000 relocation loan.
On December 15, 1998, the Company and Mr. Wilson entered into an
incentive agreement, pursuant to which Mr. Wilson will receive $55,000 on or
about March 15, 1999 and $95,000 on or about September 15, 1999 in addition to
his current compensation and benefits, unless Mr. Wilson voluntarily terminates
his employment with the Company or is terminated by the Company for cause. Under
the terms of the incentive agreement, Mr. Wilson has agreed to remain with the
Company until September 15, 1999 to assist the Company with respect to any
matters requested by the Company, including, without limitation, the liquidation
of the Company's property and assets.
As of December 31, 1998, Mr. Tapp resigned from the positions of Chief
Executive Officer and President of the Company. The Company and Mr. Tapp entered
into a consulting agreement, whereby Mr. Tapp will provide consulting services
to the Company from January 1, 1999 until June 30, 1999, unless otherwise
terminated earlier by the Company for cause. Under the consulting agreement, Mr.
Tapp will receive approximately $16,000 per month through its term plus a
payment of $100,000 on or about June 30, 1999.
11
<PAGE> 14
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
POLICIES APPLICABLE TO COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers, other than the President and
Chief Executive Officer, is determined by the Company's President in
consultation with the Compensation Committee of the Board of Directors (the
"Compensation Committee"). The Compensation Committee is comprised of
non-management directors, Ralph J. Gerson and Mark S. Wrighton. Before the end
of each fiscal year and again before bonuses are determined, the Company's
President meets with the Compensation Committee and discusses the overall
compensation situation of the Company, the range of increases he proposes to
implement and any special circumstances present. The Company's President makes
compensation determinations for executive officers on a subjective basis, taking
into account the financial performance (i.e., the ongoing losses) of OIS, the
performance reviews and individual compensation history of each individual
executive officer, the range of comparable salaries from other companies in
OIS's industry and geographic region as well as other factors that he considers
relevant. The information on comparable salaries is drawn from general published
survey information. OIS's compensation of executive officers is, on average, in
the median range of surveyed companies. No one factor is accorded more weight
than any other. Although OIS's performance is taken into consideration, there is
no formal or formulaic relationship between OIS's performance and executive
compensation. OIS feels that this relatively informal method of determining
executive compensation is appropriate given the current stage of OIS's business.
During fiscal 1998, Rex Tapp was the Company's President.
Salary adjustments for executive officers are made effective as of
July 1 of each year and bonuses are awarded each December. Bonuses for executive
officers consist solely of awards of stock options and restricted stock.
Restricted stock is required to be forfeited if the officer's employment
terminates within a specified period after the award. The number of stock
options and shares of restricted stock awarded to each executive officer is
determined as part of the overall compensation process described above. Awards
of stock options and restricted stock made in prior years are not taken into
account when determining grants to be made in the current year. During fiscal
1998, Mr. Tapp determined the levels of salary increases and bonuses on a
subjective basis taking into account all of the factors discussed above. Awards
of restricted stock and stock options, if any, are made by the Stock Option
Committee of the Board of Directors after its receipt of recommendations from
the Company's President.
During fiscal 1998, the salary adjustments and bonuses were lower than
they would have been had OIS not incurred significant losses. No executive
officer received annual compensation that approached $1.0 million. Accordingly,
the Compensation Committee has not considered the effect of Section 162(m) of
the Internal Revenue Code which makes certain non-performance based compensation
to executives of public companies in excess of $1.0 million non-deductible.
CEO COMPENSATION
Mr. Tapp's compensation was determined by the Compensation Committee.
The Compensation Committee determined that it would apply OIS's informal method
of compensation determination to Mr. Tapp. The Chairman of the Board of
Directors, Ralph J. Gerson, made compensation recommendations to the
Compensation Committee before the July salary adjustment and the December bonus
determination.
Mr. Gerson made his recommendations on a subjective basis taking into
account the financial performance (i.e., the ongoing losses) of OIS, his
subjective view of Mr. Tapp's job performance, Mr. Tapp's compensation history
and other factors that he considered relevant, including the compensation of the
positions of president and chief executive officer at similar companies.
The Compensation Committee did not accord any one factor more weight
than any other. Although OIS's performance was taken into account, and Mr.
Tapp's compensation was lower than it would be if OIS had not incurred
significant losses, the Compensation Committee did not apply any formal or
formulaic relationship between OIS's performance and Mr. Tapp's compensation.
The Compensation Committee believes that this relatively informal method of
determining the compensation of the President and Chief Executive Officer is
appropriate given the current stage of OIS's business.
12
<PAGE> 15
OPTION REPRICING
On April 3, 1998, the Board of Directors approved the repricing of all
stock options outstanding as of such date and the Company thereby amended the
exercise price of such options to $1.125, the closing price of the Company's
Common Stock as of April 2, 1998. The repricing was unanimously approved by the
disinterested directors. No other terms or conditions of the stock options,
including the exercise schedule or expiration date, were affected.
The stock options were repriced to realign the value of the previously
granted options, upon exercisability, with the market value of the Company's
Common Stock at the time of repricing. The expectation at the time was that the
opportunity to earn compensation based on potential appreciation of the
Company's Common Stock from the repriced level would motivate employees to
achieve greater results over the long term, encourage key employees to remain
with the Company and compensate employees for work and economic sacrifices made.
COMPENSATION COMMITTEE
Ralph J. Gerson
Mark S. Wrighton
13
<PAGE> 16
The following graph compares the five-year cumulative total return to
the stockholders of OIS to Standard and Poor's Midcap 400 Index and Standard and
Poor's Electronics (Semiconductor) Index.
<TABLE>
<CAPTION>
[LINE GRAPH]
TOTAL RETURN TO STOCKHOLDER'S
(DIVIDENDS REINVESTED MONTHLY)
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY/INDEX JUN94 JUN95 JUN96 JUN97 JUN98
- ---------------------------------------------------------------- ------------ ------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
OIS OPTICAL IMAGING SYSTEMS 183.94 -6.82 -40.25 -20.41 -61.51
S&P MIDCAP 400 INDEX -0.06 22.34 21.58 23.33 27.15
ELECTRONICS (SEMICNDCTR)-500 5.83 88.70 -21.18 87.08 1.20
</TABLE>
<TABLE>
<CAPTION>
INDEXED RETURNS
Base (Years Ending)
Period
Company/Index Jun93 Jun94 Jun95 Jun96 Jun97 Jun98
- -------------------------------------------------- ------------- ------------ ------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
OIS OPTICAL IMAGING SYSTEMS 100 283.94 264.58 158.08 125.81 48.43
S&P MIDCAP 400 INDEX 100 99.94 122.27 148.66 183.34 233.13
ELECTRONICS (SEMICNDCTR)-500 100 105.83 199.70 157.40 294.48 298.01
</TABLE>
14
<PAGE> 17
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Shares of Common Stock formerly traded on the Nasdaq SmallCap Market
under the symbol OVONE. The following table sets forth the reported high and low
bid quotations of the Common Stock for the fiscal periods indicated:
<TABLE>
<CAPTION>
Prices
---------------------------------------------------------
Period Low High
------ --- ----
<S> <C> <C>
Year ended June 30, 1997
First Quarter . . . . . . . . . . . . . . . . . $2.625 $3.625
Second Quarter . . . . . . . . . . . . . . . . . 1.563 3.188
Third Quarter. . . . . . . . . . . . . . . . . . 2.125 3.125
Fourth Quarter . . . . . . . . . . . . . . . . . 2.188 3.125
Year ended June 30, 1998
First Quarter. . . . . . . . . . . . . . . . . . $1.813 $2.469
Second Quarter . . . . . . . . . . . . . . . . . 1.375 2.375
Third Quarter . . . . . . . . . . . . . . . . . 1.047 1.656
Fourth Quarter . . . . . . . . . . . . . . . . . 1.031 2.125
Year ending June 30, 1999
First Quarter . . . . . . . . . . . . . . . . . $0.016 $1.063
Second Quarter . . . . . . . . . . . . . . . . . $0.016 $0.156
</TABLE>
- ------------------------------------
The quotations listed may include inter-dealer prices that may not
necessarily represent actual transactions. No dividend or distribution on the
Common Stock has been paid and none is presently being considered.
By letter dated January 6, 1999, the Nasdaq Stock Market, Inc.
("Nasdaq") notified OIS that the Company's securities were delisted from the
Nasdaq SmallCap Market, effective with the close of business, January 6, 1999,
because of the Company's inability to remain in compliance with certain
maintenance standards required for continued listing on the Nasdaq SmallCap
Market, including the net tangible assets and minimum bid price requirements.
The notice from Nasdaq also indicated that the Company does not currently meet
Nasdaq's market maker requirement. The Company remains a reporting company under
the Securities and Exchange Commission's rules. Additionally, the Company's
securities may be eligible for quotation on the OTC Bulletin Board to the extent
that at least one of its market makers files for such quotation and is approved
by the National Association of Securities Dealers (the "NASD"). The OTC Bulletin
Board is operated by the NASD as a forum for electronic trading and quotation.
On January 6, 1999, the closing bid price for a share of the Common
Stock as reported by the Nasdaq SmallCap Market was $.031 and the approximate
number of stockholders of record was 1,536.
During fiscal 1998, the Company sold a total of 17,500 shares of its
Series B Cumulative Preferred Stock, par value $0.01 per share (the "Series B
Preferred"), to GDIC at a price of $1,000 per share for an aggregate
consideration of $17,500,000. The Series B Preferred issued in fiscal 1998 did
not involve underwriters and was exempt from registration under the Securities
Act of 1933, as amended, by virtue of the exemption provided by Section 4(2)
thereof for transactions not involving any public offering.
15
<PAGE> 18
PROPOSAL NO. 2: APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee the Board of Directors has,
subject to stockholder approval, appointed Arthur Andersen LLP to serve as
independent public accountants to the Company for the fiscal year June 30, 1999.
