OIS OPTICAL IMAGING SYSTEMS INC, DEF 14A, 1999-03-10

OIS OPTICAL IMAGING SYSTEMS INC
DEF 14A, 1999-03-10
ELECTRONIC COMPONENTS, NEC

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<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:
| | Preliminary Revised proxy statement |_| Confidential, for Use of
Commission Only (as permitted
by Rule 14a-6(e)(2))

|X| 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.

| | 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:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|x| 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.: Schedule 14A
(Preliminary).
(2) Filing Party: OIS Optical Imaging Systems, Inc.
(3) Date Filed: January 7, 1999.
<PAGE> 2

OIS OPTICAL IMAGING SYSTEMS, INC.
47050 FIVE MILE ROAD
NORTHVILLE, MICHIGAN 48167

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 31, 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 the Novi Hilton, 21111 Haggerty Road, Novi, Michigan 48375, on
Wednesday, March 31, 1999 at 10:00 a.m. local time, for the following purposes:

1. To consider and act upon a proposal to approve and adopt the Company's
Plan of Liquidation and Dissolution attached as Exhibit A to the Proxy
Statement;

2. To elect seven (7) directors to serve until the next annual meeting and
until their respective successors have been duly elected and qualified;

3. To ratify and approve the appointment of Arthur Andersen LLP, as the
Company's independent auditors for the fiscal year ended June 30, 1999;

4. 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; and

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 February 19, 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

/S/ Charles C. Wilson
Charles C. Wilson
Secretary

Northville, Michigan

March 10, 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 Wednesday, March 31, 1999 (the "Annual Meeting") to be held at 10:00 a.m.
local time at the Novi Hilton, 21111 Haggerty Road, Novi, Michigan 48375. This
Proxy Statement and the enclosed Proxy together with the Company's 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 March 10, 1999.

At the Annual Meeting, stockholders will be asked to consider and vote upon
the following items:

1. To consider and act upon a proposal to approve and adopt the Company's
Plan of Liquidation and Dissolution attached as Exhibit A to this Proxy
Statement (the "Plan");

2. To elect seven (7) directors to serve until the next annual meeting and
until their respective successors have been duly elected and qualified;

3. To ratify and approve the appointment of Arthur Andersen LLP, as the
Company's independent auditors for the fiscal year ended June 30, 1999;

5. To consider and transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.

GD Investments Corp. ("GDIC"), the majority-owned subsidiary of Guardian
Industries Corp. ("Guardian") and holder of all of the outstanding shares of the
Company's Series B Cumulative Preferred Stock, par value $.01 per share (the
"Series B Preferred"), has informed the Company that it intends to vote all of
the 77,562,451 shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock") and 91,137 shares of the Company's 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. If GDIC, by
itself or together with Mr. Davidson, votes its shares of Series B Preferred and
Common Stock as intended, the required vote for approval of each proposal
described in this Proxy Statement will be satisfied.

<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 adoption of the Plan, "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, and "for" the proposed
amendment to the Company's Restated Certificate of Incorporation 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 another
instrument or transmission revoking it or by filing a properly created proxy
bearing a later date with 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 February 19,
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 March 10, 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.

Under the Delaware General Corporation Law, 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 transactions contemplated by 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.

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<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 six months ended December 31, 1998 are set forth herein,
beginning on page 20.

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<PAGE> 6

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows, as of March 10, 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 NATURE OF PERCENT
BENEFICIAL PERCENT OF BENEFICIAL OF
NAME AND ADDRESS OF OWNER 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) (13) -- --
c/o OIS Optical Imaging Systems, Inc.
47050 Five Mile Road
Northville, Michigan 48167
Jeffrey A. Knight................................... 310,000(5) (13) -- --
c/o OIS Optical Imaging Systems, Inc.
47050 Five Mile Road
Northville, Michigan 48167
C.K. Prahalad....................................... 20,000(6) (13) -- --
c/o OIS Optical Imaging Systems, Inc.
47050 Five Mile Road
Northville, Michigan 48167
Rex Tapp............................................ 146,400(7) (13) -- --
c/o OIS Optical Imaging Systems, Inc.
47050 Five Mile Road
Northville, Michigan 48167
Robert M. Teeter.................................... 25,000(8) (13) -- --
c/o OIS Optical Imaging Systems, Inc.
47050 Five Mile Road
Northville, Michigan 48167
Scott V. Thomsen.................................... 91,250(9) (13) -- --
c/o OIS Optical Imaging Systems, Inc.
47050 Five Mile Road
Northville, Michigan 48167
Charles C. Wilson................................... 120,650(10) (13) -- --
c/o OIS Optical Imaging Systems, Inc.
47050 Five Mile Road
Northville, Michigan 48167
Mark S. Wrighton.................................... 26,000(11) (13) -- --
c/o OIS Optical Imaging Systems, Inc.
47050 Five Mile
Road Northville, Michigan 48167
</TABLE>

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<PAGE> 7

- ---------------
(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: 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. STOCKHOLDERS SHOULD 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. If it deems such action advisable, the Board of Directors may at any
time transfer to a liquidating trust the remaining assets of the Company to
complete the liquidation and distribution of the Company's assets to its
stockholders pursuant to the Plan. 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.

