-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DiIlxQTvLs57hTpuU+80LxasQ0NoQ1XStRM0Ao45iDJm/Dc4i6yJ0QFfTps1EPQJ NdrFR17E5pHAF4S4MrkNqQ== 0001260415-05-000047.txt : 20050524 0001260415-05-000047.hdr.sgml : 20050524 20050524083200 ACCESSION NUMBER: 0001260415-05-000047 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050308 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050524 DATE AS OF CHANGE: 20050524 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNASIL CORP OF AMERICA CENTRAL INDEX KEY: 0000030831 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 221734088 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27503 FILM NUMBER: 05852994 BUSINESS ADDRESS: STREET 1: 385 COOPER RD CITY: WEST BERLIN STATE: NJ ZIP: 08091 BUSINESS PHONE: 8567674600 MAIL ADDRESS: STREET 1: 385 COOPER RD CITY: WEST BERLIN STATE: NJ ZIP: 08091 8-K/A 1 dyn8k-052305.txt DYNASIL CORPORATION OF AMERICA FORM 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K/A Current Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934 Date of Report (Date of earliest event reported) March 8, 2005 -------------------------- Dynasil Corporation of America ------------------------------------------------------------ (Exact name of registrant as specified in its charter) New Jersey 000-27503 22- 1734088 - --------------------------- ---------- ----------- (State or other (Commission (IRS Employer jurisdiction of incorporation) File Number) Identification No.) 385 Cooper Road, West Berlin, New Jersey 08091 ------------------------------------------------------------ (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: (856)-767-4600 Not Applicable ------------------------------------------------------------ (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below): [] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 1 Item 2.01. COMPLETION OF ACQUISITION As previously announced, on March 8, 2005 Dynasil Corporation of America ("Registrant" or "Dynasil"), acting through a wholly-owned subsidiary, Optometrics Corporation, acquired the operating assets and assumed certain liabilities of Optometrics LLC, a worldwide supplier of quality optical components including diffraction gratings, lenses, thin film filters, laser optics, monochromators, and specialized optical systems and software. Dynasil acquired almost all of the operating assets of Optometrics LLC including production equipment, testing equipment, accounts receivable, inventory, cash, intellectual property, customer lists, order backlog and leasehold rights. In addition, Dynasil assumed specific operating liabilities such as accounts payable, accrued expenses and leasehold obligations. The acquisition was accounted for under the purchase method of accounting. The assets acquired from Optometrics LLC will be operated under the Optometrics Corporation name. The assets were purchased from Mr. Frank Denton and Ms. Laura Lunardo for a total of $700,000 in cash, 300,000 shares of Dynasil common stock, repayment of Optometrics LLC bank loans totaling $264,750 and a lease on a "triple-net" basis with customary terms and conditions by Dynasil and Optometrics Corporation of the building, owned by Mr. Denton and Ms. Lunardo, where the operations are currently conducted for an initial eight year term at annual rent of $114,000, with options to renew for two additional five year terms. Mr. Denton and Ms. Lunardo had no previous relationship with Dynasil, its affiliates or directors other than as a purchaser of fused silica parts from Dynasil and upon consummation of the acquisition, Ms. Lunardo became Chief Financial Officer of Dynasil. The acquisition was funded by $700,000 of proceeds of a private placement by Dynasil of 700,000 shares of a new series of convertible preferred stock at a sale price of $1.00 per share to existing and new shareholders as well as contemporaneous bank loans made in the ordinary course of business by Citizens Bank of Massachusetts to Optometrics Corporation that contained customary terms and provisions for such loans, including the pledge of Optometrics Corporation's assets and guarantees of those loans by Dynasil secured by certain of its assets. Mr. Craig T. Dunham, Dynasil President and CEO, purchased 263,000 shares of the new series of preferred stock for an aggregate purchase price of $263,000. A Current Report on Form 8-K was filed on March 14, 2005 to report this transaction and a copy of the press release was attached as Exhibit 99 to that Report on Form 8- K dated March 14, 2005. Item 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT The information set forth under Item 2.01 is incorporated herein by reference. Item 3.02 UNREGISTERED SALES OF EQUITY SECURITIES As previously reported, on March 8, 2005 Dynasil sold 700,000 shares of a Series A 10% Cumulative Convertible Preferred Stock in a private placement. The stock was sold at a price of $1.00 per share. No 2 underwriting discounts or commissions were paid in connection with the sale and costs incurred to complete the offering totaled $10,000. The securities were offered and sold only to accredited investors within the meaning of Rule 501(a) under the Securities Act of 1933, as amended (the "Act"), in a transaction conducted section 4(2) of the Act and Regulations D thereunder. Each share of preferred stock carries a 10% per annum dividend and is convertible to 2.2222 shares of common stock at any time by the holders, subject to adjustment for certain subsequent sales of common stock or securities convertible into or exchangeable for common stock, and is callable after two years by Dynasil at a redemption price of $1.00 per share. Proceeds from the preferred stock sale were used to acquire the assets of Optometrics LLC and working capital. Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of businesses acquired - Independent's Auditor's report - Optometrics LLC - Balance sheets - Optometrics LLC - Statements of Income - Optometrics LLC - Statements of Member's Equity - Optometrics LLC - Statements of Cash Flow- Optometrics LLC - Notes to Financial Statements - Optometrics LLC (b) Pro Forma financial information - Unaudited Actual Condensed Consolidated Balance Sheet of Dynasil Corporation of America, as of March 31, 2005 - Unaudited Pro Forma Condensed Consolidated Statement of Operations of Dynasil Corporation of America for the six months ending March 31, 2005 and the twelve months ending September 30, 2004. - Notes to the Unaudited Pro Forma Consolidated Financial Information. (c) Exhibits 2.1 Asset purchase agreement, dated as of February 17, 2005 between Dynasil Corporation of America, Optometrics LLC, Frank Denton, and Laura Lunardo. 2.2 Lease agreement dated March 8, 2005 between Dynasil Corporation of America, Optometrics Corporation, and Optometrics Holdings LLC. 3.1 Copy of Certificate of Incorporation, including form of Amendment to create Series A 10% Cumulative Convertible Preferred Stock* 23.1 Consent of Belanger & Company, P.C. 99.1 Dynasil Corporation of America press release dated March 9, 2005.* * Previously filed with the Securities and Exchange Commission as an exhibit to the registrant's Current Report of Form 8-K filed on March 14, 2005 and incorporated by reference herein. 3 (a) Financial Statements of businesses acquired Optometrics LLC Report and Financial Statements for the Years Ended December 31, 2004 and 2003 Independent Auditor's Report To the Members Optometrics LLC Ayer, Massachusetts We have audited the accompanying balance sheets of Optometrics LLC (the "Company") as of December 31, 2004 and 2003, and the related statements of income, members' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Optometrics LLC at December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Belanger & Company, P.C. Chelmsford, Massachusetts April 25, 2005 F-1 Optometrics LLC Balance Sheets December 31, 2004 and 2003 ASSETS Notes 2004 2003 - ------ ----- ------ ------ CURRENT ASSETS: Cash and equivalents 1,10 $ 95,868 $ 46,544 Accounts receivable (less allowance for doubtful accounts of $39,494 and $11,213, respectively) 1,9 303,235 320,350 Inventory 1,2 434,802 408,556 Prepaid expenses 89,836 77,278 --------- ---------- Total current assets 923,741 852,728 --------- ---------- PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment - at cost 1,3 524,453 459,040 Less: accumulated depreciation and amortization 220,121 140,879 --------- ---------- Property, plant and equipment - net 304,332 318,161 OTHER ASSETS: Deferred financing costs, net 7,588 10,939 --------- ---------- Total other assets 7,588 10,939 --------- ---------- TOTAL ASSETS $ 1,235,661 $ 1,181,828 =========== =========== LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES: Demand notes payable 4 $ 147,513 $ 222,513 Current portion of long-term debt 5 84,552 138,183 Accounts payable and accrued expenses 255,332 189,535 --------- ---------- Total current liabilities 487,397 550,231 --------- ---------- LONG-TERM LIABILITIES: Note payable to related party 7 106,915 71,692 Long-term debt 5 69,866 155,229 --------- ---------- Total long-term liabilities 176,781 226,921 --------- ---------- MEMBERS' EQUITY 571,483 404,676 --------- ---------- TOTAL LIABILITIES AND MEMBERS' EQUITY $ 1,235,661 $ 1,181,828 =========== =========== See accompanying notes which are an integral part of these financial statements. F-2 Optometrics LLC Statements of Income For the Years Ended December 31, 2004 and 2003 Notes 2004 2003 ----- ------ ------ NET SALES 1,9 $ 3,062,380 $ 2,555,567 COST OF SALES 1,743,875 1,491,696 ----------- ----------- GROSS PROFIT 1,318,505 1,063,871 ----------- ----------- OPERATING EXPENSES: General and administrative 7 410,293 343,153 Research and development 184,302 187,380 Marketing and selling 1 254,136 197,173 ----------- ----------- Total 848,731 727,706 ----------- ----------- OPERATING INCOME 469,774 336,165 ----------- ----------- OTHER INCOME (EXPENSE): Interest expense (38,107) (42,508) Other (4,622) (5,184) ----------- ----------- Total (42,729) (47,692) ----------- ----------- NET INCOME $ 427,045 $ 288,473 =========== =========== See accompanying notes which are an integral part of these financial statements. Optometrics LLC Statements of Members' Equity For the Years Ended December 31, 2004 and 2003 Balance, December 31, 2002 $ 316,698 Capital contributions - Net income 288,473 Distributions (200,495) ----------- Balance, December 31, 2003 $ 404,676 Capital contributions - Net income 427,045 Distributions (260,238) ----------- Balance, December 31, 2004 $ 571,483 =========== See accompanying notes which are an integral part of these financial statements. F-3 Optometrics LLC Statements of Cash Flows For the Years Ended December 31, 2004 and 2003 2004 2003 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 427,045 $ 288,473 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 84,249 73,489 (Increase) decrease in: Accounts receivable 17,114 (60,235) Inventory (26,245) 55,861 Prepaid expenses and other assets (12,558) 5,157 Increase (decrease) in: Accounts payable and accrued expenses 65,795 (33,536) Amount due to related party 35,223 8,152 --------- --------- Net cash provided by operating activities 590,623 337,361 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (67,068) (60,998) --------- --------- Net cash used for investing activities (67,068) (60,998) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under demand notes payable (75,000) 30,000 Proceeds from long-term debt - 10,341 Repayment of long-term debt (138,993) (134,960) Deferred financing costs - (6,182) Distributions (260,238) (200,495) --------- --------- Net cash provided by (used for) financing activities (474,231) (301,296) --------- --------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 49,324 (24,933) CASH AND EQUIVALENTS, BEGINNING OF YEAR 46,544 71,477 --------- --------- CASH AND EQUIVALENTS, END OF YEAR $ 95,868 $ 46,544 ========= ========= SUPPLEMENTAL DISCLOSURE TO THE STATEMENT OF CASH FLOWS: Interest paid $ 38,933 $ 32,901 ========= ========= Non-cash investing transactions: Equipment additions through capital leases 10,341 ========= See accompanying notes which are an integral part of these financial statements. F-4 Optometrics LLC Notes to Financial Statements For the Years Ended December 31, 2004 and 2003 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations - Optometrics LLC (the "Company") designs and manufactures optical components and instruments. The Company operates from one location in the United States. The Company markets its products worldwide to original equipment manufacturers and end users, both directly and through several overseas agents and distributors. Summary of Significant Accounting Policies Basis of Presentation - The 2004 financial statements include the accounts of Optometrics LLC. The financial statements are expressed in U.S. dollars and are prepared in accordance with accounting principles generally accepted in the United States of America. Description of Company Formation - Effective September 24, 2001, Optometrics LLC was organized as a limited liability company in accordance with the provisions of Massachusetts General Laws Chapter 156C. As a limited liability company, each member's liability is limited to the assets of the Company. The Company was acquired through the purchase of a wholly-owned subsidiary of Optometrics Corporation by the managers of the subsidiary. The Company commenced operations on October 23, 2001. Fair Value of Financial Instruments - The carrying value of cash and equivalents, accounts receivable, accounts payable and demand notes payable approximates fair value due to the short-term nature of these instruments. The carrying value of long-term debt approximates fair value due to variable interest rates or a fixed rate that approximates the variable interest rate. See Note 5 for its carrying amount, effective interest rate and maturity. Cash and Equivalents - The Company considers all highly liquid securities purchased with original maturities of 3 months or less to be cash equivalents. The Company maintains its cash accounts in commercial banks located in Massachusetts, in amounts that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. Inventory - Inventory is stated at the lower of cost (first-in, first-out method) or market. Property, Plant and Equipment - Property, plant and equipment is recorded at cost. Leased equipment is recorded at the present value of the minimum lease payments required during the lease F-5 period. Depreciation and amortization are provided over the estimated useful lives of the assets or minimum lease terms (three to forty years) using the straight- line method. Expenditures for major renewals and betterments which extend the useful lives of property and equipment are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Deferred Financing Costs - Costs related to obtaining debt financing have been deferred and are being amortized using the straight-line method over the approximate repayment periods of the related debt (five, ten and twenty years). Accumulated amortization approximated $9,200 and $5,800 at December 31, 2004 and 2003, respectively. The carrying value of deferred financing costs is reviewed whenever events or circumstances indicate that the carrying value may not be recoverable. Advertising Costs - The Company expenses advertising costs as incurred. Advertising expense was approximately $95,800 and $84,800 for the years ended December 31, 2004 and 2003, respectively. Revenue Recognition - Revenue from sales of product is recognized upon shipment. Shipping and handling costs are classified separately from revenues and are included in the cost of sales. Provisions for uncollectible trade receivables are estimated based upon both specific identification and a percentage of total receivables using a historical average. Past due trade receivables are charged off when management determines that all reasonable attempts for collection have been exhausted. Income Taxes - The Company is a limited liability company and is not a taxpaying entity for federal and state purposes, thus no income tax expense has been recorded in the statements. Income of the Company is taxed to the members in their respective returns. Research and Development - Research and development costs are expensed as incurred. Total research and development expenses amounted to $184,302 and $187,380 for the years ended December 31, 2004 and 2003, respectively. Use of Estimates - The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make assumptions regarding estimates reported in these financial statements. These estimates primarily include allowance for doubtful accounts, the useful lives of property, plant and equipment and reserves for obsolete inventory, among others. These assumptions could change based on future experience and, accordingly, actual results may differ from these estimates. F-6 2. INVENTORY At December 31, 2004 and 2003, inventory consisted of the following: 2004 2003 ------ ------ Raw materials $155,703 $203,508 Work-in-process 126,670 58,591 Finished goods 152,429 146,457 ---------- --------- Total $434,802 $408,556 ========== ========= 3. PROPERTY, PLANT AND EQUIPMENT At December 31, 2004 and 2003, property, plant and equipment consisted of the following: 2004 2003 ------ ------ Leasehold improvements $ 18,874 $ 18,276 Machinery and equipment 478,429 428,752 Furniture and fixtures 27,150 12,012 ---------- --------- Total $ 524,453 $459,040 ========== ========= Property, plant and equipment include certain capitalized leases. The following is a schedule, by year, of the future minimum payments under these leases, together with the present value of the net minimum payments as of December 31, 2004: Year ending December 31, Amount 2005 $ 17,885 2006 8,652 2007 2,874 2008 and thereafter 0 Total minimum lease payments 29,411 Less amount representing interest 3,326 --------- Total present value of minimum payments 26,085 Less current portion of such obligations 14,552 --------- Long-term obligations with interest rates ranging from 5.5% to 13.0% $ 11,533 ========= Depreciation and amortization of fixed assets amounted to $79,242 and $70,137 for the years ended December 31, 2004 and 2003, respectively. At December 31, 2004 and 2003, the capitalized cost of leased machinery and equipment approximated $103,790 and the related accumulated amortization approximated $55,785 and $36,405, respectively. Amortization expense is included in depreciation expense at December 31, 2004 and 2003. F-7 4. DEMAND NOTES PAYABLE Demand notes payable at December 31, 2004 and 2003 consisted of a line of credit. The line of credit is with a U.S. bank and provides for borrowings up to $350,000 at the bank's prime rate plus 0.5% (5.75% and 4.5% at December 31, 2004 and 2003, respectively). Borrowings under the line of credit are collateralized by all accounts receivable, inventory, plant and equipment, patents and trademarks of the Company and expire in June 2005. At December 31, 2004, $147,513 was outstanding and $202,487 was available under the line of credit. The line of credit is cross-collateralized with certain other long-term debt (See note 5). 