The services to be performed by Arthur Andersen LLP will include review of
reports and registration statements filed by the Company with the Securities and
Exchange Commission and consultation in connection with various accounting and
financial reporting matters. Arthur Andersen LLP was elected and served as
independent public accountants to the Company for the fiscal year ended June 30,
1998.
The affirmative vote of a majority of the votes cast is required to
approve this proposal. A representative of Arthur Andersen LLP will be present
at the Annual Meeting, will be available to respond to appropriate questions,
and will also have the opportunity to make a statement if he or she desires.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
APPOINTMENT FOR FISCAL 1999 OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS AS DESCRIBED IN PROPOSAL NO. 2.
PROPOSAL NO. 3: AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has approved and recommends to stockholders for
approval a proposal to amend the Company's Restated Certificate of Incorporation
to eliminate the prohibition on stockholder action by written consent.
Under Section 228 of the Delaware General Corporation Law (the "DGCL"),
unless otherwise provided in a corporation's Certificate of Incorporation, any
action required or permitted to be taken at any annual or special meeting of
stockholders may be taken without prior notice and without a vote if a consent
in writing setting forth the action so taken is signed by the holders of stock
having not less than the minimum number of votes that would be necessary to
authorized or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.
Presently, Article Sixth of the Company's Restated Certificate of
Incorporation provides that no action be taken at any annual or special meeting
of the stockholders of the Company may be taken by written consent without a
meeting of such stockholders. If the proposed amendment is approved, Article
Sixth of the Company's Restated Certificate of Incorporation would be deleted in
its entirety.
The purpose of this amendment is to enable stockholders to utilize
Section 228 of the DGCL which provides for stockholder action by written
consent. The Board of Directors believes that, in light of the Company's
financial condition and the potential liquidation of its property and assets,
the proposed amendment is desirable so that stockholders may be able to take
action without the expense and delay of a special stockholders' meeting. Section
228 of the DGCL provides that if stockholder action is taken by written consent,
prompt notice of such action shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting. Additionally, Regulation 14C of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires that
an information statement be mailed to stockholders of a publicly traded company
at least 20 days prior to the taking of any stockholder action by written
consent.
If approved by the stockholders, the proposed amendment will become
effective upon the filing of a Certificate of Amendment with the Secretary of
State of the State of Delaware amending the Company's Restated Certificate of
Incorporation by deleting Article Sixth in its entirety, which filing will be
made as soon as reasonably practicable after stockholder approval. Pursuant to
Article Ninth of the Company's Restated Certificate of Incorporation, approval
of this proposal requires the affirmative vote of the holders of at least 80% of
the shares of voting stock present, in person or by proxy, at the Annual
Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION AS DESCRIBED IN PROPOSAL NO. 3
16
<PAGE> 19
PROPOSAL NO. 4: APPROVAL OF PLAN OF LIQUIDATION AND DISSOLUTION
GENERAL
The Board of Directors is proposing the Plan for approval by the
stockholders at the Annual Meeting. The Plan was adopted by the Board of
Directors, subject to stockholder approval, on November 11, 1998. A copy of the
Plan is attached as Exhibit A to this Proxy Statement. Certain material features
of the Plan are summarized below, which summary does not purport to be complete
and which is subject in all respects to the provisions of, and which is
qualified in its entirety by reference to, the Plan. STOCKHOLDERS ARE URGED TO
READ THE PLAN IN ITS ENTIRETY.
On November 11, 1998, the Board of Directors authorized, subject to
stockholder approval, the orderly liquidation of the Company's assets pursuant
to the Plan. The Plan provides that, if the requisite stockholder approval is
received (such time of approval deemed the "Effective Date"), the officers and
directors of the Company will initiate the complete liquidation and subsequent
dissolution of the Company. After the Effective Date, OIS will not engage in any
business activities except for the purpose of preserving the value of its
assets, prosecuting and defending suits by or against OIS, adjusting and winding
up its business and affairs, selling and liquidating its properties and assets,
including its intellectual property and other intangible assets, paying its
creditors and making distributions to stockholders, if any, in accordance with
the Plan. Once the liquidation of OIS's property and assets is substantially
completed, or at such earlier time as determined by the Board of Directors, the
officers of the Company will promptly execute and file a certificate of
dissolution with the Secretary of State of the State of Delaware. Because of the
existing debt and other obligations of OIS, OIS does not believe that its common
stockholders will receive any proceeds from a liquidation.
The following resolution will be offered at the Annual Meeting:
"RESOLVED, that the Plan of Liquidation and Dissolution recommended by
the Board of Directors be authorized and approved."
BACKGROUND AND REASONS FOR THE PLAN; DIRECTORS' RECOMMENDATION
In recent years, OIS's operating losses have averaged approximately
$3.0 million per month. Although revenues increased significantly during each of
the last three years, OIS's operating results for each such fiscal year
continued to reflect substantial operating losses. Due to these ongoing losses,
the Company has required constant infusions of significant amounts of additional
capital to support its operations. The Company's primary source of funding in
recent years has been Guardian.
In the spring of 1997, OIS and Guardian jointly undertook a review to
assess the financial viability of OIS and to develop a long term strategy for
OIS. With the continued support and involvement of the Board of Directors,
management retained two major independent consulting firms; the first to review
the Company's principal market for active matrix liquid crystal displays
("AMLCDs"), which was the military and commercial avionics market, and the other
to analyze the emerging x-ray imaging market. The result of each review,
conducted over several months, was that the avionics market would not be
sufficient to sustain financial viability for at least two to three years, if at
all, and that, while the x-ray imaging market appeared to be quite large in the
future, it would not completely materialize for at least five to seven years, if
at all. Therefore, the conclusion was that OIS would not be financially viable
as a stand alone company for at least several years until these markets
developed, if such markets were to develop at all.
Since it was evident that OIS could not be more fully financially
independent for at least several years, a decision was reached by the Board of
Directors in December 1997 to launch a full scale effort to locate an investment
partner that would have a strategic interest in OIS's success and the ability to
bring significant value to the business. OIS and the Board of Directors, with
the encouragement and cooperation of Guardian, continued to explore a full range
of strategic alternatives throughout the remainder of 1998. In February 1998,
OIS retained an investment banking firm to assist in this effort. During this
process numerous companies in the avionics and electronics industries, among
others, were contacted and presented information about OIS regarding potential
interest in an investment in OIS. During the summer and early fall of 1998, OIS
also attempted to interest a group of its key customers in taking control of the
Company. However, by early September 1998, it was evident that there were no
prospective partners or investors interested in pursuing a strategic investment
in the Company.
In light of the Company's continued losses and failure of its efforts
to locate an investment alternative, Guardian informed management and the Board
of Directors that it would not make further investments in the Company. As a
result
17
<PAGE> 20
of these developments, effective as of September 18, 1998, OIS ceased
manufacturing operations in its Northville facility in accordance with a plant
shutdown plan approved by the Board of Directors at a special meeting of the
Board on September 13, 1998. Since September 18, 1998, OIS has not conducted
significant operations. Accordingly, the Company anticipates that it will
generate little or no future revenues, except in connection with a liquidation
of its assets.
On September 28, 1998, the U.S. Department of Commerce (the "Department
of Commerce") issued a directive to the Company requiring that it continue to
produce and deliver AMLCDs pursuant to certain customer contracts related to
products made in connection with certain U.S. defense programs. The Company
submitted a response to the directive in which it questioned many of the factual
and legal premises of the directive, including the authority of the Department
of Commerce to issue the directive and the practical feasibility of implementing
it. As a result of discussions between the parties, the Department of Commerce
and the Company entered into a standstill agreement originally effective from
October 14, 1998, through November 14, 1998 (the "Standstill Agreement"), which
was extended to November 18, 1998 by the mutual agreement of the parties. During
the term of the Standstill Agreement, the Department of Commerce agreed that it
would not initiate action to enforce the directive, and the Company agreed that
it would not sell its Northville facility or certain finished goods and
work-in-process inventory without the consent of the Department of Commerce. The
Department of Commerce has not sought to enforce the directive, and the Company
is not aware of any plans by the Department of Commerce to seek enforcement of
the directive. However, if the Department of Commerce does seek to enforce the
directive, the Company intends to advance all factually and legally supported
positions in opposition to the directive. Successful enforcement of the
directive could have a material adverse effect on the Company's ability to
conduct an orderly liquidation of its assets.
Although Guardian will not make any additional investments in OIS, OIS
anticipates that funds received under a tax sharing agreement entered into with
Guardian (the "Tax Sharing Agreement") and through the disposition of its
assets, including its intellectual property and other intangible assets, will be
sufficient to allow OIS to implement the shutdown plan and pay its debts as they
become due. Because of the existing debt and other obligations of OIS, OIS does
not believe that its common stockholders will receive any proceeds from a
liquidation.
Considering the foregoing, the Board of Directors determined that it
was in the best interest of the stockholders of the Company for the Company to
be liquidated.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE PLAN AS DESCRIBED IN PROPOSAL NO. 4
THIS PROXY STATEMENT CONTAINS STATEMENTS THAT ARE NOT BASED ON
HISTORICAL FACT AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. AMONG OTHER THINGS, THEY
REGARD THE COMPANY'S LIQUIDITY, FINANCIAL CONDITION, OPERATIONAL MATTERS,
CERTAIN STRATEGIC INITIATIVES AND ALTERNATIVES AND THEIR POTENTIAL OUTCOMES AND
THE POTENTIAL VALUE OF THE COMPANY'S PROPERTY AND ASSETS. WORDS OR PHRASES
DENOTING THE ANTICIPATED RESULTS OF FUTURE EVENTS, SUCH AS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECTS," "MAY," "NOT CONSIDERED LIKELY," "ARE EXPECTED
TO," "WILL CONTINUE," "PROJECT," AND SIMILAR EXPRESSIONS THAT DENOTE UNCERTAINTY
ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE METHODS USED BY
THE BOARD OF DIRECTORS AND MANAGEMENT IN ESTIMATING THE VALUE OF THE COMPANY'S
PROPERTY AND ASSETS DO NOT RESULT IN AN EXACT DETERMINATION OF VALUE NOR ARE
THEY INTENDED TO INDICATE THE AMOUNT, IF ANY, A STOCKHOLDER MAY RECEIVE IN
LIQUIDATION. THE PRICES AT WHICH THE COMPANY WILL BE ABLE TO SELL ITS PROPERTY
AND ASSETS DEPEND LARGELY ON FACTORS BEYOND THE COMPANY'S CONTROL, INCLUDING,
WITHOUT LIMITATION, THE RATE OF INFLATION, CHANGES IN INTEREST RATES, THE
CONDITION OF REAL ESTATE AND FINANCIAL MARKETS, THE ABILITY OF PROSPECTIVE
PURCHASERS TO ADOPT AND PRACTICE THE COMPANY'S TECHNOLOGY AND INTELLECTUAL
PROPERTY AND THE AVAILABILITY OF FINANCING TO PROSPECTIVE PURCHASERS.