During the liquidation of the Company's assets, the Company may pay to the
Company's officers, directors, employees, "wind-down" consultants, if any, and
agents, or any of them, compensation for services rendered in connection with
the implementation of the Plan. Approval of the Plan by stockholders of the
Company will constitute the approval by the stockholders of the payment of any
such compensation.

As part of the benefits granted thereto, GDIC, the holder of all of the
outstanding shares of the Series B Preferred, has the right to a preferential
distribution of the assets of the Company in the event of a liquidation (the
"Liquidation Preference"). As of December 31, 1998, the Liquidation Preference
was equal to approximately $104.6 million, comprised of approximately $91.1
million worth of Series B Preferred, plus accrued dividends of approximately
$13.5 million. If the stockholders approve the Plan, in addition to paying the
debts of its creditors, OIS will be obligated to distribute the Liquidation
Preference to GDIC prior to making any distributions to the holders of Common
Stock.

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, INCLUDING THE SATISFACTION OF THE
LIQUIDATION PREFERENCE, OIS DOES NOT BELIEVE THAT THE HOLDERS OF COMMON STOCK
WILL RECEIVE ANY PROCEEDS FROM A LIQUIDATION.

The following resolution will be offered at the Annual Meeting:

"RESOLVED, that the Company's 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.

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<PAGE> 9

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, OIS
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 Company concluded that it 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, in December 1997 the Board of Directors
decided 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 the Company that it would
not make 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 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 the holders of Common Stock will receive any proceeds from a
liquidation.

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<PAGE> 10

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. 1.

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.

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
Delaware General Corporation Law.

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

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<PAGE> 11

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 Delaware General Corporation Law (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 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 Delaware General Corporation Law 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 Delaware General Corporation Law 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

9
<PAGE> 12

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. The Company presently employs thirteen full time (including Charles C.
Wilson, President and Chief Financial Officer and Scott V. Thomsen, Vice
President, Engineering and Fab Operations as officers of the Company) and three
part time employees who will implement and conduct the liquidation of the
Company's assets as set forth in the Plan. Additionally, Rex Tapp, the Company's
former President and Chief Executive Officer, has been retained as a consultant
to this process until June 30, 1999. Except for Mr. Wilson and Mr. Thomsen, all
remaining employees have entered into agreements with the Company which will
continue their employment until June 30, 1999. See "Compensation of Executive
Officers -- Employment Agreements." The Company estimates the remaining
compensation that will be due to all of these individuals to be approximately
$1.3 million. At this time the Company has not engaged the services of the
"wind-down' consultant. 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.

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
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<PAGE> 13

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 Delaware General Corporation Law, 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 a
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.
However, each stockholder's liability is limited to only such stockholder's pro
rata share of amounts received by such stockholder from the Company or a
Liquidating Trust.

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, 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.

ESTIMATE OF PROCEEDS FROM A LIQUIDATION

As of December 31, 1998, OIS had approximately $4.5 million in accounts
payable and other accrued liabilities due to unaffiliated parties such as its
vendors and banks. In addition, the outstanding principal due under the
Company's secured commercial credit facility with its banks and with respect to
its subordinated note payable to Guardian were $36.5 million and $12.0 million,
respectively. These obligations, combined with the Liquidation Preference of
approximately $104.6 million, total approximately $157.6 million. This amount
represents the Company's estimate of proceeds from the liquidation of the
Company's assets that would be necessary before any distributions would be
received by the holders of Common Stock.

The Company estimates that it will receive between $25.0 and $30.0 million
in proceeds from the liquidation of its tangible assets, net of accrued
obligations. Additionally, the Company expects to market its portfolio of
intellectual property (intangible assets) through either sale or licencing
arrangements. Although the Company is not able to estimate the proceeds it may
receive from the sale or licensing of its intellectual property, the Company
does not expect such proceeds to satisfy its outstanding obligations as
described above. THEREFORE, THE COMPANY DOES NOT BELIEVE THAT THE HOLDERS OF
COMMON STOCK WILL RECEIVE ANY PROCEEDS FROM THE LIQUIDATION OF THE COMPANY.