5. LONG-TERM DEBT The notes payable to banks contain certain restrictive covenants concerning, among other things, additional indebtedness and capital expenditures. The bank loans are guaranteed by the two Members of the Company and are cross-collateralized with assets of a related party (See Note 7). The term note between the Company and a U.S. bank contains certain restrictive covenants. As of December 31, 2004, management is not aware of any violations of the covenants. Subordinated note is owed to a corporation in which the Members of the Company have an interest. Long-term debt at December 31, 2004, is due as follows: 2005, $84,552; 2006, $67,262; 2007, $2,605; and thereafter, $0. At December 31, 2004 and 2003, long-term debt consisted of the following: 2004 2003 Subordinated note. Note is uncollateralized and payable in twelve quarterly installments through October 2004. Interest accrues at 4.5% and is payable quarterly in arrears. $ - $ 52,253 Term loan due to a bank. Note is due in October 2006 and is payable in 60 monthly installments of principal and interest, commencing November 2001. Interest accrues at U.S. prime rate plus 1% (5.0% at December 31, 2004). It is collateralized by accounts receivable, inventory and plant and equipment of the Company and is guaranteed personally by the Members. 128,333 198,333 Capital lease obligations for various equipment. Effective interest rates range from 5.5% to 13.0%; payable monthly in varying amounts through July 2007; collateralized by related equipment. 26,085 42,826 -------- ------- Total 154,418 293,412 Less current portion 84,552 138,183 -------- ------- Long-term debt $ 69,866 $155,229 ======== ======= F-8 6. COMMITMENTS The Company leases certain buildings and equipment under long-term operating leases expiring on various dates through fiscal 2012 . Minimum lease payments under noncancelable operating leases are: 2005, $88,797; 2006, $80,828; 2007, $79,326; 2008, $79,326; 2009, $77,250 and, thereafter, $231,750. 7. RELATED PARTY TRANSACTIONS On December 23, 2002, land and buildings and the related mortgages were transferred at cost to Optometrics Holdings LLC. On that same date, Optometrics LLC executed an agreement to lease the building from Optometrics Holdings LLC for a period of ten years at an annual rental, as amended in June 2004, of $77,250. Optometrics Holdings LLC is also owned by the Company's Members. A note payable to Optometrics Holdings LLC was incurred for an amount equal to the excess of mortgages assumed over the net value of property transferred at December 23, 2002. Liabilities assumed by Optometrics Holdings LLC are cross-collateralized with those of the Company (see Note 5), are subject to certain covenants and are personally guaranteed by the Members of the Company. Rent expense for operating leases was $106,564 and $127,796 for the years ended December 31, 2004 and 2003, respectively, of which $92,562 and $114,000 was paid to Optometrics Holdings LLC for the years ended December 31, 2004 and 2003, respectively. 8. EMPLOYEE BENEFITS PLAN The Company has adopted a 401(k) savings plan covering substantially all of the employees of the Company. The plan is subject to certain minimum age and length of service requirements. The Company has the option to make discretionary contributions to the plan on behalf of the participants. The Company contributed $36,450 and $30,562 to the plan for the years ended December 31, 2004 and 2003, respectively. 9. CONCENTRATIONS In 2004, domestic sales represented approximately 72% of total sales. At December 31, 2004, two U.S. segment customers accounted for approximately 28% of sales and ten customers accounted for 57% of accounts receivable. 10.CREDIT RISK The Company maintains its cash accounts at a financial institution F-9 located in Massachusetts. Accounts are insured by the Federal Deposit Insurance Corporation up to $100,000. At December 31, 2004, the Company had no uninsured cash balances. 11.SUBSEQUENT EVENTS On March 8, 2005, the Company sold substantially all of its assets to Dynasil Corporation. F-10 (b) Unaudited Pro Forma Condensed Consolidated Financial Information Introduction On March 8, 2005, Dynasil completed its acquisition of certain assets and liabilities of Optometrics LLC (Optometrics) in a transaction accounted for as a purchase business combination. As consideration for the acquisition, Dynasil issued 300,000 shares of its common stock valued at approximately $68,400, paid $700,000 in cash to certain Optometrics LLC members, agreed to lease certain real estate owned by Optometrics' members and incurred acquisition- related costs of approximately $109,546. The purchase price of approximately $877,946 has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their estimated fair values. The unaudited pro forma condensed consolidated statements of operations for the year ended September 30, 2004 and for the six months ended March 31, 2005 have been prepared to give effect to the acquisition as if it had occurred on October 1, 2003. The unaudited actual condensed consolidated balance sheets as of March 31, 2005 was prepared to give effect to the acquisition since it had already occurred as of March 31, 2005. The historical consolidated financial statements of Optometrics have been prepared in accordance with U.S. generally accepted accounting principles. The unaudited pro forma adjustments are based on preliminary estimates, available information and certain assumptions and may be revised as additional information becomes available. The unaudited pro forma condensed consolidated financial information is not intended to represent Dynasil's financial position or results of operations for any future period. Since Dynasil and Optometrics were not under common control or management for any period presented, the unaudited pro forma condensed consolidated financial results may not be comparable to, or indicative of, future performance. This unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements of Dynasil as well as the Optometrics LLC statements included in this report. Dynasil's historical consolidated financial statements can be found in its Annual Report on Form 10-K filed on December 21, 2004. PF-1 UNAUDITED ACTUAL CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31 Consolidated ASSETS Dynasil Optometrics Eliminations Dynasil Current assets Cash and equivalents $322,228 $ 90,611 $ $ 412,839 Accounts receivable, net 416,224 354,468 770,692 Intercompany receivable 0 41,084 b (41,084) 0 Inventory 458,049 403,083 861,132 Other current assets 21,535 102,238 123,773 --------- ---------- ---------- ---------- Total current assets 1,218,036 991,484 (41,084) 2,168,436 Property, Plant and Equipment, net 370,858 406,507 777,365 Investment in Subsidiaries 668,400 0 a (668,400) 0 Other Assets Deferred financing costs 1,617 16,978 18,595 Intangibles 0 78,414 78,414 --------- ---------- ---------- ---------- Total other Assets 1,617 95,392 97,009 TOTAL ASSETS $ 2,258,911 $ 1,493,383 ($ 709,484) $ 3,042,810 --------- ---------- ---------- ---------- Consolidated LIABILITIES Dynasil Optometrics Eliminations Dynasil Current Liabilities Note payable to bank $ 0 $ 250,000 $ $ 250,000 Current portion of long-term debt 120,000 35,746 155,746 Accounts payable 226,688 86,341 313,029 Intercompany payable 41,084 b (41,084) 0 Accrued expenses 167,861 163,397 331,258 --------- ---------- ---------- ---------- Total current liabilities 555,633 535,484 (41,084) 1,050,033 Long-term Debt, net 428,889 285,565 714,454 Stockholders' Equity Common Stock 2,277 668,400 a(668,400) 2,277 Preferred Stock 690,000 0 690,000 Additional paid in capital 1,343,421 0 1,343,421 Retained earnings 225,033 3,934 228,967 --------- ---------- ---------- ---------- 2,260,731 672,334 2,264,665 Less treasury stock at cost (986,342) 0 (986,342) --------- ---------- ---------- ---------- Total Stockholders' Equity 1,274,389 672,334 1,278,323 --------- ---------- ---------- ---------- TOTAL LIABILITIES AND STOCK- HOLDERS' EQUITY $2,258,911 $ 1,493,383 ($ 709,484) $3,042,810 ========= ========== ======== =========
See accompanying notes to the unaudited pro forma condensed consolidated financial statements. PF-2 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2005 ProForma Acquisition Pro Forma Dynasil Optometrics Adjustments Dynasil Sales $ 1,659,221 $ 1,561,838 $ $3,221,059 Cost of sales 1,256,058 899,804 c,f 11,075 2,166,937 --------- ---------- ---------- ---------- Gross profit 403,163 662,034 (11,075) 1,054,122 Selling, general and administrative expense 372,403 449,047 a,e,g,h 90,279 911,729 Income (Loss) from operations 30,760 212,987 (101,354) 142,393 Other income (expense): Interest expense, net 15,941 16,135 b 7,055 39,131 Other expenses 0 44,994 e (44,994) 0 --------- ---------- ---------- ---------- Total other income (expense) 15,941 61,129 (37,939) 39,131 Income (Loss) before taxes 14,819 151,858 (63,415) 103,262 Provision for Income Taxes 0 0 d 9,502 9,502 --------- ---------- ---------- ---------- Net income (loss) $ 14,819 $ 151,858 ($ 72,917) $ 93,760 Net income (loss) per share- Basic $0.03 Diluted $0.02
See accompanying notes to the unaudited pro forma condensed consolidated financial statements. PF-3 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004 ProForma Acquisition Pro Forma Dynasil Optometrics Adjustments Dynasil Sales $ 2,296,264 $ 2,942,173 $ $ 5,238,437 Cost of sales 1,759,736 1,698,967 c.f 11,466 3,470,169 --------- ---------- ---------- ---------- Gross profit 536,528 1,243,206 (11,466) 1,768,268 Selling, general and administrative expense 676,976 707,189 a,e,g,h 235,032 1,619,197 --------- ---------- ---------- ---------- Income (Loss) from operations (140,448) 536,017 (246,498) 149,071 Other income (expense): Interest expense, net 35,433 41,578 b 9,555 86,566 Other expenses 0 55,294 e (55,294) 0 --------- ---------- ---------- ---------- Total other income (expense) 35,433 96,872 (45,739) 86,566 Income (Loss) before taxes (175,881) 439,145 (200,759) 62,505 Provision for Income Taxes 0 0 d 24,747 24,747 --------- ---------- ---------- ---------- Net income (loss) ($ 175,881) $ 439,145 ($ 225,506) $ 37,758 --------- ---------- ---------- ---------- Basic and diluted net income per share $0.01
See accompanying notes to the unaudited pro forma condensed consolidated financial statements. Notes to Unaudited Pro Forma Condensed Consolidated Financial Information Note 1 - Pro Forma Adjustments and Assumptions The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial information: The Optometrics acquisition has been accounted for under the purchase method pursuant to the provisions of SFAS No. 141, Business Combinations. Accordingly, the identifiable net tangible and separately identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair values as of the date of combination. Certain assets and liabilities that were not included in the business combination have been excluded. The unaudited pro forma adjustments herein PF-4 are based on preliminary estimates of fair value by an independent appraiser for major equipment items. The final allocation of the purchase price, when completed, may differ materially from the preliminary purchase price allocation herein. The consolidated balance sheet as presented above is actual since the acquisition has already been recorded. Refer to the Company's 10-QSB report previously filed on May 16, 2005 and incorporated herein by reference. The total consideration paid and preliminary purchase price allocation are as follows: Purchase price: Cash consideration paid at closing $ 700,000 Purchase price paid at closing in shares 68,400 of Dynasil common stock Estimated costs and expenses 109,546 --------- Total consideration $877,946 The purchase price paid at closing in shares of Dynasil common stock was valued in accordance with Emerging Issues Task Force Issue No. 99-12, Determination of the Measurement Date for the Market price of Acquirer Securities Issued in a Purchase Business Combination (EITF 99-12) based on the average closing price of Dynasil common stock two days prior and two days after the measurement date, or the date the acquisition was publicly announced by Dynasil. The purchase price attributable to the 300,000 shares of Dynasil common stock has been allocated to the par value and additional paid in capital line items in the unaudited Actual Condensed Consolidated Balance sheets. Purchase price allocation: Fair market value of net tangible assets $ 799,532 of Optometrics Intangible Asset- Acquired Customer Base 78,414 ---------- Total consideration $877,946 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information a) To reflect Optometrics' members' distributions as salary expense. b) To reflect the additional interest expense that would have been incurred as a result of increased borrowings that were partly used to fund the acquisition of Optometrics. c) To reflect the difference in depreciation of property, plant and equipment based upon the fair market valuation placed on those assets at acquisition date. d) To reflect an estimate of the Massachusetts state tax expense that Optometrics would have incurred had it been a corporation PF-5 rather than a limited liability company during the period(s) reflected in the pro forma condensed consolidated financial statements. e) To reclassify certain Optometrics expenses. f) To reflect the difference in rent expense for the impact of the new lease agreement negotiated by Dynasil for the Optometrics' facilities. g) To reverse the effect of an extraordinary event of litigation and the legal costs associated with the event that would not likely have happened had the Dynasil acquisition of Optometrics not taken place. h) To reflect the amortization expense related to the identifiable intangible assets associated with the acquisition of Optometrics. Identifiable assets are being amortized using the straight-line method over an estimated useful life of 7 years. PF-6 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DYNASIL CORPORATION OF AMERICA Date: May 24, 2005 By: /s/ Craig Dunham -------------------------- Craig Dunham President and Chief Executive Officer EXHIBIT INDEX 2.1 Asset purchase agreement, dated as of February 17, 2005 between Dynasil Corporation of America, Optometrics LLC, Frank Denton, and Laura Lunardo. 2.2 Lease agreement dated March 8, 2005 between Dynasil Corporation of America, Optometrics Corporation, and Optometrics Holdings LLC. 3.1 Copy of Certificate of Incorporation, including form of Amendment to create Series A 10% Cumulative Convertible Preferred Stock * 23.1 Consent of Belanger & Company, P.C. 99.1 Dynasil Corporation of America press release dated March 9, 2005.* * Previously filed with the Securities and Exchange Commission as an exhibit to the registrant's Current Report of Form 8-K filed on March 14, 2005 and incorporated by reference herein. 