If the Plan is not approved by the stockholders, the Board of Directors
will explore the alternatives then available for the future of the Company.
18
<PAGE> 21
PRINCIPAL PROVISIONS OF THE PLAN
Cessation of Business Activities
Pursuant to the Plan, after the Effective Date, the Company shall not
engage in any business activities except for the purpose of preserving the value
of its assets, prosecuting and defending suits by or against it, adjusting and
winding up its business and affairs, selling and liquidating its properties and
assets and making distributions to stockholders, if any, in accordance with the
Plan.
Liquidation of Assets
Prior to the date the Company is dissolved, as provided for in the
Plan, the Company will sell, transfer, or otherwise dispose of all of its
property and assets, including its intellectual property and other intangible
assets, to the extent, for such consideration and upon such terms and conditions
as the Board of Directors deems expedient and in the best interests of the
Company, its creditors and stockholders, without the requirement of further vote
or action by the Company's stockholders. The Company's assets and properties may
be sold in bulk to one buyer or a small number of buyers or on a piecemeal basis
to numerous buyers. The Company will not be required to obtain appraisals or
other third party opinions as to the value of its properties and assets in
connection with the liquidation. As part of the liquidation of its property and
assets, the Company will collect, or make provision for the collection of, all
accounts receivable, debts and claims owing to the Company. Following the
dissolution of the Company, any assets remaining available for distribution to
holders of the Common Stock will be distributed only in accordance with the
provisions of the DGCL.
Payment of Debts
Prior to making any distributions to the Company's stockholders, if
any, the Company shall pay, or as determined by the Board of Directors, make
reasonable provision to pay, all its claims and obligations, including all
contingent, conditional or unmatured claims known to the Company. Following the
Effective Date, the Board of Directors may establish a contingency reserve (the
"Contingency Reserve") and set aside into the Contingency Reserve such amounts
of cash or property of the Company as the Board of Directors, in its discretion,
determines is sufficient to account for unknown events, claims, contingencies
and expenses incurred in connection with the collection and defense of the
Company's property and assets and the liquidation and dissolution provided for
in the Plan. Following the payment, satisfaction or other resolution of all such
events, claims, contingencies and expenses, any amounts remaining in the
Contingency Reserve shall be distributed in accordance with the Plan.
Preferred Stock; Liquidation Preference
Prior to making any distribution to the holders of the Common Stock, if
any, the Company shall, to the extent that sufficient funds are available,
satisfy in full the Liquidation Preference of the Company's Series B Preferred,
all of which is currently held by GDIC. In the event that the Company lacks
sufficient funds to pay the Liquidation Preference in full, it shall distribute
to GDIC all of its remaining property and assets, if any, in satisfaction of the
Liquidation Preference.
Distributions to Common Stockholders
Following the payment or the provision for the payment of the Company's
claims and obligations and the payment in full of the Liquidation Preference,
the Company will distribute pro rata to the holders of the Common Stock all of
its remaining property and assets, if any, in one or a series of distributions.
Because of its existing debt and other obligations, the Company does not believe
its common stockholders will receive any proceeds from a liquidation.
Certificate of Dissolution
Once the liquidation of the Company's property and assets is
substantially completed (as determined by the Board of Directors) or such
earlier time as the Board of Directors determines, in its discretion, to be
appropriate, the officers of the Company will execute and file with the
Secretary of State of the State of Delaware, a certificate of dissolution
conforming to the requirements of Section 275 of the DGCL (the "Certificate of
Dissolution"). From and after the date such documents are accepted by the
Secretary of State of the State of Delaware, the Company will be deemed to be
completely dissolved, but will continue to exist under Delaware law for the
purposes of paying, satisfying and discharging any existing debts or
obligations, collecting and distributing its assets, and doing all other acts
required to liquidate and wind up the Company's business affairs. The members of
the Board of Directors in office at the time
19
<PAGE> 22
the Certificate of Dissolution is accepted for filing by the Secretary of State
of the State of Delaware will have all powers provided to them under the DGCL
and other applicable law.
Powers of Board and Officers
The Board of Directors and the officers of the Company are authorized
to approve such changes to the terms of any of the transactions referred to in
the Plan, to interpret any of the provisions of the Plan, and to make, execute
and deliver such other agreements, conveyances, assignments, transfers,
certificates and other documents and take such other action as the Board of
Directors and the officers of the Company deem necessary or desirable in order
to carry out the provisions of the Plan and effect the complete liquidation and
dissolution of the Company in accordance with the DGCL and any rules and
regulations of the Securities and Exchange Commission or any state securities
commission.
Cancellation of Stock
The distributions to the Company's stockholders pursuant to the Plan,
if any, will be in complete redemption and cancellation of all of the
outstanding Common Stock and Series B Preferred. As a condition to any
disbursement under the Plan made after the filing of the Certificate of
Dissolution (the "Dissolution Distribution"), the Board of Directors may require
stockholders to surrender their certificates evidencing stock to the Company or
its agent for cancellation. If a stockholder's certificate for shares of Common
Stock or Series B Preferred has been lost, stolen or destroyed, such stockholder
may be required, as a condition to the disbursement of any distribution under
the Plan, to furnish to the Company satisfactory evidence of the loss, theft or
destruction thereof, together with a surety bond or other security or indemnity
reasonably satisfactory to the Company.
Record Date and Restrictions on Transfer of Shares
The Company will close its stock transfer books and discontinue
recording transfers of Common Stock and Series B Preferred at the close of
business on the record date fixed by the Board for the Dissolution Distribution
(the "Record Date"), and thereafter, certificates representing the Common Stock
and Series B Preferred shall not be assignable or transferable on the books of
the Company except by will, intestate succession or operation of law. The
proportionate interests of all of the stockholders of the Company shall be fixed
on the basis of their respective stock holdings at the close of business on the
Record Date, and, after the Record Date, any distributions made by the Company
shall be made solely to the stockholders of record at the close of business on
the Record Date, except as may be necessary to reflect subsequent transfers
recorded on the books of the Company as a result of any assignments by will,
intestate succession or operation of law.
Liquidating Trust
If advisable for any reason to complete the liquidation and
distribution, if any, of the Company's assets to its stockholders, the Board of
Directors may at any time transfer to a liquidating trust (the "Liquidating
Trust") the remaining assets of the Company. The Liquidating Trust thereupon
will succeed to all of the then remaining assets of the Company, including all
amounts in the Contingency Reserve, and any remaining liabilities and
obligations of the Company. The sole purpose of the Liquidating Trust will be to
prosecute and defend suits by or against the Company, to settle and close the
business of the Company, to dispose of and convey the assets of the Company, to
satisfy the remaining liabilities and obligations of the Company and to
distribute the remaining assets of the Company, if any, to its stockholders. Any
distributions made from the Liquidating Trust will be made in accordance with
the provisions of the Plan. The Board of Directors may appoint one or more
individuals or corporate persons to act as trustee or trustees of the
Liquidating Trust and to cause the Company to enter into a liquidating trust
agreement with such trustee or trustees on such terms and conditions as the
Board of Directors determines. Approval of the Plan by the stockholders also
will constitute the approval by the stockholders of any appointment of the
trustees and of the liquidating trust agreement between the Company and such
trustees.
Compensation
The Company may pay to the Company's officers, directors, employees and
agents, or any of them, compensation for services rendered in connection with
the implementation of the Plan. Further, if deemed advisable by the Board of
Directors, the Company may pay a "wind-down" consultant reasonable compensation
for services rendered in connection with the liquidation and dissolution of the
Company. Approval of the Plan by the stockholders of the Company will constitute
the approval of the stockholders of the payment of any such compensation
referred to above.
20
<PAGE> 23
Indemnification
The Company shall continue to indemnify its officers, directors,
employees and agents in accordance with its Restated Certificate of
Incorporation, bylaws and any contractual arrangements as therein or elsewhere
provided, and such indemnification shall apply to acts or omissions of such
persons in connection with the implementation of the Plan and the winding up of
the affairs of the Company. The Company's obligation to indemnify such persons
may be satisfied out of the Contingency Reserve or out of assets transferred to
the Liquidating Trust, if any. The Board of Directors and the trustees of any
Liquidating Trust are authorized to obtain and maintain insurance as may be
necessary to cover the Company's indemnification obligations.
Contingencies; Creditors
Under the DGCL, in the event the Company fails to create an adequate
Contingency Reserve for payment of its expenses and liabilities, or should such
Contingency Reserve and the assets held by the Liquidating Trust be exceeded by
the amount ultimately found payable in respect of expenses and liabilities, each
stockholder could be held liable for the payment to creditors of such
stockholder's pro rata share of such excess, limited to the amounts theretofore
received by such stockholder from the Company or from the liquidating trust or
trusts.
If the Company were held by a court to have failed to make adequate
provision for its expenses and liabilities or if the amount ultimately required
to be paid in respect of such liabilities exceeded the amount available from the
Contingency Reserve and the assets of the liquidating trust or trusts, a
creditor of the Company could seek an injunction against the making of
distributions under the Plan on the ground that the amounts to be distributed
were needed to provide for the payment of the Company's expenses and
liabilities. Any such action could delay or substantially diminish the
distributions, if any, to be made to stockholders and/or interest holders under
the Plan.