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 prior to the transfer
of unsold assets to the Liquidating Trust and will be based on, among other
things, the Board of Directors 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 Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The costs of compliance with such requirements would reduce the amount
which otherwise could be distributed to interest

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<PAGE> 14

holders. Even if transferable, the interests are not expected to be listed on a
national securities exchange or quoted through the Nasdaq SmallCap Market
quotation system 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

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
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<PAGE> 15

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.

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.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

SUMMARY

As described below, on September 18, 1998, OIS discontinued manufacturing
operations at its Northville facility pursuant to a plan shut down approved by
its board of directors. Accordingly, OIS conducted no operations for the three
month period ended December 31, 1998.

Discontinuance of Operations

As disclosed in its public reports, OIS, with the encouragement and
cooperation of Guardian, had been exploring a full range of strategic
alternatives throughout fiscal 1998. Guardian, through GDIC, is the majority
stockholder of the Company. In February 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. During the summer and early fall of 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 its 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.

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 terms 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. In
February 1999, the Department of Commerce initiated discussions with the Company
to revoke the outstanding directive. The Company expects that the Department of
Commerce will revoke the directive and this matter will be concluded.

In October 1998, several of the Company's former customers initiated claims
against the Company in Michigan state court seeking damages for breach of
contract. In addition, certain of these customers sought 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 to third parties. The Company has complied with the
court order. In January 1999, the Company entered into agreements with the
majority of these former customers to allow them to complete certain
work-in-process

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<PAGE> 17

related to their specific programs using the OIS facility. A condition of these
agreements is a full and general release of any claims these former customers
have or could initiate.

Plan of Liquidation

Under the Plan, OIS 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 interest of OIS, its
creditors and its stockholders. Prior to making any distributions, if any, to
its stockholders, OIS will pay or make reasonable provisions to pay all of its
claims and obligations, including all contingent, conditional or unmatured
claims known to OIS. As part of the benefits granted thereto, GDIC, the holder
of the outstanding shares of the Series B Preferred, has the right to the
Liquidation Preference. If the Company's stockholders approve the Plan, in
addition to paying the debts of its creditors, the Company will be obligated to
distribute the Liquidation Preference to GDIC prior to any distributions to the
holders of Common Stock.

Subject to its stockholders' approval of the Plan, the Company has been and
will continue focusing its efforts on locating prospective buyers primarily
interested in acquiring all or substantially all of the tangible assets of the
Company. In anticipation of the possibility that it will be unable to effect a
single transaction sale, the Company has been and will continue preparing for a
liquidation involving separate multiple transactions by identifying prospective
buyers for much of the Company's equipment and soliciting such buyers to access
levels of interest. Although no timetable has been formally established, the
Company anticipates that the liquidation of its assets will be substantially
completed by June 30, 1999.

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 certification 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 the
holders of Common Stock will receive any proceeds from a liquidation.

Liquidation Basis of Accounting

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.
In addition, under the liquidation basis of accounting, gains and losses from
dispositions of assets are displayed as net amounts versus gross revenue and
expenses under the going concern historical cost basis of accounting. 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).

valued at the estimated cash liquidation value. Accordingly, the Company wrote
off approximately $90,000 in prepaid assets as a result of the change to the
liquidation basis of accounting. The Company recorded deferred income taxes of
$1,826,000 resulting from the accrual of closure costs discussed below (see Note
B to the Company's unaudited financial statements which make a part of this
Proxy Statement). In addition, the Company wrote off approximately $214,000 in
construction in progress which was not expected to be completed due to the
probable liquidation of the Company. Initially, the Company anticipated that
inventory would be realized at its going concern historical cost basis. However,
a buyer that had expressed interest in purchasing substantially all of the
Company's assets has formally notified the Company that it no longer had the
intention to purchase the Company's assets. Accordingly, the Company reassessed
the liquidation value of all assets and determined that it is not likely that
the Company could realize the carrying value of inventory. Accordingly, the
Company recorded an additional write down of inventory to estimated liquidation
value of approximately $700,000, net of a tax benefit of approximately $380,000.
The Company anticipates that accounts payable, accrued liabilities, accrued
interest and income taxes payable to affiliate will be settled at their going
concern basis carrying values and accordingly they have not been adjusted based
upon the change to the liquidation basis of accounting. Bank debt and
subordinated note payable to affiliate have not been revalued to liquidation
basis primarily due to uncertainties as to when they would be settled based on
the ultimate disposal of the Company's assets. 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 to the Company's
unaudited financial statements which make a part of this Proxy Statement.