4 EX-2 2 ex2-1.txt EXHIBIT 2.1 ASSET PURCHASE AND SALE AGREEMENT AGREEMENT made this 17 day of February, 2005, by and among Optometrics LLC, a Massachusetts Limited Liability Corporation with an address of 8 Nemco Way, Stony Brook Industrial Park, Ayer, Massachusetts (the "Seller"); Frank Denton ("Denton"), residing at 31 Pond Street, #13, Waltham, Massachusetts 02451, and Laura Lunardo ("Lunardo"), residing at One Bennetts Crossing, Ayer, Massachusetts 01432, and Dynasil Corporation of America, a New Jersey corporation with an address of 385 Cooper Road, West Berlin, NJ 08091 (the "Buyer"). WHEREAS, the Seller desires to sell substantially all of its assets and business to the Buyer and the Buyer desires to purchase the same upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual agreements and covenants herein contained, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS 1.1 Purchase of Assets. (a) Seller shall sell and the Buyer shall purchase substantially all of the assets of the Seller, including without limitation those assets set forth below, free and clear of all liens, claims and encumbrances, except as specifically described or set forth herein, all of which shall be collectively referred to herein as the "Purchased Assets": (i) All rights, title and interest in and to the optical systems and components business known as Optometrics LLC (the "Subject Business") as currently conducted by the Seller, at the Seller's premises in Ayer, Massachusetts, together with the goodwill of the Subject Business, including without limitation all rights of the Seller in and to the name "Optometrics" and all variations thereof; (ii) The inventory of the Seller's products held for sale in the conduct of the Subject Business as of the Closing Date (collectively the "Inventory"), consisting of finished merchandise, raw materials, work in process and supplies, and described on Schedule 1(a)(ii) hereto which shall be updated or supplemented as of the Closing Date; (iii) All patents, trademarks, tradenames, registered copyrights and service marks as described and set forth in Schedule 1(a)(iii) attached hereto, as well as all copyrights, trade secrets and the worldwide website, domain name, phone number and other rights used by the Seller in the conduct of the Subject Business; (iv) All proprietary processes and formulae and all proprietary technical and other information and/or licenses, franchises, permits, authorizations, agreements and arrangements and other rights to use the foregoing used by the Seller in connection with the Subject Business, as more particularly described in Schedule 1(a)(iv) attached hereto (the "Intellectual Property"); (v) All of the Seller's machinery, equipment, furniture, fixtures, leasehold improvements, trade fixture supplies, spare parts, hardware, accessories and other tangible property (including, but not limited to, office supplies, computer supplies and tools owned by the Seller and used in the conduct of the Subject Business) including without limitation those items described in Schedule 1(a)(v) attached hereto, other than equipment subject to capital lease/purchase agreements (which will be assigned over to Buyer to the extent allowed by such agreements) (the "Personal Property"); (vi) All of the Seller's customer and vendor lists, copies of the price lists, forms, historical sales data and other existing financial, accounting and business records, files and data relating to or used or useful in connection with the Subject Business, whether in physical or electronic form, as the customers are more particularly described in Schedule 1(a)(vi) attached hereto ("Customers"); (vii) All of the Seller's contracts with customers and unfilled customer orders relating to the Subject Business and all deposits and other payments relating thereto, including without limitation those items described in Schedule 1(a)(vii) attached hereto ("Customer Contracts"); (viii) The full benefit of all warranties and warranty rights (implied, expressed or otherwise) against manufacturers, vendors, suppliers, contractors or other persons to which the Seller is or may be entitled; (ix) All prepaid expenses and prepaid corporate taxes, including without limitation, prepaid insurance premiums and prepaid service agreements, including without limitation those items described in Schedule 1(a)(ix) attached hereto ("Prepaid Expenses"); (x) All rights (except such rights in those insurance policies purchased pursuant to Paragraph 4.4 intended to cover any liability of Seller, Denton and/or Lunardo resulting from claims of any predecessor in interest) and obligations of the Seller in, to and under all contracts, leases, insurance policies and other agreements with third parties relating to or used or useful in connection with the Subject Business, including without limitation those items described in Schedule 1(a)(x) attached hereto, but specifically excluding any agreements, instruments or documents relating to items of indebtedness by the Subject Business to Optometrics Holdings LLC or to any of its predecessor businesses (collectively, the "Assumed Agreements"); (xi) All customer and trade and other accounts receivable and other amounts due or owing to the Seller and arising out of the operation of the Subject Business as of the Closing Date, including without limitation those items described in Schedule 1(a)(xi) attached hereto, which Schedule shall be updated and supplemented by the Seller as of the Closing Date (as hereinafter defined)) (the "Receivables"); (xii) All cash, bank accounts, equity or debt securities, recoverable or prepaid local, state or federal income and/or sales taxes (other than prepaid state and federal income tax on undistributed profits), bonds, deposits, judgments or any other interests to which the Seller is a party or a beneficiary, the location and account numbers of all of which are set forth on Schedule 1(a)(xii); and (xiii) All other assets used in connection with the Subject Business, as more fully described in Schedule 1(a)(xiii). (b) Anything in this Agreement to the contrary notwithstanding, the Purchased Assets shall not include the real estate located at 8 Nemco Way, Stony Brook Industrial Park, Ayer, Massachusetts standing in the name of Optometrics Holdings LLC (the "Excluded Assets"). Buyer agrees that, the provisions of Section 1.1(a)(i) notwithstanding, Lunardo and Denton shall be granted a royalty-free, perpetual right and license to use the name "Optometrics" solely for the purposes of operating the Limited Liability Company "Optometrics Holdings LLC" in its present organization and for its existing purpose and under its existing ownership. 1.2 Assumption of Liabilities. (a) The Buyer agrees to execute and deliver to the Seller at the Closing, an instrument in form and substance reasonably satisfactory to the Seller and its counsel, pursuant to which the Buyer shall assume and shall agree to pay, perform and discharge all of the Seller's obligations and liabilities arising under the Customer Contracts, including, without limitation, accounts payable, other expenses payable (including but not limited to insurance premiums, but excluding all intercompany debt between Seller and Optometrics Holdings LLC as of the Closing Date) and all payroll-related liabilities including payroll taxes incurred by the Seller prior to or as of the Closing Date, all federal, state and local taxes on undistributed profits incurred prior to the Closing Date (net of any previously distributed amounts) and the liabilities otherwise specifically set forth in this Section 1.2. The parties acknowledge and agree that tax liabilities are estimates only until applicable tax returns have been completed and submitted. The liabilities of the Seller that the Buyer has agreed to assume (other than the Assumed Agreements and Customer Contracts) pursuant to this Section 1.2 aggregated approximately $246,000 as of August 31, 2004 and are listed on Schedule 1.2(a) hereto, together with the estimated amounts thereof at the date of this Agreement. Those liabilities are hereinafter sometimes collectively referred to as the "Assumed Liabilities". (b) In addition to the Assumed Liabilities described in Section 1.2(a), the Buyer shall assume (if so allowed by the lender) or agree to pay off up to the aggregate amount of $375,000 in borrowings by the Seller under (i) a Line of Credit Note with a face value of $350,000 held by Citizens Bank of Massachusetts; and (ii) a Term Note with a face value of $350,000 held by Citizens Bank of Massachusetts. The Buyer agrees that it will undertake commercially reasonable efforts to remove or obtain the release of Denton and Lunardo as personal guarantors of such debt, including, but not limited to, providing the Buyer's guaranty if required by Citizens Bank of Massachusetts ("Citizens"). (c) In addition to the Assumed Liabilities, the Buyer shall assume up to the aggregate amount of $32,500 in obligations under the capital lease/purchase agreements (which will be assigned over to Buyer to the extent allowed by such agreements) listed on Schedule 1.2(c) attached hereto from the Closing Date. (d) Buyer will not assume or be responsible for any of the following liabilities, obligations, undertakings or commitments of the Seller, Denton or Lunardo, whether or not arising out of or relating to the Subject Business for any dates or time periods prior to the Closing Date, or any claims or demands based thereon or attributable thereto (whether accrued, absolute or contingent, whether known or unknown and regardless of the terms thereof or manner of assertion) and all such liabilities, obligations, undertakings and commitments and all such claims and demands shall remain the sole obligation and responsibility of Seller: (i) United States, foreign, state or local income or similar taxes applicable to, imposed upon or arising out of the transfer to the Buyer of the Assets, assumption by the Buyer of the Assumed Liabilities under this Agreement or for distributions of Seller's profits prior to or on the Closing Date except to the extent set forth in Section 1.10. (ii) Liabilities, costs, obligations or expenses of the Seller incurred in connection with this Agreement and the transactions contemplated herein; (iii) Except as provided in Section 5.1 of this Agreement, liabilities resulting from any claim of violation of any employment-related statute, law, or regulation or any employment agreement, incentive compensation or bonus plan, collective bargaining agreement, employee benefit plan, or pension plan (other than as accrued in the Financial Statements) by Seller, Denton or Lunardo occurring prior to the Closing Date; (iv) Liabilities or obligations arising out of or with respect to the discharge or termination of any employee by Seller at any time prior to the Closing Date, or any liabilities and obligations relating to employee compensation, payroll deductions and payroll taxes for any time periods prior to the Closing Date other than to the extent accrued or reserved for on the Financial Statements referred to in Section 2.7 of this Agreement; (v) Liabilities to any member, director, officer, employee of the Seller or any affiliate or related party of any of them for money borrowed, advances under any note, loan or similar obligation made prior to the Closing Date; (vi) Liability or other claims of any description whatsoever relating to any services rendered or goods sold by, with respect to or on account of, the Seller or the Subject Business prior to the Closing, including without limitation, any warranty, product liability or similar claim, other than to the extent insured against by the Seller or to the extent that any such liability or claims do not exceed by the amount of Five Thousand Dollars (U.S. $5,000.00) or more the amount accrued or reserved for on the Financial Statements referred to in Section 2.7 of this Agreement; provided that any such liability or claim results in direct financial loss to Buyer (solely by way of example, where a warranty claim results in a direct payment to a customer and not where the product is corrected, substituted for another or replacement product, credited against future purchases, or where the product is returned and resold). (vii) Liability arising out of any violation or any alleged violation by Seller prior to the Closing of any applicable laws, rules or regulations; (vii) Except to the extent set forth in Section 1.10 of this Agreement with respect to undistributed profits, liabilities and obligations for federal, state, local, foreign and other governmental taxes imposed on or with respect to the gross or net income of Seller for all periods ended or ending on or prior to the Closing; (viii) Except to the extent set forth in Section 2.14 of this Agreement, liabilities arising out of the Seller's breach, occurring and known to the Seller, Denton or Lunardo, prior to the Closing of the terms of any contracts; (ix) Liabilities under any bulk sale or similar law, rule or regulation for the benefit of trade or commercial creditors of the Seller or the Subject Business; (x) Except to the extent set forth elsewhere in this Section 1.2, liabilities, debts or obligations of the Seller or the Subject Business for money borrowed under any loan, line of credit or lending facility (whether secured or unsecured, or currently outstanding), any note, loan agreement, security agreement, mortgage, deed of trust or other agreement, document or instrument to which Seller is a party or by which it, the Subject Business or the Assets are bound or encumbered other than as set forth in Schedule 2.9; (e) In addition to the Assumed Liabilities described in Section 1.2(a), subject to the continuing accuracy and completeness in all material respects of the statements and representations made to the Buyer by Denton and Lunardo with respect thereto, the Buyer shall assume all liability, cost and expense of or accruing to the Seller, Optometrics Holdings, LLC, Denton and Lunardo arising under, related to or in connection with the lawsuit entitled McPherson, Inc. v. Optometrics, LLC, C.A. No.: MICV2004-04412. 1.3 Closing. The Closing of the transactions contemplated by this Agreement (the "Closing") shall be held at 10:00 a.m. on March 8, 2005 (the "Closing Date") at the offices of Davis, Malm & D'Agostine, P.C., One Boston Place, 37th Floor, Boston, Massachusetts 02108, or at such other place, date or time as may be agreed to in writing by the parties. Anything herein to the contrary notwithstanding, either the Seller or the Buyer may unilaterally extend the scheduled Closing Date for up to an additional 30 days upon written notice to the other party, but in no event shall the Closing Date be extended past April 8, 2005 without the agreement in writing of the Seller and the Buyer. 1.4 Deposit. As a deposit against its failure to perform its obligations hereunder, upon the execution hereof, Buyer shall deliver to Denton and Lunardo, a check payable jointly to them in the amount of Twenty-Five Thousand Dollars ($25,000) (the "Deposit") which they will deposit into an insured bank account. If the transactions contemplated by this Agreement are consummated, the amount of the Deposit, together with any interest earned thereon, will be credited toward the Purchase Price (as hereafter defined) due to Denton and Lunardo pursuant to Section 1.6 hereof. If the Seller, Denton or Lunardo fail to satisfy the conditions set forth in Article VI (excluding Paragraph 6.7, but including Paragraph 6.8 (but only to the extent, with regard to Paragraph 6.8, that Buyer's due diligence investigation reveals a past or current practice on the part of Sellers that is illegal or a fact or circumstance that would be materially adverse and would cause a reasonable person in the position of Buyer to terminate this Agreement)), or this Agreement is terminated pursuant to Sections 9.1(a) or 9.1(c)(i), the Deposit, together with any interest earned thereon, will be refunded by Denton and Lunardo to Buyer. If the Buyer fails to satisfy the conditions set forth in Article VII or if this Agreement is terminated pursuant to Section 9.1(d) or (e), or as otherwise set forth herein, the Deposit, together with any interest earned thereon, shall be retained by Denton and Lunardo. 1.5 Transactions at Closing. At the Closing, the Buyer will deliver to the Seller the consideration payable in accordance with the provisions of Section 1.6 below in addition to any other instruments or documents referred to herein. In addition, the Seller shall deliver to the Buyer, bills of sale, and such other instruments in form reasonably satisfactory to the Buyer, as shall be required to transfer title to the Purchased Assets, as of the Closing Date. 1.6 Payment of Purchase Price. In consideration for the sale and transfer of the Assets by Seller to Buyer, Buyer will, on the Closing Date, pay Denton or Lunardo, as follows (the "Purchase Price"): (a) An amount equal to Seven Hundred Thousand Dollars ($700,000) shall be paid by the Buyer at the Closing by bank, cashiers' or certified checks, with payments to be made as follows: (i) Three Hundred Fifty Thousand Dollars ($350,000) will be paid to Denton; and (ii) Three Hundred Fifty Thousand Dollars ($350,000) will be paid to Lunardo; and (b) Buyer shall transfer or cause to be transferred to Sellers as of the Closing shares of the common stock of Dynasil Corporation of America, as follows: (i) One Hundred Fifty Thousand (150,000) of such shares shall be transferred to Denton; and (ii) One Hundred Fifty Thousand (150,000) of such shares shall be transferred to Lunardo. 1.7 Lease of Premises. As part of the consideration to be paid by the Buyer to the Seller hereunder, Buyer will enter into a Commercial Lease Agreement with Optometrics Holdings LLC, leasing the premises at 8 Nemco Way, Ayer, Massachusetts for the term and rental rate and upon the terms and conditions of the Commercial Lease Agreement set forth in Exhibit B attached hereto. 1.8 Employment Agreements. As part of the consideration to be paid by the Buyer to the Seller hereunder, Buyer will enter into employment agreements with Denton and Lunardo in the form attached hereto as Exhibit D. 1.9 Allocation of Purchase Price. The allocation of the amounts paid by Buyer to Seller in consideration of the sale and transfer of the Purchased Assets by Seller to Buyer shall be as set forth in Schedule 1.9 attached hereto. Buyer and Seller agree: (a) to report the sale of the Purchased Assets for federal and state tax purposes in accordance with the allocation so stipulated; and (b) not to take any position inconsistent with such allocation on any of their respective tax returns. 1.10 Post Closing Adjustment for Tax Distribution. The parties contemplate that prior to the Closing, the Seller will distribute to Denton and Lunardo cash amounts that are estimated to be sufficient to enable Denton and Lunardo to pay the income taxes on the Seller's undistributed profits for the 2004 tax year (to the extent, but only to the extent, such amounts have not already been distributed prior to the date hereof). Denton and Lunardo, on the one hand, and the Buyer, on the other hand, agree that on or before May 1, 2005, Lunardo will determine the amount of Denton and Lunardo's tax liability on the Seller's undistributed profits for tax year 2004 and will provide to Buyer completed tax returns for Denton and Lunardo showing tax liability both before and after application of the undistributed profits. Denton and Lunardo agree that, not later than May 15, 2005, they will promptly pay to the Buyer the amount by which the amount of cash distributed exceeded their income tax liability for 2004 and the Seller agrees that, not later than May 15, 2005, it will promptly pay to Denton and Lunardo the amount by which the amount distributed was less than their income tax liability for 2004. Denton and Lunardo, on the one hand, and the Buyer, on the other hand, agree that on or before May 1, 2006, Lunardo will determine the amount of Denton and Lunardo's tax liability on the Seller's undistributed profits for 2005 through the Closing and will provide to Buyer completed tax returns for Denton and Lunardo showing that tax liability both before and after application of the undistributed profits. Seller agrees that, not later than May 15, 2006, it will promptly pay to Denton and Lunardo an amount sufficient to enable Denton and Lunardo to pay the income taxes on Seller's undistributed profits through the Closing for 2005 and for that tax year. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER, DENTON AND LUNARDO 2.1 Date of Representations and Warranties. As of the date of this Agreement and as of the Closing, the Seller makes the representations and warranties contained in this Article II. The representations and warranties of the Seller set forth in this Article II shall be subject to and qualified by any information disclosed in the corresponding section of the disclosure schedules attached hereto and made a part hereof (collectively, the "Disclosure Schedules") prepared by Seller and delivered to Buyer prior to the execution and delivery of this Agreement. The representations set forth in this Article II shall survive the Closing and the transactions contemplated hereby. 