LISTING AND TRADING OF THE COMMON STOCK AND INTERESTS IN THE LIQUIDATING TRUST
The Company currently intends to close its stock transfer books on the
Record Date and at such time cease recording stock transfers and issuing stock
certificates (other than replacement certificates). Accordingly, it is expected
that trading in the shares will cease on and after such date.
It is anticipated that the interests in the Liquidating Trust, if one
is created, will not be transferable, although no determination has yet been
made. Such determination will be made by the Board of Directors and management
prior to the transfer of unsold assets to the Liquidating Trust and will be
based on, among other things, the Board of Directors and management's estimate
of the value of the assets being transferred to the Liquidating Trust, tax
matters and the impact of compliance with applicable securities laws. Should the
interests be transferable, the Company plans to distribute an information
statement with respect to the Liquidating Trust at the time of the transfer of
assets and the Liquidating Trust may be required to comply with the periodic
reporting and proxy requirements of the Exchange Act. The costs of compliance
with such requirements would reduce the amount which otherwise could be
distributed to interest holders. Even if transferable, the interests are not
expected to be listed on a national securities exchange or quoted through Nasdaq
and the extent of any trading market therein cannot be predicted. Moreover, the
interests may not be accepted by commercial lenders as security for loans as
readily as more conventional securities with established trading markets.
As stockholders will be deemed to have received a liquidating
distribution equal to their pro rata share of the value of the net assets
distributed to an entity which is treated as a liquidating trust for tax
purposes (see "Material Federal Income Tax Consequences-Liquidating Trust"), the
distribution of non-transferable interests could result in tax liability to the
interest holders without their being readily able to realize the value of such
interests to pay such taxes or otherwise.
ABSENCE OF APPRAISAL RIGHTS
Under the DGCL, the stockholders of the Company are not entitled to
appraisal rights or to any similar rights of dissenters for their shares of
Common Stock or Series B Preferred in connection with the approval or
consummation of the transactions contemplated by the Plan.
21
<PAGE> 24
REGULATION DURING LIQUIDATION
Except for compliance by the Company with the applicable rules and
regulations of the Securities and Exchange Commission, no United States federal
or state regulatory requirements must be complied with or approvals obtained in
connection with the liquidation.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is a general summary of the federal income tax
consequences that may result from the liquidation of the Company and the
distribution of its assets to its stockholders pursuant to the Plan in
accordance with the provisions of the Internal Revenue Code as currently in
force. This summary does not discuss all aspects of federal income taxation that
may be relevant to a particular stockholder or to certain types of persons
subject to special treatment under federal income tax laws (for example, life
insurance companies, tax-exempt organizations or financial institutions) and
does not discuss any aspects of state, local or foreign tax laws that may apply
to a particular stockholder. Because distributions, if any, pursuant to the Plan
may occur at various times and in more than one tax year, no assurances can be
given that the tax treatment described herein will continue to apply unchanged
at the time of later distributions. Stockholders are urged to consult their
personal tax advisors as to their own tax situation.
CONSEQUENCES TO THE COMPANY
After adoption of the Plan, the Company will continue to be subject to
federal income tax on its income until it completes the distribution of all of
its cash and other properties to stockholders or liquidating trusts. The Company
may recognize income with respect to any discharge of indebtedness by its
creditors.
CONSEQUENCES TO STOCKHOLDERS
If the Company's assets are insufficient to permit it to make
liquidating distributions with respect to its outstanding Common Stock, each
stockholder may be entitled to claim a loss to the extent of that stockholder's
tax basis at the time it becomes certain that no such distributions will be
made. Provided the stockholder holds the shares of Common Stock as capital
assets, the loss will be a capital loss limited to each stockholder's basis in
the Common Stock and will be long-term if the stockholder's holding period for
such shares of Common Stock is more than one year, and short-term if such
holding period is one year or less.
If the Company makes liquidating distributions with respect to its
outstanding Common Stock, each stockholder other than GDIC may recognize gain or
loss equal to the difference between (i) the sum of the amount of cash
distributed to such stockholder, and (ii) the stockholder's tax basis in his or
her shares of Common Stock. Provided the stockholder holds the shares of Common
Stock as capital assets, gain or loss recognized by a stockholder will be
capital gain or loss and will be long-term if the stockholder's holding period
for the shares of Common Stock is more than one year, and short-term if such
holding period is one year or less. On receipt of liquidating distributions from
the Company, GDIC may not recognize gain or loss.
A stockholder's gain or loss will be computed on a "per share" basis.
Each stockholder must allocate liquidating distributions from the Company, if
any, equally to each share of Common Stock and compare the allocated portion of
each liquidating distribution with the stockholder's tax basis in each such
share. Because it is likely that any liquidating distributions will be paid in
installments, each stockholder must first recover the stockholder's tax basis in
each share before recognizing any gain or loss. Thus, each stockholder may
recognize gain on an installment only to the extent that the aggregate value of
the installment, and all prior installments the stockholder received with
respect to any share of Common Stock, exceeds the tax basis in that share, and
may recognize a loss with respect to any share of Common Stock only when the
stockholder has received the final installment and the aggregate value of all
liquidating distributions from the Company with respect to that share of Common
Stock is less than the stockholder's tax basis in such share.
22
<PAGE> 25
LIQUIDATING TRUST
If the Company transfers its assets to a Liquidating Trust, the
stockholders may be treated for tax purposes as having received their pro rata
share of those Company assets when the transfer occurs. The amount of the
taxable distribution to the stockholders on the transfer of the Company's assets
to the Liquidating Trust would be reduced by the amount of the Company's known
liabilities which the Liquidating Trust assumes or to which such transferred
assets are subject. The Liquidating Trust itself generally will not be subject
to tax. After the formation of the Liquidating Trust, each stockholder would
take into account for federal income tax purposes the stockholder's allocable
portion of any income, gain, deduction or loss which the Liquidating Trust
recognizes. Distributions by the Liquidating Trust to the stockholders may not
be taxable to them. Each stockholder may become liable for tax as a result of
the ongoing operations of the Liquidating Trust, even if the Liquidating Trust
has not made any actual distributions to stockholders.
TAXATION OF NON-UNITED STATES STOCKHOLDERS
Foreign corporations or persons who are not citizens or residents of
the United States should consult their tax advisors with respect to the U.S. and
non-U.S. tax consequences of the Plan.
State and Local Tax
Stockholders may also be subject to state or local taxes, and should
consult their tax advisors with respect to the state and local tax consequences
of the Plan.
THE FOREGOING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO
ANY STOCKHOLDER. THE TAX CONSEQUENCES OF THE PLAN MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDER. THE COMPANY RECOMMENDS THAT EACH
STOCKHOLDER CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
THE PLAN.
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
The Company's operating results for the first quarter of fiscal 1999
continued to reflect substantial operating losses. The Company's cost of sales
continued to exceed revenues due to the relatively high cost of sales driven by
the Company's overhead, scrap rates and depreciation expense for the period.
While the Company worked to improve production yields and volumes, the Company
was unable to increase its production and sales volumes enough to significantly
reduce the incremental cost of sales.
As disclosed in its recent reports, OIS, with the encouragement and
cooperation of Guardian, had been exploring a full range of strategic
alternatives throughout fiscal 1998. Guardian, through its majority-owned
subsidiary, GDIC, is the majority stockholder of the Company. In fiscal 1998,
OIS retained an investment banking firm and began seeking one or more investors
with a strategic interest in providing long term funding to OIS. During this
process numerous companies in the avionics and electronics industries, among
others, were contacted and presented with information about OIS. In August and
September 1998, OIS and Guardian also attempted to interest a group of OIS's key
customers in acquiring control of OIS. In September 1998, in light of the
Company's continued operating losses and the failure of this strategic
investment process, Guardian informed the Company that it would not make any
further investments in the Company. As a result of these developments, effective
as of September 18, 1998, OIS ceased manufacturing operations in its Northville
facility in accordance with a plant shutdown plan approved by the Board of
Directors. The Company did not conduct significant operations for the period
from September 18, 1998 to September 30, 1998. Accordingly, the Company
anticipates that it will generate little or no future revenues, except in
connection with the liquidation of its assets.
The Company is in violation of certain covenants contained in its
credit agreement with NBD Bank N.A. and Bank of America NT&SA. Certain of the
violations have been waived by the lending institutions but the lending
institutions have the right to demand the repayment of all amounts outstanding.
In addition, under the terms of the credit agreement the lending institutions
have the right to demand repayment of amounts due based on the lending
institutions' discretion as to whether a material adverse change has occurred in
the Company's business. It is probable that the Company will be unable to meet
the ongoing covenants in the credit agreement during fiscal 1999. The Company
believes that it will be able to obtain waivers of these violations as they
occur and that, if so, the lending institutions will not exercise their demand
rights.
On November 11, 1998, the Board of Directors authorized, subject to
stockholder approval, the orderly liquidation of the Company's assets pursuant
to the Plan. The Plan provides, in part, that, if the requisite stockholder
approval is received, the officers and directors of the Company will initiate
the complete liquidation and subsequent dissolution of the Company. After the
Effective Date, OIS will not engage in any business activities except for the
purpose of preserving the value of its assets, prosecuting and defending suits
by or against OIS, adjusting and winding up its business and affairs, selling
and liquidating its properties and assets, including its intellectual property
and other intangible assets, paying its creditors and making distributions, if
any, to stockholders in accordance with the Plan. Because of the existing debt
and other obligations of OIS, OIS does not believe that its common stockholders
will receive any proceeds from a liquidation. Once the liquidation of OIS's
property and assets is substantially completed, or at such earlier time as
determined by the Board of Directors, the officers of the Company will promptly
execute and file a certificate of dissolution with the Secretary of State of the
State of Delaware.