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, totaling approximately $3,900,000 and
estimated operating expenses during shutdown. Estimated operating expenses
during the shutdown consist primarily of insurance expense, totaling $286,000,
utilities expenses totaling $658,000 and other operating expenses totaling
$372,000. Employee payroll and severance costs were estimated based on known
payroll and severance commitments, including applicable fringe benefits, through
approximately June 30, 1999, the date upon which most of the Company's current
employees' employment agreements terminate. Operating expenses were estimated
based on historical amounts, adjusted for the reduced activity of the Company
during the liquidation period, which are expected to be incurred through June
30, 1999 to maintain the facility as required by the Company's debt and other
agreements. Although no timetable has been formally established, it is expected
that the liquidation will be substantially completed by June 30, 1999. 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 the estimate.

Commercial Credit Facility

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.

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.

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RESULTS OF OPERATIONS

Three Months Ended December 31, 1998 and 1997

As discussed in the summary above, the Company conducted no manufacturing
operations during the three months ended December 31, 1998, as a result of the
plant shutdown effective September 18, 1998. Accordingly, there is no comparison
of results of operations with the three months ended December 31, 1997.
Following is a summary of actions taken during the three months ended December
31, 1998 as the Company pursued various options, discussed above, related to the
contemplated liquidation of the Company.

The Company continued to liquidate its inventories to its former customers.
In addition, the Company was informed that a potential buyer for the Company
would no longer actively pursue the purchase of the Company's assets.
Accordingly, the Company recorded a net loss of approximately $0.7 million, net
of related tax benefit of approximately $0.4 million, to reduce inventories to
estimated liquidation value based on this change in contemplated liquidation.

The Company incurred approximately $0.5 million in interest expense, net of
related tax benefit of approximately $0.3 million, to service the Company's
outstanding bank debt. In addition, $0.2 million in legal expenses, net of
related tax benefit of $0.1 million, were incurred related to the shutdown and
to prosecute and defend various legal actions by and against the Company, as
discussed in the summary above

Period from July 1, 1998 to September 18, 1998 and the Six Months Ended December
31, 1997

REVENUES

Total revenues for the period from July 1, 1998 to September 18, 1998 (the
"1999 Operating Period") of approximately $2.9 million were 76% lower than total
revenue for the six months ended December 31, 1997 of $12.1 million. This
decrease is attributable to the cessation of manufacturing operations in the
Northville facility on September 18, 1998.

The Company derived no revenues from engineering development agreements
during the 1999 Operating Period, a decrease of $554,686 in revenues from the
first six months of fiscal 1998. This decrease was due to the Company's
decreased focus on engineering development agreements.

COST OF SALES

Cost of sales for the 1999 Operating Period of approximately $7.4 million
was 68% lower than the cost of sales for the first six months of fiscal 1998 of
approximately $23.2 million. This decrease in cost of sales is primarily
attributable to the cessation of manufacturing operations in the Northville
facility on September 18, 1998.

OTHER COSTS

The Company's operating expenses, which consist of internal research and
development and selling, general and administrative expenses, decreased
approximately 56% during the 1999 Operating Period when compared to the first
six months of fiscal 1998. This decrease resulted principally from the cessation
of manufacturing operations in the Northville facility on September 18, 1998.

CHANGES IN NET ASSET DEFICIENCY

The change in net asset deficiency of approximately $2.4 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; the recognition of the local
government subsidy of approximately $2.8 million; a reduction of inventory to
estimated liquidation value of approximately $0.7 million, net of related tax
benefit of approximately $0.4 million; and interest and legal expenses incurred
of approximately $0.7 million, net of related tax benefit of approximately $0.4
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

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<PAGE> 20

primarily of employee payroll and severance costs totaling $3,900,000 and other
estimated operating expenses during the shutdown. Estimated operating expenses
during the shutdown consist primarily of insurance expense, totaling $286,000,
utilities expenses totaling $658,000 and other operating expenses totaling
$372,000. Employee payroll and severance costs were estimated based on known
payroll and severance commitments, including applicable fringe benefits, through
approximately June 30, 1999, the date upon which most of the Company's current
employees' employment agreements terminate. Operating expenses were estimated
based on historical amounts, adjusted for the reduced activity of the Company
during the liquidation period, which are expected to be incurred through June
30, 1999 to maintain the facility as required by the Company's debt and other
agreements. Although no timetable has been formally established, it is expected
that the liquidation will be substantially completed by June 30, 1999.

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, the remaining balance was recognized as of September 18, 1998.
Initially, the Company anticipated that inventory would be realized at its going
concern historical cost basis. However, a buyer that had expressed interest in
purchasing substantially all of the Company's assets formally notified the
Company that it no longer had the intention to purchase the Company's assets.
Accordingly, the Company reassessed the liquidation value of all assets and
determined that it is not likely that the Company could realize the carrying
value of its inventory.