2.2 Organization and Qualification of the Seller. The Seller is a Limited Liability Corporation duly organized validly existing and in good standing under the laws of the Commonwealth of Massachusetts with full power and authority to own or lease its properties, conduct its business in the manner and in the place where such properties are owned or leased or such business is currently conducted and perform and discharge all of its obligations and liabilities, including those arising under this Agreement. The Seller is qualified to transact business in the Commonwealth of Massachusetts and in all other jurisdictions in which the nature of its business as presently conducted requires such qualification, except where the failure to qualify will not have a material adverse effect on the Subject Business. 2.3 Binding Effect. This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms. 2.4 Ownership of Assets. Immediately after the Closing, the Buyer will own the Purchased Assets outright, as the sole owner with the free right to the use, ownership and enjoyment of same with good and marketable title subject to no liens, mortgages, claims, charges or other encumbrances, except those created or assumed by the Buyer. 2.5 Consents and Authorizations. Seller is not required to obtain any authorization, consent or approval from, or file any notice, report or other filing (other than a Change of Name filing as required herein) with, any governmental or regulatory authority or other person in connection with this Agreement or the consummation of the transactions contemplated by this Agreement which has not been obtained. 2.6 No Violation. Except as set forth in Schedule 2.6, the execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated by this Agreement, will not result in or give rise to (i) any violation of any provision of the Certificate of Organization or Formation, Operating Agreement or any other charter, organizational or similar document or agreement of Seller; (ii) any default (or event which with notice or passage of time or both would constitute a default) or acceleration of any obligation under any indenture, trust, deed, loan agreement or other instrument relating to or evidencing indebtedness for monies borrowed by or credit available to Seller (provided that the parties have cooperated in good faith to fulfill all requirements of the loan instruments issued by Citizens, including but not limited to, notice requirements), (iii) any violation of any provision of any material lease, court order, arbitration award, judgment or decree to which Seller is a party or by which Seller, or its property is bound, (iv) a default (or event which with notice or passage of time or both would constitute a default) under or the acceleration of any obligation under any material contract, agreement, instrument or obligation relating to the Subject Business to which Seller is a party, other than those contracts, instruments or agreements which are not assignable or transferable. For purposes of this Section 2.6, the parties agree that defaults that would result in a payment of less than three percent (3%) of the Seller's current assets at the date hereof are not "material" for purposes of subparagraph (iv) hereof. 2.7 Financial Statements. Seller will make available a true and correct copy of the audited financial statements of Seller as of December 31, 2004, when available, and the unaudited financial statements of Seller as of August 31, 2004, December 31, 2003 and 2002 (the "Financial Statements"), the latter two of which have been reviewed by Belanger & Company, P.C., as indicated in their report with respect thereto. Except as reflected in the notes thereto, the Financial Statements were prepared by Seller in accordance with generally accepted accounting principles, consistently applied, are materially true and correct and fairly present the financial condition of the Company as of the dates indicated and the results of the operations for the periods then ended. Seller will make available to Buyer and Buyer's representatives all work papers, ledgers, journals and books of account used in the preparation of the Financial Statements. 2.8 Undisclosed Liabilities. Except as set forth in the Financial Statements (including the notes thereto), there are no liabilities of the Seller, whether accrued, absolute, contingent or otherwise, that are required to be set forth or described in the Financial Statements in accordance with generally accepted accounting principles. Further, there are no such liabilities that have occurred since August 31, 2004, none of which has had a material adverse effect on the Subject Business or the financial condition, operating results of the Subject Business or the Seller. As of the date hereof, there are no circumstances, conditions, happenings, events or arrangements, contractual or otherwise, of which Seller has actual knowledge which could reasonably be expected to give rise to any such liabilities, except in the normal course of the Subject Business and consistent with its past practices. 2.9 Title to Assets. Seller has good, valid and marketable title and owns outright all of the Assets free and clear of any claims, liens, encumbrances or charge except as set forth in Schedules 1.2(c) and 2.9 attached hereto. 2.10 Accounts Receivable. The accounts receivable shown in the Financial Statements and those arising since August 31, 2004 are valid receivables that arose entirely in the ordinary course of the Subject Business and, except to the extent of reserves or accruals reflected on the Financial Statements that the Seller believes are adequate and consistent with the Seller's past practices and historical experience, are collectible in the ordinary course of the Subject Business. 2.11 Equipment. All equipment included among the Purchased Assets is in good operating condition and repair, subject only to ordinary wear and tear, and, except as may require replacement in the normal course, adequate for the current use by the Seller. 2.12 Inventory. The Inventory is in good condition and salable in the ordinary course of business. 2.13 Adverse Changes. Since August 31, 2004, there has not been: (a) Any material adverse change in the financial condition or operating results of the Seller or any damage, destruction or deterioration, other than ordinary wear and tear, in the physical or operating condition of any of its Assets individually or in the aggregate that has had a material adverse effect on the Subject Business. (b) Any mortgage, pledge, lien or encumbrance granted or made upon any of the Assets. (c) Any sale, transfer or other disposition of any of the Assets, except in the ordinary course of the Subject Business. 2.14 Litigation and Claims. Except as set forth on Schedule 2.14, there is no action, suit, proceeding or claim by any person, any investigation by any governmental agency or instrumentality pending or, to the knowledge of the Seller, threatened against or involving Seller. There is no outstanding judgment, order, writ, injunction or decree or, to the knowledge of Seller, application, request or motion therefor, of any court, governmental agency or arbitration tribunal in a proceeding to which the Seller was or is a party or relating to the Subject Business. Seller has not received any notice, and has no knowledge, of any liability, claim, charge or assessment against Seller or the Purchased Assets relating to or arising out of any (a) unpaid tax or assessment; (b) employment or collective bargaining agreement; (c) unpaid wages, salaries, overtime or vacation pay, sick leave or any law, rule or regulation relating to employment; (d) any employee benefit plan; (e) law, rule or regulation relating to the environment; (f) patent, trademark, trade secret or other intellectual property; or (g) product warranty or product liability claims. 2.15 Leases. Seller will make available to the Buyer true and correct copies of each lease pursuant to which real or personal property is occupied or possessed by Seller, and each lease pursuant to which the Seller leases real or personal property to others, in connection with the Subject Business, including the premises occupied by the Seller (collectively, the "Leases"). Neither the Seller nor any other party thereto, is in default of any material provision of any of the Leases. 2.16 Material Contracts. Seller will make available to the Buyer true and correct copies of all contracts and commitments of Seller relating to the Subject Business (collectively, the "Contracts"), which involve an annual expenditure by Seller of, or under which Seller has become absolutely or contingently liable for, more than $5,000 (collectively, the "Material Contracts"). Seller is not in default of, nor has Seller violated any, material terms under any of the Material Contracts and, to the best of Seller's knowledge, no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default under any Material Contract which individually or in the aggregate would have a material adverse effect upon the financial condition of the Seller or the Subject Business. 2.17 Insurance Coverage. Seller has maintained in full force and effect the insurance policies covering the Subject Business listed on Schedule 2.17 hereto. In the opinion of the Seller, Denton and Lunardo, those policies are adequate in amount and coverage for the conduct of the Subject Business. All premiums necessary to maintain such insurance policies have been paid or accrued in full and reflected in the Financial Statements. Copies of all such insurance policies will be made available to the Buyer. The foregoing provision shall be subject to the terms of Section 4.4 herein. 2.18 Compliance with Laws. Seller has received all necessary authorizations, approvals, licenses, permits and orders of and from all governmental and regulatory officers and bodies that are material to the operation of the Subject Business as it is now being conducted. Seller is in full compliance with all material applicable federal, state or local laws, rules, regulations and administrative orders relating to the Subject Business as it is now conducted, including without limitation, all such laws, rules, regulations, standards and orders relating to protection of the environment, occupational health and safety, except where noncompliance would not have a material adverse effect on the Subject Business. No orders, decrees or mandates of any federal, state or local court or regulatory agency have been entered against Seller, and Seller has not received any citations or notice of violation of any laws, regulations, standards or orders relating to the environment or occupational health and safety, any proposed penalties, or any claim or charges of unfair labor practices, labor discrimination or other unfair labor practices pending before any federal, state or local court or regulatory agency which remain unresolved. 2.19 Prohibited Payments. Neither the Seller nor any member, officer, director, or employee of the Seller has offered, paid or agreed to pay to any person or entity, including any governmental official, or solicited, received or agreed to receive from any such person or entity, directly or indirectly, any money or anything of value for the purpose or with the intent of obtaining or maintaining the Subject Business or otherwise affecting the Subject Business or the operations, properties or condition (financial or otherwise) of the Seller and which is or was in violation of any law, rule or regulation, or not properly and correctly recorded or disclosed on the books and records of the Seller. 2.20 Information Systems. Seller will make available to the Buyer, all available license or other agreements regarding all computer hardware and software programs constituting or forming a part of Seller's management and information or operating systems owned by or under license to Seller and used or useful in the Subject Business (collectively, the "Information Systems"). All of the Information Systems are in executable and useable form, and are owned outright by Seller or available to Seller under valid and enforceable licenses, leases or similar arrangements with the owner thereof, which may be assignable to the Buyer at the Closing. To the knowledge of Seller without investigation, no portion of the Information Systems violates any United States or foreign patent, copyright, trademarks, or trade secrets of any person. 2.21 Full Disclosure. The representations and warranties of Seller, Denton and Lunardo set forth in this Agreement do not contain any material misstatement of fact or omit to state a material fact necessary to make the statements contained therein, in the circumstances in which they were made, not misleading. 2.22 Intellectual Property. Schedule 1(a)(iv) sets forth, to the best of Seller's, Denton's and Lunardo's present knowledge, a complete and correct description of all intellectual property owned in whole or in part by Seller (and when owned in part, so indicated in Schedule 1(a)(iv)), licensed by or to Seller, or used by Seller in connection with the Subject Business. Seller represents that: (i) except for royalties paid for the use of software acquired in the ordinary course of business, no person has a right to receive a royalty or similar payment in respect of any intellectual property other than as indicated on Schedule 1(a)(iv); (ii) all known and available licenses granted by or to Seller, or any other known and available agreements to which Seller is a party, relating in whole or in part to any of the intellectual property are listed on Schedule 1(a)(iv); (iii) Seller's use of the intellectual property does not infringe upon or otherwise violate the rights of any third party; (iv) no proceedings have been instituted against or notices received by Seller alleging that such use of its intellectual property infringes upon or otherwise violates any rights of a third party; and (v) except to the extent set forth in Schedule 1(a)(iv), Seller is not, nor will it be as a result of the execution, delivery and performance of this Agreement, in violation of any license or agreement to use any intellectual property unless such license or agreement is not assignable by its terms. 2.23 Employee Benefit Plans. (a) Schedule 2.23 contains a list of all "employee pension benefit plans" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to as the "Pension Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of ERISA ), bonus, stock option, stock purchase, deferred compensation plans or arrangements and other employee fringe benefit plans (collectively, the "Benefit Plans") maintained, or contributed to, by Seller for the benefit of any present or former employees of Seller. Each Benefit Plan has been administered in all material respects in accordance with its terms. There are no lawsuits, actions, termination proceedings or other proceedings pending or threatened against or involving any Benefit Plan and there are no investigations by any governmental entity or other claims (except claims for benefits payable in the normal operation of the Benefit Plans) pending or threatened against or involving any Benefit Plan or asserting any rights to benefits under any Benefit Plan. Except as set forth in Schedule 2.23, Seller is not required to contribute to any "multi-employer plan" (as defined in Section 4001(a)(3) of ERISA) for the benefit of any officer or employee of Seller, or has incurred any material withdrawal liability, within the meaning of Section 4201 of ERISA , with respect to any such multi-employer plan, which liability has not been fully paid as of the date hereof. 2.24 Tax Matters. (a) All Tax Returns required to be filed by or with respect to Seller have been duly and timely filed. All such Tax Returns are true, correct and complete and all Taxes shown as due and payable by or with respect to Seller on such Tax Returns have been paid in full on a timely basis except as set forth in Section 1.10. The charges, accruals, and reserves for Taxes due, or accrued but not yet due, relating to the income, properties or operations of Seller as reflected on the Financial Statements and the books of Seller are and will be adequate to cover such Taxes. All Taxes that Seller is required by law to withhold or collect have been duly withheld or collected, and have been timely paid over to the appropriate governmental authorities to the extent due and payable. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any Tax Returns required to be filed by or with respect to Seller, and no extensions of time within which to file a Tax Return have been requested for any Tax Return that has not yet been filed. Seller will not be required to include any adjustment for any Tax period or portion thereof that ends after the Closing Date under Section 481(c) of the Internal Revenue Code (the "Code") (or any similar provision of state, local or foreign law) as a result of a change in method of accounting for a Tax period ending prior to the Closing Date or pursuant to the provisions of any agreement entered into with any taxing authority with regard to the Tax liability of Seller for any Tax period ending prior to the Closing Date. There are no liens for any Tax on the Assets except for liens for Taxes not yet due and payable or liens for Taxes that are being contested in appropriate proceedings and for which adequate reserves have been made as listed in Schedule 2.24 hereto. For purposes of this Agreement, "Tax" (including with correlative meaning the terms "Taxes" and "Taxable") means (a) all foreign, federal, state, local and other taxes, including all income, gross receipts, sales, use, ad valorem, value-added, intangible, unitary, transfer, franchise, license, payroll, employment, estimated, excise, environmental, stamp, occupation, premium, property, prohibited transactions, windfall or excess profits, customs, duties or other taxes, levies, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, (b) any Liability for payment of amounts described in clause (a) as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period, or otherwise through operation of law, and (c) any liability for payment of amounts described in clause (a) or (b) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other Person for Taxes and "Tax Return" means any return (including any information return), report, statement, schedule, notice, form, estimate, or declaration of estimated tax relating to or required to be filed with any governmental authority in connection with the determination, assessment, collection or payment of any Tax. 2.25 Environmental Matters. Except as set forth on Schedule 2.25 or as described in the environmental report dated May 6, 2004, a copy of which the Seller will provide to the Buyer, no underground storage tanks and no amount of any substance that has been designated by any governmental authority or applicable law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws (other than customary office and janitorial supplies that are properly and safely maintained) (a ''Hazardous Material''), currently exist on any property owned, leased or operated by Seller or are present in amounts that either violate or reasonably could be expected to give rise to liability under applicable laws in, on or under any property, including the land and the improvements, ground water and surface water thereof, that Seller currently owns, occupies or leases. To the best of the Seller's, Denton's and Lunardo's knowledge, Seller has not transported, handled, stored, used, manufactured, disposed of or released, or exposed its employees or others to, Hazardous Materials in violation of any law in effect prior to or as of the Closing Date, and Seller has not disposed of, transported, stored, handled, sold, or manufactured any product containing a Hazardous Material (collectively, ''Hazardous Material Activities'') in violation of any rule, regulation, treaty or statute promulgated by any governmental authority in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity. Seller currently holds in full force and effect all material requisite environmental approvals, permits, licenses, clearances and consents (collectively, the "Environmental Permits") for the conduct of the Hazardous Material Activities and its other activities as such activities are currently being conducted. Seller, to the best of its, Denton's and Lunardo's knowledge: (A) is in compliance in all material respects with all terms and conditions of the Environmental Permits and (B) is in compliance in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the laws of all governmental authorities relating to pollution or protection of the environment or human health or safety or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder. No action, suit or proceeding is pending or threatened concerning any Environmental Permit, Hazardous Material or any Hazardous Material Activity, and Seller has not received any notice that it is responsible for or potentially responsible for any cleanup or for paying for any clean up of any Hazardous Material. 2.26 Customers and Suppliers. Schedule 2.26 sets forth lists of Seller's top ten customers and suppliers (in each case, in dollar volume) for the past two fiscal years. No entity listed on Schedule 2.26 as a top ten customer or supplier for the Seller's most recent fiscal year has terminated, or has indicated that it will terminate its relationship with the Seller or altered, or has indicated that it will alter, such relationship. 2.27 Employment. Schedule 2.27 sets forth the names, titles and current rates of compensation (whether in the form of salaries, bonuses, commissions or other supplemental compensation now or hereafter payable) of all employees of the Seller. The Seller will make available to the Buyer copies of any employment, severance or other compensation contracts and agreements relating to those employees. The Seller will also make available to the Buyer true, correct and complete copies of all written personnel policies, rules or procedures applicable to those employees. Further, except as set forth in Schedule 2.27, (i) Seller is not aware of any violation of any applicable laws respecting employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, nor has Seller ever been; (ii) no charges with respect to or relating to Seller are pending before the Equal Employment Opportunity Commission or any other agency responsible for the prevention of unlawful employment practices; (iii) the Seller has received no notice of the intent of any federal, state or local agency responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to Seller and no such investigation is in progress; and (iv) no complaints, lawsuits or other proceedings are pending or threatened in any forum by or on behalf of any present or former employee of Seller, any applicant for employment or classes of the foregoing alleging breach of any express or implied contract of employment, any law or regulation governing employment or the termination thereof or other discriminatory, wrongful or tortuous conduct in connection with the employment relationship. 2.28 Certain Transactions. Except as set forth in Schedule 2.28, or with regard to occasional advances made against wages or salaries earned, there are no transactions between Seller and any of its members, directors, officers, employees, or the family members or affiliates of any of them. 2.29 [Intentionally deleted] 2.30 Location of Purchased Assets. Except as set forth on Schedule 2.30, all of the Purchased Assets are located and used at the Seller's facility in Ayer, Massachusetts, a leased storage facility in Ayer, Massachusetts or at banks, brokerage firms or other financial, depositary or similar institutions under the Seller's name and control. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER 3.1 Date of Representations and Warranties. As of the date of this Agreement and as of the Closing, the Buyer makes the representations and warranties contained in this Article III. 3.2 Organization and Qualification of the Buyer. The Buyer is a corporation duly organized validly existing and in good standing under the laws of New Jersey with full power and authority to own or lease its properties and conduct its business in the manner and in the place where such properties are owned or leased or such business is conducted. 3.3 Binding Effect. This Agreement has been duly executed and delivered by the Buyer and constitutes the legal, valid and binding obligation of the Buyer enforceable against the Buyer in accordance with its terms. 3.4 Government Consent, etc. No consent, approval or authorization of or registration, designation, declaration or filing with any governmental authority on the part of the Buyer is required in connection with the purchase of the Purchased Assets pursuant to this Agreement or the consummation of any other transaction contemplated hereby. ARTICLE IV COVENANTS OF THE SELLER Between the date hereof and the Closing, the Seller shall comply with the following covenants: 4.1 Regular Course of Business. The Seller shall carry on its business in good faith and in the ordinary course substantially in the same manner as heretofore conducted, and will use commercially reasonable efforts to preserve its business organization, preserve the goodwill of the Subject Business and assets, keep available the services of its present officers, agents and employees and preserve the Seller's present relationships with persons having dealings with it. 4.2 Prohibited Activities. The Seller shall not, without the Buyer's prior written consent: (a) issue, sell or deliver, or agree to issue, sell or deliver, any equity securities of the Seller or other security of the Seller, grant or issue or agree to grant or issue any subscription, option, warrant or other right calling for the issuance thereof or declare or pay any dividend or other distribution on any of them; (b) purchase any shares of capital stock or any other securities of any corporation; (c) make any change in any employee benefit plan, or amend, alter or enter into any compensation arrangement with any officer or employee of the Seller other than in the ordinary course of business (excepting therefrom special 2004 bonus payments aggregating not more than $20,000 for senior management personnel of the Subject Business which shall be implemented prior to the Closing Date); (d) sell, mortgage, pledge or otherwise dispose of or encumber any asset of the Seller or cancel any debt or claim due the Seller other than in the ordinary course of business; (e) merge or consolidate with any other business entity or acquire control of any other business entity or business activity or take any steps incident thereto or in furtherance thereof; (f) make any material alteration in the manner of keeping its books, accounts or records or in the accounting practices therein reflected, except as required by law; (g) effect any change in or agree to change the certificate or articles of organization or formation, operating agreement or any other similar, constituent document or agreement of the Seller; (h) make any capital expenditure or enter into any lease for capital equipment or any commitment to do either other than in the ordinary course of business in excess of $25,000 for any single purchase; (i) fail to timely pay all of its current liabilities and obligations after the date hereof and prior to Closing; (j) change its accounting methods or practices; (k) enter into any contract or commitment, incur any liability or engage in any transaction relating to the Subject Business requiring an expenditure in excess of $25,000, other than in the ordinary course of business and consistent with past practices, or which is reasonably necessary for the consummation of the transactions contemplated by this Agreement; or (l) make any distributions to members or employees, consultants, advisors or agents other than historical salaries, bonuses other than in accordance with its past practices and employee salary or benefit plans (including the senior management special bonus referred to above), and distributions to pay estimated taxes in respect of undistributed 2004 profits of the Seller. 4.3 Borrowing. The Seller shall not incur, assume or guaranty any indebtedness or other obligation except for existing commercial indebtedness owed to Citizens Bank and normal amounts of trade indebtedness other than as permitted by Section 4.2(h). 4.4 Insurance. The Seller shall maintain in full force and effect all its present insurance policies as listed on Schedule 2.17 attached hereto (the "Policies"), and shall not take any action which would enable the insurers thereunder to avoid liabilities for claims arising out of occurrences prior to the date of Closing. Prior to the Closing, and at Seller's sole expense, but not in excess of $12,900 in premium expense, Seller may purchase insurance covering any liability of the Seller, Denton and/or Lunardo resulting from claims of any predecessor in interest to the Seller, which insurance, if purchased, shall be included in the Policies referenced herein. 4.5 Tax Returns. The Seller shall duly and timely file or cause to be filed all tax returns required to be filed for all taxable periods ending on or prior to the Closing. The Seller shall promptly pay all taxes and governmental charges lawfully levied or assessed upon it or its properties for all periods ending on or prior to the Closing, unless contesting the same in good faith and having established reasonable reserves therefor. 4.6 Compliance with the Laws. The Seller shall duly observe and conform to: (a) the lawful requirements of any governmental authorities relating to any of its properties or to the operation and conduct of its business; and (b) covenants, terms, and conditions upon or under which any of its properties are held. 4.7 Further Assurances. The Seller agrees to do or to cause to be done such further acts and things as may be reasonably required to carry into effect the purposes of this Agreement or to better assure and confirm in Buyer at Closing full title to the Purchased Assets to be transferred hereunder. 4.8 Claims, etc. The Seller has notified or will notify the Buyer promptly in writing of any claim, lawsuit, action or proceeding that may be asserted, commenced or threatened (where Seller has knowledge of such threat and has reason to believe that such threat is likely to result in any such action or proceeding) against Seller and affecting in any material respect the Subject Business, or challenging or seeking to enjoin or restrict, or which could be expected to prevent or restrict, the consummation of the transactions contemplated by this Agreement. 4.9 Access to Information. From and after the date of this Agreement, Seller shall give Buyer, its counsel, accountants and other representatives, full access during Seller's normal business hours, subject to reasonable security measures and reasonable prior notice, to all of the Assets and all books, records, agreements and commitments relating to the Subject Business, and shall furnish or cause to be furnished to Buyer's representatives during such period all such information concerning the Subject Business as the Buyer may reasonably request; provided that the Buyer shall hold all such information in confidence (except that the Buyer may disclose such documents and information as required by law). 4.10 Action and Consents. The Seller will take all necessary limited liability company actions and use its best efforts to obtain all governmental and other third party consents, approvals, novations, assignments and waivers required to be obtained by Seller for the consummation of the transactions contemplated in this Agreement and the continuation of the Subject Business for a reasonable time period following the Closing. In furtherance of the foregoing, the Buyer and the Seller will jointly cooperate and work together to obtain the foregoing. 4.11 Exclusivity. Until the earlier to occur of the Closing or the termination of this Agreement, none of the Seller, Denton or Lunardo will (i) solicit, initiate, or encourage the submission of any proposal or offer from any person, firm or entity relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets, of any of the Seller (including any acquisition structured as a merger, consolidation, or share exchange), (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person, firm or entity to do or seek any of the foregoing or (iii) accept in whole or in part any such proposal or offer. ARTICLE V COVENANTS OF THE BUYER 5.1 Employees. Prior to Closing, and in furtherance of its covenant set forth in Section 5.2, the Buyer shall offer employment, effective as of the completion of Closing, to all active employees of Seller (collectively, the "Employees") at substantially similar compensation and benefit levels as the Employees received as employees of Seller, with credit for term of service while employed by Seller. Seller shall not be liable for any amount of vacation pay for an Employee that is equal to or less than the amount reserved or accrued therefor by the Seller in the Financial Statements, but shall be liable for all such amounts that exceed such accruals or reserves. 5.2 Standstill Period. From the Closing Date and for a period of six (6) months thereafter (the "Standstill Period"), and except in the event of a sale of all or substantially all of the assets or controlling interest of Buyer, Buyer agrees that it shall operate the Subject Business in the ordinary course thereof and that without the mutual agreement of Denton and Lunardo, it shall not, nor shall it permit any other entity or individual under its control, directly or indirectly, to: (i) sell all or any substantial part of the assets of the Subject Business other than products of the Subject Business sold in the ordinary course; (ii) make any reductions in personnel other than changes caused by normal attrition or loss of business; (iii) reduce any of the personnel benefits or employee benefit plans currently offered by Seller, or (iv) reduce any wages, salaries, bonus programs or compensation plans or manner or method of payment of compensation to employees of the Subject Business. Further, during the Standstill Period, without the mutual agreement of Denton and Lunardo, Buyer agrees not to substantively change the manner, method or means of producing the products of the Subject Business or the raw materials, sources of raw materials, or vendors or suppliers used in the production thereof. The foregoing notwithstanding, Buyer may use alternate sources of raw materials, vendors or suppliers if the sources, vendors or suppliers used by the Subject Business are unable to deliver the raw materials in a timely manner or in the event Buyer may obtain raw materials of a better quality or at better prices, terms or conditions than those available to the Subject Business. The obligations set forth in this Section 5.2 shall survive the Closing. 5.3 [Intentionally deleted] 5.4 Further Assurances. The Buyer agrees to do or to cause to be done such further acts and things as may be reasonably required to carry into effect the purposes of this Agreement. 5.5 Action and Consents. The Buyer will take all necessary corporate actions and use its best efforts to obtain all governmental and other third party consents, approvals, novations, assignments and waivers required to be obtained by Buyer for the consummation of the transactions contemplated in this Agreement. In furtherance of the foregoing, the Buyer and the Seller will jointly cooperate and work together to obtain the foregoing. ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE BUYER The obligations of the Buyer under this Agreement to consummate the sale of the Purchased Assets and the other transactions contemplated hereby shall be subject to the satisfaction, on or before the Closing, of the following conditions: 6.1 Representations and Warranties. The representations and warranties contained in Article II hereof shall be true and accurate in all material respects as of the date when made and on and as of the date of Closing. 