Although Guardian will not make any additional investments in OIS, OIS
anticipates that funds received under the Tax Sharing Agreement and through the
disposition of its assets will be sufficient to allow OIS to implement the
shutdown plan and liquidation and pay its debts as they become due.
24
<PAGE> 27
PERIOD FROM JULY 1, 1998 TO SEPTEMBER 18, 1998 AND THE
THREE MONTHS ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
Revenues
Total revenues for the period from July 1, 1998 to September 18, 1998
(the "Fiscal 1999 First Quarter Operating Period") of approximately $2.9 were
55% lower than total revenues for the same period in the preceding fiscal year
of approximately $6.5. This decrease was attributable to the cessation of
operations on September 18, 1998.
Revenue from the sale of displays and sensors for the Fiscal 1999 First
Quarter Operating Period of approximately $2.9 were 52% lower than revenues from
the sale of displays and sensors for the first quarter of fiscal 1998 of
approximately $6.1. As previously discussed, this decrease was partially
attributable to the cessation of manufacturing on September 18, 1998. As a
result of the shutdown, the Company was not able to obtain normal levels of
shipments during September 1998. Additionally, revenues for the first quarter of
fiscal 1997 were above average due to the fact that the Company was still trying
to fulfill the backlog of orders which existed during the end of calendar 1996
from operations during fiscal 1996.
The Company derived no revenues from engineering development agreements
during the Fiscal 1999 First Quarter Operating Period, a decrease of
approximately $384,179 in revenues from the first quarter of fiscal 1998. This
decrease was due to the Company's efforts to continue its strategy of pursuing
the sale of standard active matrix liquid crystal display and sensor products
and minimizing engineering work.
Cost of Sales
Cost of sales for the Fiscal 1999 First Quarter Operating Period of
approximately $7.4 million was 37% lower than cost of sales for the first
quarter of fiscal 1998 of $11.7 due to the lower revenues and the absence of
depreciation expense caused by the write down of assets on June 30, 1998 to net
realizable value. Cost of sales as a percentage of revenue increased
substantially to 251% for the first quarter of fiscal 1999 from 180% for the
same period in the preceding fiscal year. This increase was attributable to the
significant decrease in revenue due to the cessation of manufacturing on
September 18, 1998.
Direct labor and material for the Fiscal 1999 First Quarter Operating
Period decreased approximately $2.5 million when compared to the first quarter
of fiscal 1998. This decrease was due to the decreased plant activity. However,
direct material and direct labor, on a per unit basis, decreased approximately
8% during the Fiscal 1999 First Quarter Operating Period when compared to the
same period during fiscal 1998. This decrease was attributable mainly to higher
product yields along with improved manufacturing processes.
Overhead for the Fiscal 1999 First Quarter Operating Period decreased
approximately $181,000 when compared to the first quarter of fiscal 1998.
Processing chemical usage decreased substantially due to a combination of
improved processes, fewer experiments performed throughout the quarter and
twelve days of plant shutdown. Equipment uptime also improved, which resulted in
a decrease in repairs and maintenance costs.
Other Costs
The Company's operating expenses, which consist of internal research
and development and selling, general and administrative expenses, decreased
approximately $68,000 or 4% during the First 1999 First Quarter Operating Period
when compared to the first quarter of fiscal 1998. This decrease resulted
principally from the timing of expenses and not from any known trends.
Other income and expenses, which consist mainly of interest expense,
decreased approximately $10,000 or 1% during Fiscal 1999 First Quarter Operating
Period when compared to the same period during the preceding fiscal year.
Changes in Net Asset Deficiency
The change in net asset deficiency of approximately $1.0 million was
due to the accrual of estimated closure costs of approximately $3.8 million, net
of related tax benefit of approximately $1.8 million and the reversal of the
local
25
<PAGE> 28
government subsidy of approximately $2.8 million. Accrued closure costs
represent costs to be incurred by the Company in implementing the shutdown plan
approved by the Board of Directors and in preparing the Company's Northville
facility for sale. The Company has accrued all reasonably estimatable costs
directly associated with implementing the shutdown plan and in preparing for the
sale of its Northville facility. The accrual consists primarily of employee
payroll and severance costs, estimated operating expenses during the shutdown
and cost to cancel certain leases. The Company has not accrued costs which could
vary significantly based on the timing of the proposed liquidation or are not
reasonably estimatable. The most significant of these costs are interest and
legal expenses. This accrual represents the Company's estimate of anticipated
closure costs, however, actual costs incurred could differ materially from this
estimate. The local government subsidy had been amortized over 30 years. As the
Company has met all requirements of the local government subsidy, and will no
longer have any operations, it has been reversed as of September 18, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
On September 17, 1998, Guardian, the Company's principal source of
funding, informed OIS that, in light of the Company's continued operating losses
and the failure of the strategic investment process, Guardian would not make any
further investments in the Company to fund operations. As a result, effective
September 18, 1998, OIS ceased manufacturing operations in accordance with a
plant shutdown plan approved by its Board of Directors. The Company's cash and
cash equivalents at September 30, 1998 were $185,319.
The Board of Directors has, subject to stockholder approval, authorized
the orderly liquidation of the Company's assets pursuant to the Plan. Because of
the existing debt and other obligations of OIS, OIS does not believe that its
common stockholders will receive any proceeds from a liquidation. However, OIS
currently anticipates that funds received under the Tax Sharing Agreement and
through the disposition of its assets will be sufficient to allow OIS to
implement the shutdown plan and liquidation and pay its debts as they become
due.
While the Company's cash had decreased at September 30, 1998, to
approximately $0.2 million from approximately $1.1 million at June 30, 1998, the
Company expects to meet its obligations through collection of accounts
receivable, the sale of both finished and partially completed inventory on hand,
the sale of raw materials, supplies, fixtures, equipment and the facility and
amounts received under the Tax Sharing Agreement.
Capital Resources
As a result of the discontinuation of its operations, the Company's
sole source of funds will be from the disposition of the assets described above.
The Company has exhausted its $52.5 million commercial credit facility
with NBD Bank N.A. and Bank of America NT&SA. In addition, on March 30, 1998,
the Company granted those banks a first priority lien and security interest in
all tangible and intangible assets of the Company, including intellectual
property, to secure repayment of the commercial credit facility. The credit
agreement governing the commercial credit facility contains a number of
financial and other covenants. The Company is not currently in compliance with
all of the financial covenants contained in the credit agreement. Although the
banks have waived certain of these violations and have not declared a default
under the credit agreement, the banks have not provided waivers for all of these
violations. The banks have the right to demand repayment of amounts outstanding
as long as the Company has not cured the event of default or obtained a waiver
from the banks or, if in the banks discretion, a material adverse change has
occurred with respect to the Company's business. It is probable that the Company
will not be able to meet the ongoing covenants in its credit agreement during
fiscal 1999. If the Company is unable to meet these covenant requirements and is
unable to secure a waiver from the banks, the banks have the right to demand the
immediate repayment of amounts outstanding. Due to these violations, amounts
outstanding under the credit agreement have been classified as current in the
Company's balance sheet as of June 30, 1998. During fiscal 1998, the Company
repaid a total of $10.5 million of principal on its commercial credit facility,
of which $5.5 million was originally due on December 31, 1997, but the Company
obtained a waiver from the banks to delay such payment until January 30, 1998.
The Company funded these principal repayments through the receipt of a $6.0
million payment from Guardian on account of the Tax Sharing Agreement and the
sale of 4,500 shares of the Company's Series B Preferred, at a price of $1,000
per share to GDIC. On September 30, 1998 and December 31, 1998, the Company made
additional principal repayments of $2.75 million each which were funded through
receipt of a payment from Guardian under the Tax Sharing Agreement. The
commercial credit facility matures in December 1999, and quarterly principal
installments are due as follows: $3.38 million on each of March 31, 1999 and
June 30, 1999; $3.88 million on September 30, 1999; and $25.88 million on
December 31, 1999.
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<PAGE> 29
The Company's Annual Report on Form 10-K for the year ended June 30,
1998, which is being sent to the Company's stockholders with this Proxy
Statement in connection with the Annual Meeting, is incorporated herein by
reference. All information appearing in this Proxy Statement is qualified in its
entirety by the information and financial statements (including notes thereto)
appearing in the documents incorporated herein by reference. The financial
statements of the Company as of and for the three months ended September 30,
1998 are set forth herein, beginning on the following page.
27
<PAGE> 30
OIS OPTICAL IMAGING SYSTEMS, INC.
STATEMENT OF CHANGES IN
NET ASSETS (LIQUIDATION BASIS)
FOR THE PERIOD FROM JUNE 30, 1998 TO SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<S> <C>
Stockholders' deficit at June 30, 1998 (going concern
historical cost basis) $(11,339,920)
Net loss from operations for the period from July 1, 1998 to
September 18, 1998 (4,624,961)
Change in deferred compensation from July 1, 1998 to September 18, 1998 248,012
---------------
Stockholders' deficit at September 18, 1998 (going concern historical
cost basis) (15,716,869)
Accrual of estimated closure costs anticipated from discontinuance of
manufacturing operations on September 18, 1998, net of Tax Benefit
of $1,826,000 (3,802,234)
Reversal of local government subsidy due to discontinuance of manufacturing
operations on September 18, 1998 2,775,000
---------------
Net asset deficiency at September 30, 1998 $(16,744,103)
=============
</TABLE>
28
<PAGE> 31
OIS OPTICAL IMAGING SYSTEMS, INC.