Following is a summary of amounts utilized and provided for in accrued
closure costs during the period from September 18, 1998 to December 31, 1998:

<TABLE>
<CAPTION>
CHARGES AGAINST BALANCE AT
COMPONENT ORIGINAL ESTIMATE ACCRUAL DECEMBER 31, 1998
--------- ----------------- --------------- -----------------
<S> <C> <C> <C>
Payroll and related............................. $3,900,000 $(2,853,000) $1,047,000
Utilities....................................... 658,000 (258,000) 400,000
Other operating expenses........................ 372,000 (272,000) 100,000
Insurance....................................... 286,000 (136,000) 150,000
---------- ----------- ----------
Total........................................... $5,216,000 $(3,519,000) $1,697,000
========== =========== ==========
</TABLE>

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 the Board of Directors. The Company's cash and cash
equivalents at December 31, 1998 were $214,372.

The Board of Directors has, subject to stockholder approval, authorized the
orderly liquidation of the Company's assets pursuant to the Plan. Because of its
existing debt and other obligations, OIS does not believe that the holders
Common Stock 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 December 31, 1998, to
approximately $214,000 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

18
<PAGE> 21

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
covenants contained in the credit agreement. 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. On
December 31, 1998, the Company made an additional principal repayment of $2.75
million which was 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.

The 10-K Report, 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 six months ended December
31, 1998 are set forth herein, beginning on the following page.

19
<PAGE> 22

PART I -- FINANCIAL INFORMATION

FINANCIAL STATEMENTS

OIS OPTICAL IMAGING SYSTEMS, INC.

STATEMENT OF CHANGES IN
NET ASSETS (LIQUIDATION BASIS)
FOR THE PERIOD FROM JUNE 30, 1998 TO DECEMBER 31, 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)
Recognition of local government subsidy due to
discontinuance of manufacturing operations on September
18, 1998.................................................. 2,775,000
Reduction of inventory balance to liquidation basis, net of
estimated tax benefit of $380,000......................... (712,364)
Expenses incurred:
Interest expense, net of tax benefit of $255,000.......... (473,727)
Legal expense, net of tax benefit of $128,000............. (237,220)
------------
Net asset deficiency at December 31, 1998................... $(18,167,414)
============
</TABLE>

20
<PAGE> 23

OIS OPTICAL IMAGING SYSTEMS, INC.

STATEMENTS OF OPERATIONS (GOING CONCERN BASIS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
THREE MONTHS JULY 1, 1998 SIX MONTHS
ENDED THROUGH ENDED
DECEMBER 31, 1997 SEPTEMBER 18, 1998 DECEMBER 31, 1997
----------------- ------------------- -----------------
<S> <C> <C> <C>
REVENUES
Display revenue............................. $ 4,963,468 $ 2,541,638 $ 10,435,001
Engineering revenue......................... 170,507 -- 554,686
Sensor and other revenue.................... 529,979 394,405 1,152,996
----------- ----------- ------------
TOTAL REVENUES.............................. 5,663,954 2,936,043 12,142,683

COST OF SALES
Display..................................... 10,388,109 5,936,692 20,555,200
Engineering................................. 357,127 -- 1,218,384
Sensor and other............................ 812,598 1,419,069 1,472,591
----------- ----------- ------------
TOTAL COST OF SALES......................... 11,557,834 7,355,761 23,246,175
GROSS LOSS................................ (5,893,880) (4,419,718) (11,103,492)

OPERATING EXPENSES
Internal research and development........... 362,716 351,491 727,784
Selling, general and administrative......... 1,795,395 1,417,780 3,267,623
----------- ----------- ------------
TOTAL OPERATING EXPENSES.................... 2,158,111 1,769,271 3,995,407
OPERATING LOSS............................ (8,051,991) (6,188,989) (15,098,899)

OTHER INCOME (EXPENSE)
Interest expense............................ (1,169,553) (1,093,430) (2,268,479)
Interest income............................. 4,555 6,158 13,833
Licensing and royalties..................... 100,000 120,000 177,204
Other....................................... 27,560 25,300 88,261
----------- ----------- ------------
TOTAL OTHER INCOME (EXPENSE)................ (1,037,438) (941,972) (1,989,181)
----------- ----------- ------------
Loss before income tax benefit.............. (9,089,429) (7,130,961) (17,088,080)
Income tax benefit.......................... 3,180,000 2,506,000 5,981,000
----------- ----------- ------------
NET LOSS.................................... (5,909,429) (4,624,961) (11,107,080)
----------- ----------- ------------
Preferred stock dividends, unaccrued and
unpaid.................................... 1,487,913 1,837,721 2,972,758
----------- ----------- ------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS... $(7,397,342) $(6,462,682) $(14,079,838)
=========== =========== ============
NET LOSS PER COMMON SHARE (NOTE B).......... $ (.08) $ (.07) $ (.14)
=========== =========== ============
</TABLE>

See notes to financial statements.

21
<PAGE> 24

OIS OPTICAL IMAGING SYSTEMS, INC.