6.2 Performance of Covenants. The Seller, Denton and Lunardo shall have performed and complied in all material respects with each and every covenant, agreement and condition required by this Agreement to be performed or complied with by any of them prior to or on the Closing Date. 6.3 Instruments of Transfer. The Seller shall have executed and delivered to the Buyer (i) a General Bill of Sale and Assignment in substantially the form of Exhibit A attached hereto, and (ii) such other bills of sale, assignments and other instruments of transfer and assignment as may be reasonably requested by the Buyer in accordance with the provisions hereof, transferring to the Buyer all of the Seller's right, title and interest in and to the Purchased Assets to be transferred, sold, assigned and conveyed by the Seller to the Buyer pursuant to the provisions of this Agreement. 6.4 Absence of Changes. There shall not have been any material adverse change or impairment in the assets, financial condition or business of the Seller or the occurrence of any event or advent of any condition that could reasonably be expected to materially impair the ability of the Buyer to conduct the Subject Business on the same basis as it has been conducted prior to the date hereof between the date hereof and the Closing. 6.5 No Legal Action. Other than as set forth in Schedule 2.14, no action, suit, investigation or other proceeding relating to the transactions contemplated hereby shall have been instituted or threatened before any court or by any governmental body which seeks to restrain, enjoin or modify in any material respect the transactions contemplated hereby, or which seeks material damages or other material relief in connection therewith, and no law, rule or regulation shall have been enacted, issued or promulgated which creates a substantial risk that such transactions may be restrained, modified in a material respect, or adjudged illegal or invalid for any reason. 6.6 Certificates. Seller, Denton and Lunardo shall have delivered to the Buyer a certificate or certificates, dated as of the Closing, to the effect that their representations and warranties in this Agreement are true and correct in all material respects as of the Closing Date, all of the conditions set forth in this Agreement to be fulfilled by them have been fulfilled and such other matters as the Buyer may reasonably request. 6.7 Financing. The Buyer shall have obtained or had made available to it financing in an amount and on terms deemed acceptable by it in its sole judgment to enable it to pay the Purchase Price, enable it to fulfill its other obligations under this Agreement and fund its anticipated working capital requirements for the Subject Business for a reasonable period after Closing. In the event the Buyer has been unable to obtain or had made available to it such financing, and as a result thereof, Buyer fails to consummate the purchase of the Purchased Assets hereunder, Seller shall retain, as liquidated damages and not as a penalty, the Deposit which shall be non-refundable and non-returnable. 6.8 Due Diligence, Documents and Actions Satisfactory. The Buyer shall have completed or obtained to its sole satisfaction all items of due diligence it shall deem necessary or appropriate. Further, any and all opinions, certificates and other documents delivered to Buyer by Seller at or prior to the Closing and all actions to be taken by the Seller, Denton or Lunardo in connection with consummation of the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer. In the event Buyer fails to consummate the purchase of the Purchased Assets hereunder because Buyer's due diligence investigation reveals a past practice on the part of Sellers that is illegal or a fact or circumstance that would be materially adverse and would cause a reasonable person in the position of Buyer to terminate this Agreement, then the Deposit, together with any interest earned thereon, will be refunded by Denton and Lunardo to Buyer. Otherwise, the Deposit, together with any interest earned thereon, shall be retained by Denton and Lunardo as liquidated damages and not as a penalty. 6.9 Permits, Licenses, Consents and Approvals. The Seller shall have received and delivered to the Seller all permits, licenses, consents or approvals from government authorities or other third parties required to consummate the transactions contemplated by this Agreement. 6.10 Execution of Employment Agreements. Denton and Lunardo shall have executed and delivered to the Buyer the Employment Agreements referenced in Section 1.7 hereof. 6.11 No Increase in Assumed Liabilities. Without the Buyer's consent, the Assumed Liabilities (excluding all 2004 federal, state and local taxes, taxes on undistributed profits, net of any previously distributed amounts) shall not exceed the aggregate amount shown on Schedule 1.2(a) hereto by more than twenty percent (20%). ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE SELLER The obligations of the Seller under this Agreement to consummate the sale of the Purchased Assets and the other transactions contemplated hereby shall be subject to the satisfaction, on or before the Closing, of the following conditions: 7.1 Representations and Warranties. The representations and warranties of the Buyer contained in Article III hereof shall be true and accurate in all material respects as of the date when made and on the date of Closing. 7.2 Board Approval. The Buyer shall have received the approval of its Board of Directors to the consummation of the transactions contemplated hereby. 7.3 Performance of Covenants. The Buyer shall have performed and complied in all material respects with each and every covenant, agreement and condition required by this Agreement to be performed or complied with by it prior to or on the Closing Date. 7.4 Assumption Agreement. The Buyer shall have executed and delivered to the Seller an instrument of assumption substantially in the form of Exhibit C attached hereto pursuant to which the Seller shall assume the Assumed Liabilities (the "Instrument of Assumption"); 7.5 Payment of Purchase Price. The Buyer shall have paid the Purchase Price due at the Closing, including delivery of the cash portion thereof and delivery of the certificates evidencing the transfer of the shares of common stock of Dynasil Corporation of America to Denton and Lunardo as provided herein. 7.6 Execution of Lease and Employment Agreements. The Buyer shall have executed and delivered to Optometrics Holdings LLC the Commercial Lease Agreement referenced in Section 1.6 hereof. The Buyer shall also have executed and delivered to Denton and Lunardo the Employment Agreements referenced in Section 1.7 hereof. 7.7 Certificates. Buyer shall have delivered to the Seller a certificate or certificates, dated as of the Closing, to the effect that its representations and warranties in this Agreement are true and correct in all material respects as of the Closing Date, all of the conditions set forth in this Agreement to be fulfilled by Seller has been fulfilled and such other matters as the Buyer may reasonably request. 7.8 Release of Denton and Lunardo as Guarantors. Unless waived in their sole discretion, Denton and Lunardo shall have (a) been released by Citizens from their personal guarantees of the Seller's indebtedness to Citizens or (b) received such indemnity against liabilities relating to or arising under such indebtedness as they shall reasonably request. ARTICLE VIII SURVIVAL AND INDEMNIFICATION 8.1 Survival of Warranties. All representations, warranties, agreements, covenants, and obligations set forth herein or in any schedule, certificate or financial statement delivered incident to the transactions contemplated hereby are material, shall be deemed to have been relied upon, shall survive the Closing, and shall not merge into the performance of any obligations hereunder, for a period of two years from Closing. 8.2 Indemnification by Seller, Denton and Lunardo. Each of the Seller, Denton and Lunardo jointly agree to indemnify the Buyer with respect to any and all claims, losses, liabilities, costs and expenses (including attorney's fees and reimbursable expenses) which may be reasonably incurred by the Buyer arising out of the material inaccuracy of any representation or breach of warranty by any of them herein or in any document, instrument or certificate delivered to the Buyer pursuant to Sections 6.3 or 6.6 or the breach in any material respect by any of them of any covenant or agreement made by them in this Agreement or the Schedules hereto. The amount to be paid by way of indemnity in respect of any such claims, losses, liabilities, costs and expenses shall be such amount as may be necessary to compensate the Buyer for any diminution in the value of or increase in the cost of acquiring, owning, operating or dealing with the Purchased Assets to the extent it arises or results solely from such inaccuracy or breach. 8.3 Indemnification by the Buyer. The Buyer agrees to indemnify the Seller with respect to any and all claims, losses, liabilities, costs, and expenses (including attorneys' fees and reimbursable expenses) which may be reasonably incurred by the Seller arising out of the inaccuracy of any representations or breach of warranties of the Buyer or the breach by the Buyer of any of its covenants or agreements made in this Agreement or any document or instrument delivered by it in connection with the transactions contemplated hereby. 8.4 Limitation on Indemnification; Offset. Notwithstanding the foregoing, the right of any indemnitee to indemnification hereunder shall not apply except to the extent that all such claims exceed $50,000 in the aggregate; provided however, that the maximum aggregate liability hereunder for all claims against any indemnitor shall not exceed an aggregate of Nine Hundred Thousand Dollars ($900,000). As regards the indemnification obligations hereunder of the Seller, Denton and Lunardo, the first Seven Hundred Thousand Dollars ($700,000) of such obligation shall be payable jointly by Denton and Lunardo, provided, however, that, at its sole option, the Buyer may reduce the monthly amounts payable by it as rent under the Commercial Lease Agreement referred to in Section 1.7 by an amount not to exceed Five Thousand Dollars ($5,000) per month as a set-off against amounts otherwise payable jointly by Denton and Lunardo in respect of such aggregate $700,000 indemnification obligation. Further, as regards the indemnification obligation of the Seller, Denton and Lunardo for any amounts in excess of $700,000 (but not in excess of an aggregate of $900,000), those amounts shall not be payable jointly by Denton and Lunardo, but shall be recoverable by the Buyer only by reducing the monthly amounts payable by it as rent under the Commercial Lease Agreement referred to in Section 1.7 by an amount not to exceed Five Thousand Dollars ($5,000) per month. For purposes of clarification, in no event shall the reduction in monthly amounts payable to Denton and Lunardo as rent under the Commercial Lease Agreement pursuant to this Section 8.4 exceed Five Thousand Dollars ($5,000) per month in the aggregate. 8.4.1 In the event of any claim by a predecessor in interest to the Seller arising out of acts or circumstances covered by the insurance referred to in Paragraph 4.4 herein, to the extent any insurance proceeds are available to Seller, Denton or Lunardo after payment of any and all losses or liabilities incurred by Seller, Denton or Lunardo, the Seller, Denton or Lunardo shall pay and assign any such excess insurance proceeds to Buyer. ARTICLE IX TERMINATION 9.1 Termination of Agreement. Unless the Closing Date is extended by mutual written agreement of the parties, this Agreement will automatically terminate if the Closing does not occur by the close of business on March 31, 2005. Further, the Buyer and the Seller may terminate this Agreement as provided below: (a) the Buyer and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (b) the Buyer may terminate this Agreement by giving written notice to the Seller on or before the Closing Date if the Buyer is not in its sole discretion satisfied with the results of its continuing business, legal, and accounting due diligence regarding the Seller. (c) the Buyer may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing (i) in the event the Seller has breached any representation, warranty, or covenant contained in this Agreement in any material respect, the Buyer has notified the Seller of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach or (ii) if the Closing shall not have occurred on or before March 31, 2005 by reason of the failure of any condition precedent under Article VI hereof (unless the failure results primarily from the Buyer itself breaching any representation, warranty, or covenant contained in this Agreement); (d) the Seller may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing (i) in the event the Buyer has breached any representation, warranty, or covenant contained in this Agreement in any material respect, the Seller has notified the Buyer of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach or (ii) if the Closing shall not have occurred on or before March 31, 2005, by reason of the failure of any condition precedent under Article VII hereof (unless the failure results primarily from the Seller, Denton or Lunardo breaching any representation, warranty, or covenant contained in this Agreement); and (e) the Seller may terminate this Agreement by written notice to the Buyer upon the occurrence of any of the following events: (1) any voluntary petition in bankruptcy or any petition for similar relief is filed by the Buyer; (2) any involuntary petition in bankruptcy is filed against the Buyer and such petition has not been dismissed within sixty (60) days from the filing thereof; (3) a receiver is appointed for the Buyer or any material portion of the property of the Buyer; (4) the Buyer makes an assignment for the benefit of creditors; (5) the Buyer admits in writing its inability to meet its debts as they become due. 9.2 Effect of Termination. If any Party terminates this Agreement pursuant to Section 9.1 above, all rights and obligations of the Parties hereunder shall terminate without any liability of any party to any other party (except for disposition of the Deposit in accordance with the terms and conditions set forth herein and the liability, if any, of any party then in breach). ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Change of Name. Promptly after the Closing, Seller shall change its name to a name, which is not confusingly similar to "Optometrics". 10.2 Notices. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given if delivered in hand or mailed, postage prepaid, by certified or registered mail or sent by Federal Express or comparable courier to the parties at their addresses set forth in the preamble hereto or to such other address of which any party may by certified mail notify the other. Notwithstanding the foregoing, copies of all of the foregoing sent or given to the Seller, Denton or Lunardo also shall be sent or given to their counsel: Charles Verbisky, Esq., 425 Winter Street, Walpole, MA. 02081, telephone: 617-872-4215, facsimile: 508-660-6775 and email:cverbisky@aol.com and copies of all of the foregoing sent or given to the Buyer also shall be sent or given to its counsel: Gerald Chalphin, Esq., 427 E. Mt. Pleasant Avenue, Philadelphia, PA 19119, telephone: 215-248-1113, facsimile: 215-248-1113 and email: gchalphin@verizon.net. 10.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts excluding its conflict of laws provisions. Exclusive venue and jurisdiction for all purposes hereunder shall be the state and/or federal courts located in the Commonwealth of Massachusetts and the parties hereto hereby consent to such exclusive venue and jurisdiction and irrevocably waive their right to argue forum non conveniens with respect thereto. 10.4 Entire Agreement. This Agreement, including the schedules referred to herein, together with the Commercial Lease Agreement and Employment Agreements are complete and all promises, representations, understandings, warranties and agreements with respect to the subject matter hereof, and all inducement to the making of this Agreement relied upon by any party hereto, have been expressed herein and therein. This Agreement may not be modified or amended except in writing signed by the parties hereto. 10.5 Broker or Finder. Seller, Denton, Lunardo and Buyer warrant and represent to each other that no person or persons assisted the negotiation of this Agreement in the capacity of broker or agent or finder. Seller, Denton, Lunardo and Buyer agree to indemnify and hold each other harmless from and against any loss, damage, cost or expense, including reasonable attorneys' fees and expenses incurred by either party as a result of the other party's breach of the foregoing warranty and representation. 10.6 Expenses. Each of the parties hereto will bear its own legal fees, consulting or professional fees and other expenses incurred in connection with this Agreement or any transaction contemplated by this Agreement. 10.7 Binding Agreement and Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit to the parties hereto and their respective heirs, successors and assigns, but, except to the extent permitted by the next sentence, neither this Agreement nor any of the rights, interests and obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other. Without limiting the generality of the foregoing, the Buyer may assign all or any part of its rights and delegate all or any part of its obligations under this Agreement to its wholly- owned subsidiary, Optometrics Corporation; provided, however, that notwithstanding any such assignment or delegation, the Buyer shall nonetheless be liable for the full and faithful performance of such obligations. Executed under seal as of the date and year first above written. SELLER: BUYER: OPTOMETRICS LLC DYNASIL CORPORATION OF AMERICA By: /s/ Frank Denton Frank Denton, Member By: /s/ Craig T. Dunham Craig T. Dunham By: /s/ Laura Lunardo President and Chief Laura Lunardo, Member Executive Officer /s/ Frank Denton Frank Denton, Individually /s/ Laura Lunardo Laura Lunardo, Individually SCHEDULES Schedule 1(a)(ii) Inventory Schedule 1(a)(iii) Trademarks, Tradenames Schedule 1(a)(iv) Intellectual Property Schedule 1(a)(v) Personal Property Schedule 1(a)(vi) Customer List, etc. Schedule 1(a)(vii) Customer Contracts Schedule 1(a)(ix) Prepaid Expenses Schedule 1(a)(x) Assumed Agreements Schedule 1(a)(xi) Receivables Schedule 1(a)(xii) Bank and Securities Accounts, etc. Schedule 1(a)(xiii) Other Assets Schedule 1.2(a) Assumed Liabilities Schedule 1.2(c) Capital Lease/Purchase Agreements Schedule 1.9 Allocation of Purchase Price Schedule 2.6 Exceptions to No Violations Schedule 2.9 Exceptions to Good Title Schedule 2.14 Litigation and Claims Schedule 2.17 Insurance Policies Schedule 2.23 Employee Benefit Plans Schedule 2.24 Tax Liens, Reserves Schedule 2.25 Environmental Matters Schedule 2.26 Customers and Suppliers Schedule 2.27 Employment Schedule 2.28 Related Party Transactions Schedule 2.30 Location of Purchased Assets EXHIBITS Exhibit A General Bill of Sale and Assignment Exhibit B Form of Commercial Lease Agreement Exhibit C Instrument of Assumption Exhibit D Form of Employment Agreements EX-2 3 ex2-2.txt EXHIBIT 2.2 LEASE This instrument is an indenture of lease by and between Optometrics Holdings LLC, a Massachusetts Limited Liability Company ("Landlord") and Dynasil Corporation of America, a New Jersey corporation and Optometrics Corporation, a Delaware corporation ("Tenant"). The parties to this instrument hereby agree with each other as follows: ARTICLE I SUMMARY OF BASIC LEASE PROVISIONS 1.1 INTRODUCTION As further supplemented in the balance of this instrument, the following sets forth the basic terms of this Lease, and, where appropriate, constitutes definitions of certain terms used in this Lease. 