STATEMENTS OF OPERATIONS (GOING CONCERN BASIS)
(Unaudited)
<TABLE>
<CAPTION>
For the Period from
July 1, 1998 through Three Months Ended
September 18, 1998 September 30, 1997
<S> <C> <C>
REVENUES
Display revenue $ 2,541,638 $ 5,471,532
Engineering revenue -- 384,179
Sensor and other revenue 394,405 623,017
------- -------
TOTAL REVENUES 2,936,043 6,478,728
COST OF SALES
Display 5,936,692 10,170,131
Engineering -- 858,467
Sensor and other 1,419,069 659,743
--------- -------
TOTAL COST OF SALES 7,355,761 11,688,341
GROSS LOSS (4,419,718) (5,209,613)
OPERATING EXPENSES
Internal research and development 351,491 365,067
Selling, general and administrative 1,417,780 1,472,228
--------- ---------
TOTAL OPERATING EXPENSES 1,769,271 1,837,295
OPERATING LOSS (6,188,989) (7,046,908)
OTHER INCOME (EXPENSE)
Interest expense (1,093,430) (1,098,926)
Interest income 6,158 9,279
Licensing and royalties 120,000 77,204
Other 25,300 60,700
------ ------
TOTAL OTHER INCOME (EXPENSE) (941,972) (951,743)
--------- ---------
Loss before Income Tax benefit $(7,130,961) $(7,998,651)
Income Tax benefit 2,506,000 2,801,000
--------- ---------
NET LOSS $(4,624,961) $(5,197,651)
------------ ------------
Preferred stock dividends 1,837,721 1,484,845
--------- ---------
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS $(6,462,682) $(6,682,496)
============ ============
NET LOSS PER COMMON SHARE (Note B) $(.07) $(.07)
=========== ============
</TABLE>
See notes to financial statements.
29
<PAGE> 32
OIS OPTICAL IMAGING SYSTEMS, INC.
STATEMENT OF NET ASSETS (LIQUIDATION BASIS)
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1998
<S> <C>
ASSETS
Cash and cash equivalents $ 185,319
Accounts receivable 2,681,848
Inventory 9,311,727
Prepaid assets 860,172
Property and equipment 21,000,000
Deferred income taxes 8,826,000
------------
TOTAL ASSETS 42,865,066
------------
LIABILITIES
Accounts payable 353,514
Accrued liabilities 479,581
Accrued interest 1,080,468
Accrued closure costs 5,216,000
Income taxes payable to affiliate 1,229,606
Bank debt (not revalued to liquidation value) 39,250,000
Subordinated note payable to affiliate (not revalued to
liquidation value) 12,000,000
------------
TOTAL LIABILITIES 59,609,169
------------
NET ASSET DEFICIENCY $(16,744,103)
============
</TABLE>
See notes to financial statements.
30
<PAGE> 33
OIS OPTICAL IMAGING SYSTEMS, INC.
BALANCE SHEET
ASSETS
(GOING CONCERN BASIS)
<TABLE>
<CAPTION>
June 30,1998
------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,078,567
Accounts receivable
(Net of reserve for doubtful accounts of
$60,000) 4,040,661
Inventories 9,411,086
Income tax receivable from affiliate 5,100,756
Prepaid expenses and other current assets 771,105
-----------
TOTAL CURRENT ASSETS 20,402,175
PROPERTY AND EQUIPMENT
Land 3,000,000
Building 11,100,000
Machinery and other equipment 6,900,000
-----------
TOTAL PROPERTY AND EQUIPMENT 21,000,000
Less accumulated depreciation --
TOTAL PROPERTY AND EQUIPMENT, NET 21,000,000
-----------
DEFERRED INCOME TAXES 7,000,000
-----------
TOTAL ASSETS $48,402,175
===========
</TABLE>
See notes to financial statements.
31
<PAGE> 34
OIS OPTICAL IMAGING SYSTEMS, INC.
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' DEFICIT
(GOING CONCERN BASIS)
<TABLE>
<CAPTION>
June 30,1998
------------
<S> <C>
CURRENT LIABILITIES
Subordinated note payable to affiliate $12,000,000
Current installment on long-term debt 42,000,000
Accounts payable 1,569,244
Accrued interest 997,129
Other accrued liabilities 375,722
------------
TOTAL CURRENT LIABILITIES 56,942,095
2,800,000
------------
LOCAL GOVERNMENT SUBSIDY
TOTAL LIABILITIES 59,742,095
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred Stock, par value $0.01 per share:
Series B, 8% cumulative, non-convertible and voting
Authorized - 100,000 shares
91,137 issued and outstanding 911
Common Stock, par value $0.01 per share:
Authorized - 125,000,000 shares
97,468,429 issued and outstanding 974,684
Additional paid-in capital 159,581,155
Accumulated deficit (171,458,726)
Deferred compensation (437,944)
------------
TOTAL STOCKHOLDERS' DEFICIT (11,339,920)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $48,402,175
============
</TABLE>
See notes to financial statements.
32
<PAGE> 35
OIS OPTICAL IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(GOING CONCERN BASIS)
(Unaudited)
<TABLE>
<CAPTION>
For the Period from
July 1, 1998 through Three Months Ended
September 18, 1998 September 30, 1997
--------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,624,961) $(5,197,651)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of local government subsidy (25,000) 1,550,000
Deferred compensation expense 248,012 246,666
Impact on cash flows from changes in assets and liabilities:
Receivables 6,349,574 (21,066)
Prepaid expenses and other assets (176,722) (120,301)
Inventory 99,359 (725,322)
Accounts payable and accrued liabilities 201,074 (81,367)
Deferred revenues (112,204)
-----------
NET CASH PROVIDED BY (USED IN) OPERATING 2,071,336 (4,461,245)
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (214,584) (352,863)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (214,584) (352,863)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long term debt (2,750,000)
Net proceeds from issuance of debt and notes 6,000,000
-----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (2,750,000) 6,000,000
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (893,248) 1,185,892
NET CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,078,567 960,042
----------- -----------
NET CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 185,319 $ 2,145,934
=========== ===========
</TABLE>
See notes to financial statements.
33
<PAGE> 36
OIS OPTICAL IMAGING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(GOING CONCERN BASIS)
(Unaudited)
<TABLE>
<CAPTION>
For the Period from
July 1, 1998 through Three Months Ended
September 18, 1998 September 30, 1997
-------------------- ------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $1,010,091 $1,309,631
</TABLE>
Cash equivalents:
Cash equivalents consist of investments in short-term, highly-liquid
securities having maturity of three months or less, made as a part of OIS'
cash management activity.
SUPPLEMENTAL SCHEDULE OF NONCASH
TRANSACTIONS:
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997
------------------------------------
<S> <C>
Adjust deferred compensation $146,470
</TABLE>
See statements of cash flows.
34
<PAGE> 37
OIS OPTICAL IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE A - Financial Statements Presentation
The condensed financial statements included herein have been prepared
by OIS without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest annual
report on Form 10-K. On September 18, 1998 the Company changed its basis of
accounting from the going concern historical cost basis to the liquidation basis
of accounting. The primary differences between these methods are discussed
below.
During fiscal 1998, the Company, with the encouragement and cooperation
of Guardian, had been exploring a full range of strategic alternatives.
Guardian, through its majority-owned subsidiary, GDIC, is the Company's majority
stockholder. In fiscal 1998, the Company retained an investment banking firm
and began seeking one or more investors with a strategic interest in providing
long term funding to the Company. The results of this search were not successful
in securing additional financing or a buyer for the Company. In September 1998,
in light of the Company's continued operating losses and the failure of this
strategic investment process, Guardian informed the Company that it would not
make any further investments in the Company. As a result of these developments
effective September 18, 1998, the Company ceased manufacturing operations at its
Northville facility in accordance with a plant shutdown plan approved by its
Board of Directors. During the period immediately preceding the shutdown, the
Company canceled substantially all of its outstanding contracts. Subsequent to
the shutdown, the Company laid off substantially all of its employees.
On September 28, 1998, the Department of Commerce issued a directive to
the Company requiring that it continue to produce and deliver AMLCDs pursuant to
certain contracts between the Company and certain of its customers which were
allegedly subject to, and rated under, the Defense Priorities and Allocations
System ("DPAS") regulations (15 C.F.R. Part 700), which regulations govern the
performance of certain contracts for the supply of goods in connection with U.S.
defense programs. In response to the directive, the Company advised the
Department of Commerce that the Company believes the Department of Commerce's
directive is not authorized by applicable law and is based on incorrect factual
premises, particularly concerning the existence of any remaining obligations
under any DPAS rated contracts. In addition, the Company believes that, given
its present financial difficulties and its reduction of employees at its
Northville manufacturing facility, compliance with the Department of Commerce's
directive would not be in the best interests of its creditors and stockholders.
As a result of discussions between the parties, the Department of Commerce and
the Company entered into the Standstill Agreement originally effective from
October 14, 1998, through November 14, 1998, which was extended to November 18,
1998 by the mutual agreement of the parties. During the term of the Standstill
Agreement, the Department of Commerce agreed that it would not initiate action
to enforce the directive, and the Company agreed that it would not sell the
Northville facility or certain finished goods and work-in-process inventory
without the consent of the Department of Commerce. The Company is not aware of
any plans by the Department of Commerce to seek enforcement of the directive
after the term of the Standstill Agreement. However, if the Department of
Commerce seeks to enforce the directive, the Company intends to advance all
factually and legally supported positions in opposition to the directive.
Successful enforcement of the directive could have a material adverse effect on
the Company's ability to conduct an orderly liquidation of its assets.
The Company is in violation of certain covenants contained in its
credit agreement with NBD Bank N.A. and Bank of America (NT&SA). Certain of the
violations have been waived by the lending institutions but the lending
institutions have the right to demand the repayment of all amounts outstanding.
In addition, under the terms of the credit agreement the lending institutions
have the right to demand repayment of amounts due based on the lending
institutions' discretion as to whether a material adverse change has occurred in
the Company's business. It is probable that the Company will be unable to meet
the ongoing covenants in the credit agreement during fiscal 1999. Management
anticipates that the Company will be able to obtain waivers of these violations
as they occur and that the lending institutions will not exercise their demand
rights.