STATEMENT OF NET ASSETS (LIQUIDATION BASIS)
(UNAUDITED)

<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
Cash and cash equivalents................................. $ 214,372
Accounts receivable....................................... 1,303,559
Inventory................................................. 4,561,000
Prepaid assets............................................ 1,377,455
Property and equipment.................................... 21,000,000
Deferred income taxes..................................... 8,926,000
------------
TOTAL ASSETS........................................... 37,382,386
------------
LIABILITIES
Accounts payable.......................................... 1,265,366
Accrued liabilities....................................... 587,062
Accrued interest.......................................... 1,117,766
Accrued closure costs..................................... 1,697,000
Income taxes payable to affiliate......................... 2,382,606
Bank debt (not revalued to liquidation value)............. 36,500,000
Subordinated note payable to affiliate (not revalued to
liquidation value)..................................... 12,000,000
------------
TOTAL LIABILITIES...................................... 55,549,800
------------
NET ASSET DEFICIENCY................................... $(18,167,414)
============
</TABLE>

See notes to financial statements.

22
<PAGE> 25

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.

23
<PAGE> 26

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
LOCAL GOVERNMENT SUBSIDY.................................... 2,800,000
-------------
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.

24
<PAGE> 27

OIS OPTICAL IMAGING SYSTEMS, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(GOING CONCERN BASIS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 1, 1998
THROUGH SIX MONTHS ENDED
SEPTEMBER 18, DECEMBER 31,
1998 1997
------------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(4,624,961) $(11,107,080)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and recognition of local government
subsidy........................................... (25,000) 3,100,000
Deferred compensation expense........................ 248,012 454,750
Impact on cash flows from changes in assets and
liabilities:
Receivables.......................................... 6,349,574 (1,507,346)
Prepaid expenses and other assets.................... (176,722) (425,295)
Inventory............................................ 99,359 (1,665,187)
Accounts payable and accrued expenses................ 201,074 900,509
Deferred revenues.................................... -- (112,204)
----------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES......... 2,071,336 (10,361,853)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (214,584) (665,966)
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES....................... (214,584) (665,966)
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Principal payments on long term debt...................... (2,750,000) --
Net proceeds from issuance of debt and notes.............. -- 9,000,000
Net proceeds from issuance of common stock................ -- 9,545
Net proceeds from issuance of preferred stock............. -- 2,000,000
----------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... (2,750,000) 11,009,545
----------- ------------
DECREASE IN CASH AND CASH EQUIVALENTS....................... (893,248) (18,274)
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 $ 941,768
=========== ============
</TABLE>

See notes to financial statements.

25
<PAGE> 28

OIS OPTICAL IMAGING SYSTEMS, INC.

STATEMENTS OF CASH FLOWS
(GOING CONCERN BASIS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 1, 1998 THROUGH SIX MONTHS ENDED
SEPTEMBER 18, 1998 DECEMBER 31, 1997
-------------------- -----------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $1,010,091 $1,994,314
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:
Adjust deferred compensation................................ $ 275,785
</TABLE>

26
<PAGE> 29

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 10-K Report. On
September 18, 1998 the Company changed is 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 and in Note B.

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 February 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 the
Board of Directors. In addition, the Company canceled substantially all of its
outstanding contracts and laid off substantially all of its employees. During
the second quarter of fiscal 1999, the Company did not conduct any manufacturing
operations in its Northville facility. A core group of employees remain at the
facility to maintain and prepare for the anticipated liquidation of the
Company's assets.

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 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 terms 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. In February 1999,
the Department of Commerce initiated discussions with the Company to revoke the
outstanding directive. The Company expects that the Department of Commerce will
revoke the directive and this matter will be concluded.

The Company is in violation of certain covenants contained in its credit
agreement with NBD Bank N.A. and Bank of America NT&SA. 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 anticipates

27
<PAGE> 30
OIS OPTICAL IMAGING SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

that it would be able to obtain waivers of these violations, if requested, and
that the lending institutions will not exercise their demand rights.

In October 1998, several of the Company's former customers initiated claims
against the Company in Michigan state court seeking damages for breach of
contract. In addition, certain of these customers sought 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 to third parties. The Company has complied with the
court order. In January 1999, the Company entered into agreements with the
majority of these former customers to allow them to complete certain
work-in-process related to their specific programs using the OIS facility. A
condition of these agreements is a full and general release of any claims these
former customers have or could initiate.

On November 11, 1998, the Board of Directors approved the Plan, which the
Board of Directors will submit to the stockholders of the Company for their
approval. Due to its existing debt and other obligations, the Company does not
believe that the holders of Common Stock holders 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.