1.2 BASIC DATA Date: March 8, 2005 Landlord: Optometrics Holdings LLC Payment Address: 8 Nemco Way Stony Brook Industrial Park Ayer, Massachusetts 01432 Tenant: Dynasil Corporation of America Mailing Address of Tenant: 385 Cooper Road West Berlin, New Jersey 08091 Premises: 8 Nemco Way Stony Brook Industrial Park Ayer, Massachusetts 01432 Lease Term: Eight (8) years (plus the partial calendar month immediately following the Term Commencement Date if the Term Commencement Date does not fall on the first (1st) day of a month). The Lease may be extended pursuant to Article 3.2 herein. Term Commencement Date: March 8, 2005 Base Rent: Shall be One Hundred Fourteen Thousand (U.S. $114,000.00) per annum, payable in monthly installments of Nine Thousand, Five Hundred (U.S. $9,500.00) Dollars. Rent Commencement Date: Upon the Term Commencement Date. Permitted Use: For general business office and manufacturing use and all uses presently being made of the Premises or as allowed by laws applicable to the Premises. Additional Rent: (i) Operating Expense: All Operating Costs for the Premises. (ii) Real Estate Taxes: All Real Estate Taxes for the Premises. Tenant's Insurance Requirements: Public Liability: As presently insured. Property Damage: Insured similar to current insurance levels in all material respects. ARTICLE II DESCRIPTION OF PREMISES AND APPURTENANT RIGHTS 2.1 LOCATION OF PREMISES The Landlord hereby leases to Tenant, and Tenant hereby accepts from Landlord, the land with the buildings thereon commonly known and numbered as 8 Nemco Way, Stony Brook Industrial Park, Ayer, Massachusetts 01432 (the "Premises"). 2.2 APPURTENANT RIGHTS AND RESERVATIONS Tenant shall have, as appurtenant to the Premises, rights to use the facilities including the buildings or the land constituting the Premises, including parking areas, walkways, driveways, lobbies, hallways, ramps, stairways and elevators, necessary for access to said Premises. Such rights shall be subject to reasonable rules and regulations from time to time established by Landlord by suitable notice, and to the right of Landlord to designate and change from time to time the areas and facilities so to be used, provided such changes do not unreasonably interfere with the use of the Premises for the Permitted Use. The Landlord reserves the right to install, use, maintain, repair and replace in the Premises (but in such manner as not unreasonably to interfere with Tenant's use of the Premises) utility lines, shafts, pipes, and the like, in, over and upon the Premises in accordance with the terms hereof. Such utility lines, shafts, pipes and the like shall not be deemed part of the Premises under this Lease. The Landlord also reserves the right to alter or relocate any common facility and to change the lines of the Lot if so required by applicable government authority or to preserve or protect the Premises. ARTICLE III TERM OF LEASE 3.1 TERM OF LEASE The term of this Lease shall be the period specified in Section 1.2 hereof as the "Lease Term" commencing upon the Term Commencement Date specified in Section 1.2. 3.2 OPTION TO EXTEND Provided that (i) Tenant has not assigned the Lease (except as otherwise permitted herein), and (ii) the Premises are not then subject to a sublease (whether the term of the sublease has commenced or is to be commenced thereafter) and Tenant will not be exercising the rights hereinafter set forth with the intent of assigning the Lease (except as otherwise permitted herein) or subleasing any portion of the Premises, then Tenant has the right to extend the Lease Term for two (2) five (5) year periods ("Extension Period") at the then current market rent rate, and otherwise on the same terms and conditions as this Lease, except that there shall be no further rights to extend the Lease Term. Tenant shall exercise the option for an Extension Period by written notice to Landlord not more than fifteen (15) months nor less than nine (9) months before the expiration of the Lease Term or, for purposes of the second Extension Period, not more than fifteen (15) months nor less than nine (9) months before the expiration of the first Extension Period. Tenant's exercise of this option shall be effective only if, at the time of notice and upon the effective date of the Extension Period, there is no Event of Default. Thereupon, this Lease shall be deemed extended for an additional period of five (5) years, upon all of the same terms and conditions of this Lease and any Amendments made hereto with the exception of the annual rent stipulated hereinabove. Except in the event that shares of Tenant have been listed on a nationally-recognized stock exchange, or quoted on NASDAQ for a period of two (2) years prior to Tenant's exercise of its option to renew the term of this Lease, Tenant's exercise of this renewal option shall be null and void unless Landlord receives (i) simultaneously with the notice of exercise and (ii) thirty (30) days before the commencement of the Extension Period, Tenant's certified financial statements for the immediately preceding three (3) year period. In the event Tenant's auditors provide a "going concern" qualification (but not a "subject to" opinion) as to Tenant's ability to continue as a going concern, Landlord may nullify Tenant's exercise of this renewal option. ARTICLE IV RENT 4.1 RENT PAYMENTS The Base Rent (at the rates specified in Section 1.2 hereof) and the additional rent or other charges payable pursuant to this Lease (collectively the "Rent") shall be payable by Tenant to Landlord at the Payment Address or such other place as Landlord may from time to time designate by written notice to Tenant without any demand whatsoever except as otherwise specifically provided in this Lease and without any counterclaim, offset or deduction whatsoever, except as further specified herein or as specified in Paragraph 8.4 of the ASSET PURCHASE AND SALE AGREEMENT entered into between the parties on February 17, 2005. (a) Commencing on the Rent Commencement Date, Base Rent and Taxes and Operating Expenses, if applicable, shall be payable in advance on the first day of each and every calendar month during the term of this Lease. If the Rent Commencement Date falls on a day other than the first day of a calendar month, the first payment which Tenant shall make shall be made on the Rent Commencement Date and shall be equal to a proportionate part of such monthly Rent for the partial month from the Rent Commencement Date to the first day of the succeeding calendar month. (b) Base Rent and Taxes and Operating Expenses, if applicable, for any partial month shall be paid by Tenant to Landlord at such rate on a pro rata basis. Any other charges payable by Tenant on a monthly basis, as hereinafter provided, shall likewise be prorated. (c) Rent not paid when due shall bear interest at the lesser of: (i) a rate of one and one-half percent (1.5%) per month; or (ii) the maximum legally permissible rate, from the due date until paid. 4.2 REAL ESTATE TAX (a) The term "Taxes" shall mean all taxes and assessments (including without limitation, assessments for public improvements or benefits and water and sewer use charges), and other charges or fees in the nature of taxes for municipal services which at any time during or in respect of the Lease Term may be assessed, levied, confirmed or imposed by any governmental entity or municipal authority on or in respect of, or be a lien upon, the Premises, or any part thereof, or any rent therefrom or any estate, right, or interest therein, or any occupancy, use, or possession of such property or any part thereof, and ad valorem taxes for any personal property used exclusively in connection with the Premises. Without limiting the foregoing, Taxes shall also include any payments made by Landlord in lieu of Taxes. Should the Commonwealth of Massachusetts, or any political subdivision thereof, or any other governmental authority having jurisdiction over the Premises, (1) impose a tax, assessment, charge or fee, which Landlord shall be required to pay, by way of substitution for or as a supplement to such Taxes, or (2) impose an income or franchise tax or a tax on rents in substitution for or as a supplement to a tax levied against the Premises or any part thereof and/or the personal property used exclusively in connection with the Premises or any part thereof, all such taxes, assessments, fees or charges ("Substitute Taxes") shall be deemed to constitute Taxes hereunder. Taxes shall also include, in the year paid, all reasonable fees and costs incurred by Landlord with the knowledge and consent of Tenant, not to be unreasonably withheld, in seeking to obtain a reduction of, or a limit on the increase in, any Taxes, regardless of whether any reduction or limitation is obtained, provided that Tenant receives any savings that may be awarded as a result of any such contest. Except as hereinabove provided with regard to Substitute Taxes, Taxes shall not include any inheritance, estate, succession, transfer, gift, franchise, net income or capital stock tax. (b) The Tenant shall pay directly to the taxing authority, or directly to Landlord if so requested by Landlord, all Taxes assessed against the Premises during any tax year (i.e., July 1 through June 30, as the same may change from time to time) during the Lease Term. In the event Landlord directs Tenant to pay all Taxes directly to Landlord, and Tenant makes such payment(s) in a timely manner, Landlord shall indemnify and hold Tenant harmless from any failure to pay such Taxes to any government entity or municipal authority, including any fines, costs or penalties assessed with regard to such failure. (c) If any Taxes, with respect to which Tenant shall have paid, shall be adjusted to take into account any abatement or refund, Tenant shall be entitled to a credit against rental obligations hereunder, in the amount of such abatement or refund less Landlord's reasonable costs or expenses, including without limitation reasonable appraiser's and attorneys' fees, of securing such abatement or refund or, if the Lease Term has expired and Tenant has no outstanding monetary obligations to Landlord, Landlord shall promptly pay such amount to Tenant. The Tenant shall not apply for any real estate tax abatement without the prior written consent of Landlord. (d) Tenant shall pay or cause to be paid, prior to delinquency, any and all taxes and assessments levied upon all trade fixtures, inventories and other personal property placed in and upon the Premises by Tenant during the Lease Term. 4.3 OPERATING COSTS Tenant shall pay directly to the provider of goods or services, or reimburse to Landlord as Additional Rent at the election of Landlord, all Operating Costs incurred with respect to the Premises. As used in this Lease, the term "Operating Costs" shall mean all costs and expenses incurred in connection with the operation, insuring (other than title insurance), repair, equipping, maintenance (except if caused by fire or other casualty), management and cleaning (collectively, "the Operation") of the Premises, the heating, ventilating, electrical, plumbing, and other systems including, without limitation, the following: (1) Costs for electricity, steam and other utilities required in the Operation of the Premises; (2) Water and sewer use charges; (3) Any capital expenditure made by Landlord during the term of this Lease, the total cost of which is not properly includable in Operating Costs, shall nevertheless be included in such Operating Costs, and Operating Costs for each succeeding operating year shall include the annual charge-off of such capital expenditure. Such capital expenditures shall be made by mutual consent or at the reasonable discretion of the Landlord in order to maintain the safety and security of the Premises or to maintain the Premises in a manner consistent with "like" properties within the locality in which the Premises are located. Annual charge-off shall be determined by dividing the original capital expenditure plus an interest factor, reasonably determined by Landlord, as being the interest rate then being charged for long-term mortgages by institutional lenders on "like" properties within the locality in which the Premises are located, by the number of years of useful life of the capital expenditure, and the useful life shall be determined reasonably by Landlord in accordance with generally accepted accounting principles and practices in effect at the time of making such expenditure. Anything in the foregoing to the contrary notwithstanding, except to the extent, if any, specifically set forth herein, the term "Operating Costs" shall not include any of the Landlord's administrative or transactional costs or expenses relating to the ownership, financing or refinancing, or leasing of the Premises, including, without limitation, the Landlord's expenses for its own administrative expenses, accounting, auditing or tax preparation or return preparation expense, franchise or income taxes, financing fees, expenses and costs, refinancing fees, expenses and costs, loan or mortgage broker fees or costs, survey or appraisal expense, environmental assessment or remediation expense (unless such environmental or remedial expense is subject to indemnification as provided in Paragraph 5.4 herein), subdivision or zoning approval (unless requested by Tenant), document preparation or legal expenses, leasing expenses and the like. ARTICLE V USE OF PREMISES 5.1 PERMITTED USE Tenant agrees that the Premises shall be used and occupied by Tenant only for the purposes specified as the Permitted Use thereof in Section 1.2 of this Lease, and for no other purpose or purposes. 5.2 COMPLIANCE WITH LAWS Tenant agrees that no trade or occupation shall be conducted in the Premises or use made thereof which will be unlawful, improper, or contrary to any law, ordinance, by-law, code, rule, regulation or order applicable in the municipality in which the Premises are located. Tenant shall, at its own cost and expense, (i) make all installations, repairs, alterations, additions, or improvements to the Premises required by any law, ordinance, by- law, code, rule, regulation or order of any governmental or quasi- governmental authority; (ii) keep the Premises equipped with all required safety equipment and appliances; and (iii) comply with all laws, ordinances, codes, rules, regulations, and orders and the requirements of Landlord's and Tenant's insurers applicable to the Premises. In the event such installations, repairs or alterations are considered capital expenditures in accordance with GAAP, such expenditures will be made by Landlord and reimbursed in accordance with subparagraph 4.3(9) above. Tenant shall not place a load upon any floor in the Premises exceeding the floor load per square foot of area which is allowed by law. Tenant shall not permit any use of the Premises which will make voidable or, unless Tenant pays the extra insurance premium attributable thereto as provided below, increase the premiums for any insurance on the Building or on the contents of said property or which shall be contrary to any law or regulation or which shall require any alteration or addition to the Building. Tenant shall, within thirty (30) days after written demand therefor, reimburse Landlord for the costs of all extra insurance premiums caused by Tenant's use of the Premises. Any such amounts shall be deemed to be additional rent hereunder 5.3 TENANT'S OPERATIONAL COVENANTS (a) Affirmative Covenants In regard to the use and occupancy of the Premises, Tenant will at its expense: (1) keep the Premises reasonably clean; (2) replace promptly any cracked or broken glass of the Premises with glass of like kind and quality; (3) maintain the Premises in a clean, orderly and sanitary condition and free of insects, rodents, vermin and other pests; (4) keep any garbage, trash, rubbish or other refuse in vermin-proof containers. (b) Negative Covenants In regard to the use and occupancy of the Premises and common areas, Tenant will not: (5) place or maintain any trash, refuse or other articles in any vestibule or entry of the Premises, on the sidewalks or corridors adjacent thereto or elsewhere on the exterior of the Premises so as to obstruct any corridor, stairway, sidewalk or common area; (6) permit undue accumulations of or burn garbage, trash, rubbish or other refuse within or without the Premises; (7) cause or permit objectionable odors to emanate or to be dispelled from the Premises; or (8) commit, or suffer to be committed, any waste upon the Premises, or use or permit the use of any portion of the Premises for any unlawful purpose. 