Since October 9, 1998, several of the Company's former customers have
initiated claims against the Company in Michigan state court seeking damages for
breach of contract. In addition, certain of these customers sought
35
<PAGE> 38
preliminary injunctive relief directing the Company to continue manufacturing
operations. After a hearing on October 16, 1998 concerning the preliminary
injunction, the court declined to order the Company to resume manufacturing
operations or to take any steps to complete any work-in-process but did order
the Company to deliver certain finished goods to these former customers and to
refrain from selling certain work-in-process inventory to third parties. The
Company has complied with the court order. The Company is in the process of
completing the filing of its answers to the complaints relating to the foregoing
actions. The Company believes that it has valid defenses to all such litigation
pending against it and intends to vigorously defend the claims. The Company does
not expect that the court order or the pending litigation will have a materially
adverse effect on the Company's ability to conduct an orderly liquidation of its
assets in the future. While the Company is unable to make a meaningful estimate
of the amount or range of loss that could result from an unfavorable outcome of
this litigation, the Company believes that, regardless of the outcome of this
litigation, its common stockholders will not receive any proceeds from a
liquidation of the Company.
On November 11, 1998, the Board of Directors, subject to the approval
of the Company's stockholders, authorized the orderly liquidation of the
Company's assets pursuant to the Plan. Due to the existing debt and other
obligations of the Company, management does not believe that the common
stockholders of the Company will receive any proceeds from the liquidation.
Although Guardian will not make any additional investments in the
Company, the Company anticipates that funds received under the Tax Sharing
Agreement and through the disposition of its assets will be sufficient to allow
the Company to implement the shutdown plan and pay its debts as they become due.
As a result of the contemplated liquidation discussed above, the
Company changed its method of accounting from the going concern historical cost
basis to the liquidation basis of accounting effective September 18, 1998. The
going concern historical cost basis of accounting contemplates the realization
of assets and liabilities in the ordinary course of business. The liquidation
basis of accounting requires that assets and liabilities be valued at their
estimated liquidation value. Assets and liabilities which have not been revalued
to liquidation value are disclosed as such on the face of the financial
statements. The primary financial statements required under the liquidation
basis of accounting are a Statement of Net Assets (Deficiency) and a Statement
of Changes in Net Assets (Deficiency). The Company's accounting policies under
the liquidation basis of accounting which differ from those under the going
concern basis of accounting are discussed in Note B.
In the opinion of the Company, the accompanying unaudited condensed
financial statements include all adjustments required to present fairly its net
assets as of September 30, 1998 (liquidation basis), changes in net assets from
June 30, 1998 to September 30, 1998 (liquidation basis), the results of
operations from July 1, 1998 to September 18, 1998 (going concern basis) and for
the three months ended September 30, 1997 (going concern basis) and cash flows
for the period from July 1, 1998 to September 18, 1998 (going concern basis) and
for the three months ended September 30, 1997 (going concern basis).
NOTE B - Significant Liquidation Basis of Accounting Policies
Accounts Receivable - Since the cessation of manufacturing operations
on September 18, 1998, the Company has put all customers on a cash on delivery
basis.
Accrued Closure Costs - Accrued Closure Costs represent costs to be
incurred by the Company in implementing the shutdown plan approved by the Board
of Directors and in preparing the facility for sale. The Company has accrued all
reasonably estimatable costs directly associated with implementing the shutdown
plan and in preparing for the sale of the facility. The accrual consists
primarily of employee payroll and severance costs, estimated operating expenses
during shutdown and costs to cancel certain leases. The Company has not accrued
costs which could vary significantly based on the timing of the proposed
liquidation or are not reasonably estimatable. The most significant of these
costs are interest and legal expenses. This accrual represents management's
estimate of anticipated closure costs, however, actual costs incurred could
differ materially from this estimate.
Professional Fees - Legal and other professional fees incurred in
connection with the shutdown, liquidation or in the prosecution or defense of
any lawsuits are expensed as incurred.
Interest Expenses - Interest costs are expensed as incurred.
36
<PAGE> 39
NOTE C - Net Loss Per Common Share
Basic net loss per common share, which equals diluted loss per share,
is based on the weighted average number of shares of Common Stock outstanding
during the period. The number of shares used in the computation for the period
from July 1, 1998 to September 18, 1998 and for the three months ended September
30, 1997 were 97,466,869 and 97,467,920, respectively. For all periods
presented, all Common Stock equivalents are antidilutive and therefore have not
been considered in the calculation of diluted net loss per common share.
37
<PAGE> 40
OTHER MATTERS
The Board of Directors is not aware of any other matters to be
presented at the Annual Meeting. If any other matters should properly come
before the meeting, the persons named in the Proxy will vote the Proxies
according to their discretion.
STOCKHOLDER PROPOSALS
The Company intends to mail next year's proxy statement to its
stockholder on or about October 1, 1999. Any stockholder proposal intended to be
presented at the Company's 1999 annual meeting of stockholders pursuant to Rule
14a-8 promulgated under the Exchange Act must be received by the Company at its
offices at 47050 Five Mile Road, Northville, Michigan 48167 on or before June 3,
1999 in order to be considered for inclusion in the Company's proxy statement
and form of proxy relating to such annual meeting.
On May 21, 1998 the SEC adopted an amendment to Rule 14a-4, as
promulgated under the Exchange Act. The amendment to Rule 14a-4(c)(1) governs
the Company's use of its discretionary proxy voting authority with respect to a
stockholder proposal which the stockholder has not sought to include in the
Company's proxy statement. The new amendment provides that if a proponent of a
proposal fails to notify the Company at least 45 days prior to the month and day
of mailing of the prior year's proxy statement (or any date specified in an
advance notice provision), then the management proxies will be allowed to use
their discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
With respect to the Company's 1999 annual meeting of stockholders, if
the Company is not provided notice of a stockholder proposal, which the
stockholder has not previously sought to include in the Company's proxy
statement under Rule 14a-8, by August 16, 1999, the management proxies will be
allowed to use their discretionary authority as outlined above.
By Order of the Board of Directors
Charles C. Wilson
Secretary
38
<PAGE> 41
EXHIBIT A
PLAN OF LIQUIDATION AND DISSOLUTION OF
OIS OPTICAL IMAGING SYSTEMS, INC.
WHEREAS, the Board of Directors (the "Board") of OIS Optical Imaging
Systems, Inc. (the "Company"), a Delaware corporation, has deemed it advisable
that the Company should be liquidated and subsequently dissolved and has
approved and determined that this Plan of Liquidation and Dissolution of OIS
Optical Imaging Systems, Inc. (this "Plan") is advisable and in the best
interests of the creditors and stockholders of the Company; and
WHEREAS, the Board has directed that this Plan be submitted to the
stockholders of the Company for their approval or rejection at the annual
meeting of stockholders of the Company (or otherwise at a special meeting of
such stockholders) to be held in or about February 1999 or such other date as
the Board may determine, in accordance with the requirements of the Delaware
General Corporation Law (the "DGCL") and the Company's Certificate of
Incorporation (the "Certificate of Incorporation") and has authorized the filing
with the Securities and Exchange Commission (the "SEC"), and the distribution of
a proxy statement to stockholders (the "Proxy Statement"), in connection with
the solicitation of proxies for such meeting; and
WHEREAS, the Board, upon substantial completion of the liquidation of the
Company's properties and assets or such earlier time as determined in its
discretion, may voluntarily dissolve the Company in accordance with the DGCL and
the Internal Revenue Code of 1986, as amended (the "Code"), upon the terms and
conditions set forth in this Plan;
NOW, THEREFORE, the Board hereby adopts and sets forth this Plan of
Liquidation and Dissolution of OIS Optical Imaging Systems, Inc. as follows:
I. EFFECTIVE DATE OF PLAN.
The effective date of this Plan (the "Effective Date") shall be the date
on which the stockholders of the Company voted to approve this Plan.
II. CESSATION OF BUSINESS ACTIVITIES.
This Plan is intended to be a complete plan of liquidation and
dissolution. After the Effective Date, the Company shall not engage in any
business activities except for the purpose of preserving the value of its
assets, prosecuting and defending suits by or against the Company, adjusting and
winding up its business and affairs, selling and liquidating its properties and
assets and making distributions to stockholders in accordance with this Plan.
The directors in office on the Effective Date and, at the pleasure of such
directors, the officers of the Company, shall continue in office solely for
these purposes and as otherwise provided in this Plan.
III. LIQUIDATION OF ASSETS.
Prior to the date the Certificate of Dissolution (as defined in Section 8
below) is accepted by the Secretary of the State of Delaware (the "Secretary of
State") and the Company is dissolved, as provided for in Section 8 below (the
"Dissolution Date"), the Company shall sell, exchange, transfer, lease, license
or otherwise dispose of all of its property and assets to the extent, for such
consideration (which may consist in whole or in part of money or other property)
and upon such terms and conditions as the Board deems expedient and in the best
interests of the Company and its creditors and stockholders, without any further
vote or action by the Company's stockholders. The Company's assets and
properties may be sold in bulk to one buyer or a small number of buyers or on a
piecemeal basis to numerous buyers. The Company will not be required to obtain
appraisals or other third party opinions as to the value of its properties and
assets in connection with the liquidation. As part of the liquidation of its
property and
<PAGE> 42
assets, the Company shall collect, or make provision for the collection of, all
accounts receivable, debts and claims owing to the Company.
Following the Dissolution Date, any assets remaining available for
distribution to holders of the Common Stock (as defined below) shall be
distributed (the "Dissolution Distribution") only in accordance with the
provisions of the DGCL.
IV. PAYMENT OF DEBTS.
Prior to making any distributions to the Company's stockholders, the
Company shall pay, or as determined by the Board, make reasonable provision to
pay, all claims and obligations of the Company, including all contingent,
conditional or unmatured claims known to the Company and any obligations of the
Company to holders of the Preferred Stock (as defined below).
Following the Effective Date, the Board may, if and to the extent deemed
necessary or advisable by the Board, establish a contingency reserve (the
"Contingency Reserve") and set aside into the Contingency Reserve such amounts
of cash or property of the Company as the Board, in its discretion, determines
is sufficient to account for unknown events, claims, contingencies and expenses
incurred in connection with the collection and defense of the Company's property
and assets and the liquidation and dissolution provided for in this Plan.
Following the payment, satisfaction or other resolution of all such events,
claims, contingencies and expenses, any amounts remaining in the Contingency
Reserve shall be distributed in accordance with this Plan.