Under the liquidation basis of accounting, the Company believes that the
going concern historical cost basis of cash and property and equipment will be
realized and therefore deemed that no adjustment to the carrying value was
necessary. Certain accounts receivable from employees, totaling approximately
$110,000, were deemed uncollectable due to the lay off of the employees and were
written off to adjust the going concern historical costs basis of accounts
receivable to liquidation value. Prepaid assets and deferred income taxes were
valued at the estimated cash liquidation value. Accordingly, the Company wrote
off approximately $90,000 in prepaid assets as a result of the change to the
liquidation basis of accounting. The Company recorded deferred income taxes of
$1,826,000 resulting from the accrual of closure costs discussed below (See Note
B). In addition, the Company wrote off approximately $214,000 in construction in
progress which was not expected to be completed due to the probable liquidation
of the Company. Initially, the Company anticipated that inventory would be
realized at its going concern historical cost basis. However, a buyer that had
expressed interest in purchasing substantially all of the Company's assets has
formally notified the Company that it no longer had the intention to purchase
the Company's assets. Accordingly, the Company reassessed the liquidation value
of all assets and determined that it is not likely that the Company could
realize the carrying value of inventory. Accordingly, the Company recorded an
additional write down of inventory to estimated liquidation value of
approximately $700,000, net of a tax benefit of approximately $380,000. The
Company anticipates that accounts payable, accrued liabilities, accrued interest
and income taxes payable to affiliate will be settled at their going concern
basis carrying values and accordingly they have not been adjusted based upon
28
<PAGE> 31
OIS OPTICAL IMAGING SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the change to the liquidation basis of accounting. Bank debt and subordinated
note payable to affiliate have not been revalued to liquidation basis primarily
due to uncertainties as to when they would be settled based on the ultimate
disposal of the Company's assets. 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 December 31, 1998 (liquidation basis), changes in net assets from
June 30, 1998 to December 31, 1998 (liquidation basis), the results of
operations from July 1, 1998 to September 18, 1998 (going concern basis) and for
the three months and six months ended December 31, 1997 (going concern basis)
and cash flows for the period from July 1, 1998 to September 18, 1998 (going
concern basis) and for the six months ended December 31, 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 most 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 its Northville facility for sale (see Note A). 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, totaling
approximately $3,900,000 and estimated operating expenses during shutdown.
Estimated operating expenses during the shutdown consist primarily of insurance
expense, totaling $286,000, utilities expenses totaling $658,000 and other
operating expenses totaling $372,000. Employee payroll and severance costs were
estimated based on known payroll and severance commitments, including applicable
fringe benefits, through approximately June 30, 1999, the date upon which most
of the Company's current employees' employment agreement terminate. Operating
expenses were estimated based on historical amounts, adjusted for the reduced
activity of the Company during the liquidation period, which are expected to be
incurred through June 30, 1999 to maintain the facility as required by the
Company's debt and other agreements. Although no timetable has been formally
established, it is expected that the liquidation will be substantially completed
by June 30, 1999. 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 the
estimate.

Following is a summary of amounts utilized and provided for in accrued
closure costs during the period from September 18, 1998 to December 31, 1998:

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.

29
<PAGE> 32
OIS OPTICAL IMAGING SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 and six months ended
December 31, 1997 were 97,466,869, 97,468,007 and 97,467,964, 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.

30
<PAGE> 33

PROPOSAL NO. 2: 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.

Although the Company presently conducts no operations and does not intend
to reestablish any such operations in the future, the Company believes it to be
in its best interest and the best interest of its stockholders to continue to
run the affairs of the Company through the Board of Directors. The primary
purpose of the Board of Directors will be to oversee the orderly liquidation and
dissolution of the Company through the implementation of the Plan.

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>
President, Chief Financial Officer, Secretary &
Charles C. Wilson............................ 46 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.

31
<PAGE> 34

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 (the "Stock
Option Plan Committee") 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. 2.

32
<PAGE> 35

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.

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 RESTRICTED ALL
ANNUAL STOCK OPTIONS LTIP OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS(1) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------ ---- ------ ----- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rex Tapp..................... 1998 $190,050 -- (3) -- 135,000 $23,000(8)
CEO and 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 Engineering 1997 $136,154 -- -- $ 70,313(7) 12,500 $ 6,500(8)
and Fab Operations 1996 $109,692 -- -- $202,500 20,000 $ 6,500(8)
</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.
33
<PAGE> 36

(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.

The following tables show grants, exercises and fiscal year-end values of
stock options for the Named Executive Officers.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------------------------- AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS/SARS STOCK OPTION
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS/SARS IN FISCAL OR BASE EXPIRATION -----------------
NAME GRANTED(#) 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.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
SHARES AT FY-END FY-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) 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>

34
<PAGE> 37

TEN-YEAR OPTION/SAR REPRICINGS

<TABLE>
<CAPTION>
NUMBER OF MARKET PRICE
SECURITIES OF STOCK AT EXERCISE PRICE LENGTH OF ORIGINAL
UNDERLYING TIME OF AT TIME OF NEW OPTION TERM
OPTIONS/SARS REPRICING OR REPRICING OR EXERCISE REMAINING AT DATE OF
REPRICED OR AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE AMENDED (#) ($) ($) ($) AMENDMENT
---- ---- ------------ ------------ -------------- -------- --------------------
<S> <C> <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 a result of the Company's continued financial difficulties and the
eventual shutdown of its operations, effective 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.

35
<PAGE> 38

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. 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 has been, 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 Plan
Committee 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 did not consider 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.
36
<PAGE> 39

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 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 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 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

37
<PAGE> 40

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.

TOTAL RETURN TO STOCKHOLDER'S
(DIVIDENDS REINVESTED MONTHLY)

ANNUAL RETURN PERCENTAGE
YEARS ENDING

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
COMPANY/INDEX JUN 94 JUN 95 JUN 96 JUN 97 JUN 98
<S> <C> <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>

INDEXED RETURNS

YEARS ENDING

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
BASE
PERIOD
COMPANY/INDEX JUN 93 JUN 94 JUN 95 JUN 96 JUN 97 JUN 98
<S> <C> <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>

<TABLE>
<CAPTION>
OIS OPTICAL IMAGING ELECTRONICS
SYSTEMS S&P MIDCAP 400 INDEX (SEMICNDCTR)-500
------------------- -------------------- ----------------
<S> <C> <C> <C>
Jun 93 100.00 100.00 100.00
Jun 94 283.94 99.94 105.83
Jun 95 264.58 122.27 199.70
Jun 96 158.08 148.66 157.40
Jun 97 125.81 183.34 294.48
Jun 98 48.43 233.13 298.01
</TABLE>

38
<PAGE> 41

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 OVON. 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 did not 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 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.

39
<PAGE> 42

PROPOSAL NO. 3: 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 auditors 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 auditors 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 AUDITORS AS
DESCRIBED IN PROPOSAL NO. 3.

PROPOSAL NO. 4: 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, 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 Delaware General Corporation Law 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 Delaware General Corporation Law 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 Exchange Act of 1934 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 the proposed amendment is approved by the Company's stockholders, GDIC,
holder of approximately 84.6% of the total amount of votes afforded holders of
the Company's voting stock, will be able to effect Company action by written
consent, subject to the notice requirements described above, without holding a
meeting of the Company's stockholders or affording such stockholders the
opportunity to vote on such action. Neither the Delaware General Corporation Law
nor the Company's Restated Certificate of Incorporation requires that the
Company obtain the approval of a majority of the unaffiliated stockholders of
the Company to amend the Restated Certificate of Incorporation as contemplated
herein or to approve this proposal. As a result and after considering the
foregoing, the Company determined that it will not require the approval of the
majority of the unaffiliated stockholders of the Company to approve this
proposal.

40
<PAGE> 43

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. 4.

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

In the event that the Company has not completed its liquidation by such
time, 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 Securities and Exchange Commission 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

/S/ Charles C. Wilson
Charles C. Wilson
Secretary

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<PAGE> 44

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 assets, the Company shall collect, or make provision for the
collection of, all accounts receivable, debts and claims owing to the Company.

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<PAGE> 45

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 to liquidate and
wind up the Company's business affairs. The members

43
<PAGE> 46

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.

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<PAGE> 47

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.

45
<PAGE> 48

OISCM-PS-99.

<PAGE> 49
OIS OPTICAL IMAGING SYSTEMS, INC.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON MARCH 31, 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
Stockholders of OIS OPTICAL IMAGING SYSTEMS, INC. to be held at the Novi Hilton,
21111 Haggerty Road, Novi, Michigan 48375 on Wednesday, March 31, 1999 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> 50

<TABLE>
<CAPTION>
<S><C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE

- ---------------------------------- PROPOSAL NO. 1 FOR AGAINST ABSTAIN
OIS OPTICAL IMAGING SYSTEMS, INC. 1. Proposal to approve and adopt the [ ] [ ] [ ]
- ---------------------------------- Company's Plan of Liquidation and
Dissolution.

PROPOSAL NO. 2 FOR ALL WITH- FOR ALL
2. 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. 3 FOR AGAINST ABSTAIN
3. Proposal to approve appointment of [ ] [ ] [ ]
Arthur Andersen LLP as
independent auditors for
the fiscal year ending
June 30, 1999.

PROPOSAL NO. 4 FOR AGAINST ABSTAIN
4. 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. 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 Card. | 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.
</TABLE>

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- -------Stockholder sign here----------------Co-owner sign here-

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