V. PREFERRED STOCK; LIQUIDATION PREFERENCE.
Prior to making any distribution to the holders of the Company's Common
Stock, par value $0.01 (the "Common Stock"), the Company shall, to the extent
that sufficient funds are available, satisfy in full the liquidation preference
(the "Liquidation Preference") of the Company's Series B Cumulative Preferred
Stock, par value $0.01 (the "Preferred Stock"), all of which Preferred Stock is
currently held by GD Investments Corp. ("GDIC"). In the event that the Company
lacks sufficient funds to pay the Liquidation Preference in full, it shall
distribute to GDIC all of its remaining property and assets, if any, in
satisfaction of the Liquidation Preference.
VI. DISTRIBUTIONS TO COMMON STOCKHOLDERS.
Following the payment or the provision for the payment of the Company's
claims and obligations as provided in Section 4 and the payment in full of the
Liquidation Preference as provided in Section 5, the Company shall distribute
pro rata to the holders of the Common Stock all of its remaining property and
assets, if any, in one or a series of distributions.
VII. NOTICE OF LIQUIDATION.
As soon as practicable after the Effective Date, but in no event later
than 20 days prior to the filing of the Certificate of Dissolution as provided
in Section 8 below, the Company shall mail notice in accordance with the DGCL to
all its creditors and employees that this Plan has been approved by the Board
and the Company's stockholders.
VIII. CERTIFICATE OF DISSOLUTION.
Once the liquidation of the Company's property and assets is
substantially completed (as determined by the Board) or such earlier time as the
Board determines, in its discretion, to be appropriate, the officers of the
Company shall execute and cause to be filed with the Secretary of State, and
elsewhere as may be required or deemed appropriate, such documents as may be
required to effectuate the dissolution of the Company, including a Certificate
of Dissolution conforming to the requirements of Section 275 of the DGCL (the
"Certificate of Dissolution"). From and after the date such documents are
accepted by the Secretary of State, the Company will be deemed to be completely
dissolved, but will continue to exist under Delaware law for the purposes of
paying, satisfying and discharging any existing debts or obligations, collecting
and distributing its assets, and doing all other acts required
<PAGE> 43
to liquidate and wind up the Company's business affairs. The members of the
Board in office at the time the Certificate of Dissolution is accepted for
filing by the Secretary of State shall have all powers provided to them under
the DGCL and other applicable law.
IX. POWERS OF BOARD AND OFFICERS.
The Board and the officers of the Company are authorized to approve such
changes to the terms of any of the transactions referred to herein, to interpret
any of the provisions of this Plan, and to make, execute and deliver such other
agreements, conveyances, assignments, transfers, certificates and other
documents and take such other action as the Board and the officers of the
Company deem necessary or desirable in order to carry out the provisions of this
Plan and effect the complete liquidation and dissolution of the Company in
accordance with the Code and the DGCL and any rules and regulations of the SEC
or any state securities commission, including, without limitation, any
instruments of dissolution or other documents, and withdrawing any qualification
to conduct business in any state in which the Company is so qualified, as well
as the preparation and filing of any tax returns.
X. CANCELLATION OF STOCK.
The distributions to the Company's stockholders pursuant to this Plan, if
any, shall be in complete redemption and cancellation of all of the outstanding
Common Stock and Preferred Stock. As a condition to the disbursement of the
Dissolution Distribution under this Plan, the Board may require stockholders to
surrender their certificates evidencing stock to the Company or its agent for
cancellation. If a stockholder's certificate for shares of Common Stock or
Preferred Stock has been lost, stolen or destroyed, such stockholder may be
required, as a condition to the disbursement of any distribution under this
Plan, to furnish to the Company satisfactory evidence of the loss, theft or
destruction thereof, together with a surety bond or other security or indemnity
reasonably satisfactory to the Company.
XI. RECORD DATE AND RESTRICTIONS ON TRANSFER OF SHARES.
The Company shall close its stock transfer books and discontinue
recording transfers of Common Stock and Preferred Stock at the close of business
on the record date fixed by the Board for the Dissolution Distribution (the
"Record Date"), and thereafter, certificates representing the Common and
Preferred Stock shall not be assignable or transferable on the books of the
Company except by will, intestate succession or operation of law. The
proportionate interests of all of the stockholders of the Company shall be fixed
on the basis of their respective stock holdings at the close of business on the
Record Date, and, after the Record Date, any distributions made by the Company
shall be made solely to the stockholders of record at the close of business on
the Record Date, except as may be necessary to reflect subsequent transfers
recorded on the books of the Company as a result of any assignments by will,
intestate succession or operation of law.
XII. LIQUIDATING TRUST.
If advisable for any reason to complete the liquidation and distribution
of the Company's assets to its stockholders, the Board may at any time transfer
to a liquidating trust (the "Trust") the remaining assets of the Company. The
Trust thereupon shall succeed to all of the then remaining assets of the
Company, including all amounts in the Contingency Reserve, and any remaining
liabilities and obligations of the Company. The sole purpose of the Trust shall
be to prosecute and defend suits by or against the Company, to settle and close
the business of the Company, to dispose of and convey the assets of the Company,
to satisfy the remaining liabilities and obligations of the Company and to
distribute the remaining assets of the Company to its stockholders. Any
distributions made from the Trust shall be made in accordance with the
provisions of this Plan. The Board may appoint one or more individuals or
corporate persons to act as trustee or trustees of the Trust and to cause the
Company to enter into a liquidating trust agreement with such trustee or
trustees on such terms and conditions as the Board determines. Approval of this
Plan by the stockholders also will constitute the approval by the stockholders
of any appointment of the trustees and of the liquidating trust agreement
between the Company and such trustees.
<PAGE> 44
XIII. COMPENSATION.
The Company may pay to the Company's officers, directors, employees and
agents, or any of them, compensation for services rendered in connection with
the implementation of this Plan. Further, if deemed advisable by the Board, the
Company may pay a "wind-down" consultant reasonable compensation for services
rendered in connection with the liquidation and dissolution of the Company.
Approval of this Plan by the stockholders of the Company shall constitute the
approval of the stockholders of the payment of any such compensation referred to
in this Section 13.
XIV. INDEMNIFICATION.
The Company shall continue to indemnify its officers, directors,
employees and agents in accordance with its Certificate of Incorporation, bylaws
and any contractual arrangements as therein or elsewhere provided, and such
indemnification shall apply to acts or omissions of such persons in connection
with the implementation of this Plan and the winding up of the affairs of the
Company. The Company's obligation to indemnify such persons may be satisfied out
of the Contingency Reserve or out of assets transferred to the Trust, if any.
The Board and the trustees of any Trust are authorized to obtain and maintain
insurance as may be necessary to cover the Company's indemnification
obligations.
XV. COSTS.
The Company is authorized, empowered and directed to pay all legal,
accounting, printing and other fees, costs and expenses for services rendered to
the Company in connection with the preparation, adoption and implementation of
this Plan, including, without limitation, any such fees and expenses incurred in
connection with the preparation of a proxy statement for the meeting of
stockholders to be held for the purpose, among others, of voting upon the
approval of this Plan.
<PAGE> 45
OIS OPTICAL IMAGING SYSTEMS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON [FEBRUARY __, 1999]
The undersigned hereby appoints Charles C. Wilson and Ralph J. Gerson, or
either of them with full power to act alone (with full power of substitution,
and in place of either in case of substitution, his substitute), the attorneys
and proxies for and on behalf of the undersigned to attend the Annual Meeting of
OIS OPTICAL IMAGING SYSTEMS, INC. to be held at the [DATE AND MEETING PLACE] at
10:00 A.M., and any and all adjournments thereof, and to cast the number of
votes the undersigned would be entitled to vote if then personally present. The
undersigned instructs such proxies to vote as specified on this card.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ALL NOMINEES FOR DIRECTORS, "FOR" RATIFICATION OF ARTHUR ANDERSEN
LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30,
1999, "FOR" THE PROPOSED AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION AND "FOR" ADOPTION OF THE COMPANY'S PLAN OF LIQUIDATION AND
DISSOLUTION AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
<PAGE> 46
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<S><C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ----------------------------------
OIS OPTICAL IMAGING SYSTEMS, INC. PROPOSAL NO. 1 FOR ALL WITH- FOR ALL
- ---------------------------------- 1. Election of Directors. NOMINEES HOLD EXCEPT
[ ] [ ] [ ]
RALPH J. GERSON ROBERT M. TEETER
JEFFREY A. KNIGHT CHARLES C. WILSON
C.K. PRAHALAD MARK S. WRIGHTON
PETER JOEL C. YOUNG
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark the
"FOR ALL EXCEPT" box and strike a line through the name(s) of the nominee(s).
Your shares will be voted for the remaining nominee(s).
RECORD DATE SHARES:
PROPOSAL NO. 2 FOR AGAINST ABSTAIN
2. Proposal to approve appointment of [ ] [ ] [ ]
Arthur Andersen LLP as
independent auditors for
the fiscal year ending
June 30, 1999.
PROPOSAL NO. 3 FOR AGAINST ABSTAIN
3. Proposal to amend the Company's [ ] [ ] [ ]
Restated Certificate of Incorporation
to allow for acts of the Company to
be approved by written consent of
its stockholders in lieu of a special
meeting of its Stockholders.
PROPOSAL NO. 4 FOR AGAINST ABSTAIN
4. Proposal to approve and adopt the [ ] [ ] [ ]
Company's Plan of Liquidation and
Dissolution.
PROPOSAL NO. 5
5. In his discretion, the
Proxy is authorized to
vote upon such other
business as may properly
come before the Annual
Meeting.
Please be sure to sign and date this Proxy. | Date |
If shares are registered in the names of two or more persons, each
should sign. Executors, administrators, trustees, guardians,
attorneys and corporate officers should show their full titles.
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- --------------------------------------------------------------------------------
- -------Stockholder sign here----------------Co-owner sign here-
- --------------------------------------------------------------------------------
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