5.4 ENVIRONMENTAL COMPLIANCE. (a) Tenant's Responsibility. Tenant shall not cause or permit the escape, disposal or release of any biologically active or other hazardous substances, or materials. Tenant shall not allow the storage or use of such substances or materials in any manner not sanctioned by law or in compliance with the best practices prevailing in the industry for the storage and use of such substances or materials, nor allow to be brought into the Premises any such materials or substances except to use in the ordinary course of Tenant's business. Tenant covenants and agrees that the Premises will at all times during its use or occupancy thereof be kept and maintained so as to comply with all now existing or hereafter enacted or issued statutes, laws, rules, ordinances, orders, permits and regulations of all state, federal, local and other governmental and regulatory authorities, agencies and bodies applicable to the Premises, pertaining to environmental matters or regulating, prohibiting or otherwise having to do with asbestos and all other toxic, radioactive, or hazardous wastes or material including, but not limited to, the federal Clean Air Act, the federal Water Pollution Control Act, and the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as from time to time amended (all hereafter collectively called "Laws"). Tenant shall execute affidavits, representations and the like, from time to time, at Landlord's reasonable request, concerning Tenant's best knowledge and belief regarding the presence of hazardous substances or materials on the Premises. (b) Indemnification. As used in this Section 5.4(b), the term, "Hazardous Material" shall mean any substance that is: (a) defined under any environmental law as a hazardous substance, hazardous waste, hazardous material, pollutant or contaminant, (b) a petroleum hydrocarbon, including crude oil or any fraction or mixture thereof, (c) hazardous, toxic, corrosive, flammable, explosive, infectious, radioactive, carcinogenic or reproductive toxicant, or (d) otherwise regulated pursuant to any environmental law. Tenant shall indemnify, defend and hold harmless Landlord and its members, shareholders, directors, officers, agents, employees, parent corporation, subsidiaries and affiliates from and against any and all damages, fines, judgments, penalties, costs, liabilities, expenses or losses (including, without limitation, any and all sums paid for settlement of claims, attorney's fees, consultant, investigation and expert fees) incurred with claims accruing or arising during the Lease Term or thereafter from or in connection with the presence or suspected presence of Hazardous Materials in, on or beneath the Premises caused by Tenant. Without limiting the foregoing, this indemnification shall include any and all costs reasonably incurred due to any environmental investigation of the Premises or any environmental cleanup, remediation, removal or restoration mandated by a federal, state or local agency or political subdivision. This indemnification shall specifically include any and all costs due to Hazardous Material that flows, diffuses, migrates or percolates into, onto or under the Premises after the Commencement Date. Notwithstanding the foregoing, and anything herein to the contrary notwithstanding, Tenant shall have no obligation to indemnify Landlord for or with respect to any Hazardous Materials that are or were present on or before the Term Commencement Date, including without limitation those that are referred to or described in the "Citizens Transaction Screen Assessment" dated May 6, 2004 prepared by GeoInsight, Inc. or are present as a result of Landlord's acts or omissions, as to any and all of which Landlord shall indemnify Tenant to the same extent as Tenant is obligated to indemnify Landlord hereunder. The parties agree that this Section 5.4(b) shall survive the expiration or earlier termination of this Lease for any reason and shall not be construed to limit Tenant's or Landlord's rights against any third party who may be responsible for the presence of Hazardous Materials on the Premises. In the event of a breach by either party of its representations or covenants contained in Sections 5.4(a) or 5.4(b) which breach is not cured within thirty (30) days after written notice of such breach from the other (or if such breach cannot be cured within said 30 day period, such additional time so long as the responsible party is diligently and continuously pursuing such cure), then either party shall have the right to terminate this Lease, without cost or liability therefor, upon written notice to the other party. (c) Tenant's Liability After Termination of Lease. The covenants contained in this Paragraph 5.4 shall survive the expiration or termination of this Lease, and shall continue for so long as either party and its successors and assigns may be subject to any expense, liability, charge, penalty, or obligation from which either party has agreed to indemnify the other party under this Paragraph 5.4. 5.5 INSTALLATIONS, ALTERATIONS, AND ADDITIONS Tenant shall not make structural installations, alterations, or additions to the Premises, but may make nonstructural installations, alterations or additions provided that Landlord consents thereto in advance and in writing. In any event, Tenant shall not demolish the existing office space in the Premises, without the prior written approval of Landlord, which approval shall not unreasonably be withheld. In no event shall Landlord's approval of any proposed installations, alterations, or additions to the Premises, whether in connection with Tenant's initial leasehold improvements or otherwise, constitute a representation by Landlord that such work complies with the requirements of any applicable law or regulation, including without limitation the requirements of the ADA. Any installations, alterations, or additions made by Tenant shall be at Tenant's sole cost and expense and shall be done in a good and workmanlike manner using materials of a quality at least equivalent to that of the existing improvements; and prior to Tenant's use of the Premises, after the performance of any such work, Tenant shall procure certificates of occupancy and any other required certificates. Tenant shall not suffer or permit any mechanics' or similar liens to be placed upon the Premises for labor or materials furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed at the direction of Tenant, and shall cause any such lien to be released of record forthwith without cost to Landlord. Any installations, alterations or additions made by Tenant to the Premises, including, without limitation, all utility systems, fixtures, machinery, equipment, and appliances installed in connection therewith, other than movable personal property, shall become the property of Landlord at the termination or expiration of this Lease, unless Landlord requires, at the time of Landlord's approval of such work, Tenant to remove any of the same, in which event Tenant shall, at its own cost and expense, comply with such requirement and repair any damage caused by such removal. As and to the extent reasonably requested by Landlord at the termination or expiration of this Lease, Tenant shall provide Landlord with all deeds, bills of sale or similar documents to transfer to vest in Landlord at or as of such time ownership of all such installations, alterations or additions made by Tenant. It is further agreed and understood that at the termination of this Lease or any extensions thereof, Tenant shall have restored the Premises to good repair, order and condition in all respects, including but not limited to repair of all floor surfaces damaged by the removal of partitions, machinery and equipment, and shall restore all floor areas to a good condition and repair, using materials to provide a consistent floor surface, reasonably satisfactory to Landlord; and shall have cleaned and removed accumulations of dirt and particles, oils, grease, and discolorations from all surfaces resulting from Tenant's processes and shall leave the Premises broom clean. ARTICLE VI ASSIGNMENT AND SUBLETTING 6.1 PROHIBITION Except as specifically set forth in this Article VI, Tenant shall not, directly or indirectly, assign, mortgage, pledge or otherwise transfer, voluntarily or involuntarily, this Lease or any interest herein or sublet (which term without limitation, shall include granting of concessions, licenses, and the like) or allow any other person or entity to occupy the whole or any part of the Premises, without, in each instance, having first received the express consent of Landlord. Any assignment of this Lease or subletting of the whole or any part of the Premises by Tenant without Landlord's express consent shall be invalid, void and of no force or effect. 6.2 PERMITTED ASSIGNMENT The foregoing notwithstanding, provided that Tenant is not then in default under this Lease, Tenant may assign this Lease upon written notice to Landlord, to a wholly-owned subsidiary or affiliate provided (and it shall be a condition of the validity of any such assignment) that such subsidiary or affiliate agrees directly with Landlord to be bound by all of the obligations of Tenant hereunder, including, without limitation, the obligation to pay the Rent and other amounts provided for under this Lease, the covenant to use the Premises only for the purposes specifically permitted under this Lease and the covenant against further assignment; but such assignment shall not relieve Tenant herein named of any of its obligations hereunder, and Tenant shall remain fully liable therefor. 6.3 PERMITTED SUBLETTING The terms of Paragraph 6.1 above notwithstanding, and provided that Tenant is not then in default under this Lease, if at any time or from time to time during the Lease Term, Tenant desires to sublease all (but not less than all) of the Premises, Tenant shall notify Landlord in writing of the terms of the proposed subleasing, the identity of the proposed sublessee, a copy of the proposed sublease, and such other information as Landlord may reasonably specify to evaluate Tenant's request. Within thirty (30) days subsequent to Landlord's receipt of the proposed sublease and such requested additional information, Landlord shall approve or disapprove in writing the proposed sublease and the proposed sublessee. Landlord's approval of the proposed sublease and/or subleesee shall not be unreasonably withheld, conditioned or delayed. If, with the written approval of Landlord, the Premises are subleased, Landlord may, after default by Tenant, collect Rent from the subtenant, and apply the net amount collected to the Base Rent and additional rental herein reserved, but no such subleasing or collection shall be deemed: (i) a waiver of any of Tenant's covenants contained in this Lease; (ii) the acceptance by Landlord of the subtenant as Tenant; or (iii) the release of Tenant from further performance by Tenant of its covenants under this Lease. Landlord's approval of or consent to a sublease transaction shall not operate to release Tenant from its liability hereunder, and shall not affect Landlord's rights under this Paragraph 6.3 as to any subsequent proposed sublease. Tenant covenants and agrees to deliver to Landlord one (1) fully executed counterpart of the instruments and documents (including amendments thereto) evidencing any approved subleasing effected pursuant to this Lease. Such delivery shall be made promptly following the execution of any such instrument or document. ARTICLE VII REPAIRS AND MAINTENANCE 7.1 TENANT OBLIGATIONS From and after the date that possession of the Premises is delivered to Tenant and until the end of the Lease Term, Tenant shall keep the Premises and every part thereof in good order, condition, and repair, reasonable wear and tear and damage by casualty, as a result of condemnation only excepted; and shall return the Premises to Landlord at the expiration or earlier termination of the Lease Term in such condition. 7.2 LANDLORD'S RIGHT OF ACCESS The Landlord and its agents, contractors, and employees shall have the right to enter the Premises at all reasonable hours upon reasonable advance notice or any time in case of emergency, for the purpose of inspecting or of making repairs or alterations, to the Premises, and Landlord shall also have the right to make access available at all reasonable hours to prospective or existing mortgagees or purchasers of any part of the Premises. For a period commencing twelve (12) months prior to the expiration of the Lease Term, Landlord may have reasonable access to the Premises at all reasonable hours for the purpose of exhibiting the same to prospective tenants. ARTICLE VIII UTILITIES 8.1 UTILITIES Tenant shall pay directly to the utility, as they become due, all bills for electricity, gas, water and sewer, and other utilities (whether they are used for furnishing heat or for other purposes) that are furnished to the Premises. ARTICLE IX INDEMNITY 9.1 INDEMNITY (a) TENANT'S INDEMNITY The Tenant shall indemnify and save harmless Landlord, the members, directors, officers, agents, and employees of Landlord, against and from all claims, expenses, or liabilities of whatever nature (a) arising from the failure of Tenant to comply with any rule, order, regulation, or lawful direction now or hereafter in force of any public authority, in each case to the extent the same are related, directly or indirectly, to the Premises, or Tenant's use thereof; or (b) arising directly or indirectly from any accident, injury, or damage, caused by Tenant, to any person or property, on or about the Premises; or (c) arising directly or indirectly from any accident, injury, or damage to any person or property occurring outside the Premises, where such accident, injury, or damage results, or is claimed to have resulted, from any act, omission, or negligence on the part of Tenant, or Tenant's contractors, licensees, agents, servants, employees, or customers, or anyone claiming by or through Tenant: provided, however, that in no event shall Tenant be obligated under this clause (c) to indemnify Landlord, the members, directors, officers, agents, employees of Landlord, to the extent such claim, expense, or liability results from any omission, fault, negligence, or other misconduct of Landlord or the officers, agents, or employees of Landlord on or about the Premises. Anything in the foregoing to the contrary notwithstanding, Tenant shall have no obligation to indemnify Landlord against any liability, cost or expense, arising from or relating to any pre- existing condition or state of affairs that Landlord knew or should have known to be a hazard or dangerous condition at the commencement of the Lease Term; however, Tenant shall be obligated to immediately notify Landlord of any such condition of which it becomes aware during the Lease Term. This indemnity and hold harmless agreement shall include, without limitation, indemnity against all expenses, attorney's fees and liabilities incurred in connection with any such claim or proceeding brought thereon and the defense thereof; provided that Landlord promptly notifies Tenant in writing of any claim for which it seeks indemnification hereunder and provides Tenant with sole control of any defense or settlement thereof, together with reasonable assistance in the defense thereof. 9.2 TENANT'S RISK The Tenant agrees to use and occupy the Premises at Tenant's sole risk; and Landlord shall have no responsibility or liability for any loss or damage, however caused, to furnishings, fixtures, equipment, or other personal property of Tenant or of any persons claiming by, through or under Tenant other than uninsured losses resulting from Landlord's negligence, Landlord's breach of any representation or warranty made hereunder by Landlord or Landlord's failure to perform in all material respects each and every one of Landlord's covenants made herein. "Uninsured losses" shall not include deductible amounts under Tenant's insurance. Without limiting the generality of the foregoing, Landlord acknowledges and agrees that Tenant intends to occupy and use the Premises for and in the manner contemplated by an Asset Purchase Agreement dated even date herewith entered into by and among Tenant, the principals of Landlord and Landlord's current tenant. 9.3 INJURY CAUSED BY THIRD PARTIES The Tenant agrees that Landlord shall not be responsible or liable to Tenant, or to those claiming by, through, or under Tenant, for any loss or damage resulting to Tenant or those claiming by, through, or under Tenant, or its or their property, that may be occasioned by or through the acts or omissions of persons occupying any part of the Premises, or for any loss or damage from the breaking, bursting, crossing, stopping, or leaking of electric cables and wires, and water, gas, sewer, or steam pipes, or like matters, except to the extent caused by the omission, fault, negligence, or other misconduct of Landlord or its officers, agents, or employees, or the breach of Landlord's obligations under the Lease. ARTICLE X INSURANCE 10.1 TENANT'S INSURANCE OBLIGATIONS Tenant shall carry public liability insurance in a company or companies licensed to do business in the state in which the Premises are located. Said insurance shall be in the amounts listed in the Basic Data and shall name Landlord as an additional insured, as its interests may appear. Tenant shall carry property damage insurance for all of its equipment and for all leasehold improvements which are made by Landlord or Tenant in and to the Premises, which policies shall name Landlord as an additional insured and be for the full replacement value of any such equipment or leasehold improvements similar to current insurance. Each policy shall contain an endorsement that will prohibit its cancellation or amendment prior to the expiration of thirty (30) days after notice of such proposed cancellation or amendment to Landlord. Tenant shall carry insurance in the initial amounts listed in the Basic Data and shall provide Landlord with certificates of such Tenant Insurance Requirements on or prior to the Commencement Date. 10.2 WAIVER OF SUBROGATION Tenant and Landlord each hereby release the other to the extent of their respective insurance coverage, from any and all liability for any loss or damage caused by fire or any of the extended coverage casualties or any other casualty insured against, even if such fire or other casualty shall be brought about by the fault or negligence of Tenant, Landlord or their agents. Tenant and Landlord agree that their respective policies covering such loss or damage shall contain a clause to the effect that this release shall not affect said policies or the right of Tenant or Landlord, as the case may be, to recover thereunder and otherwise acknowledging this mutual waiver of subrogation. ARTICLE XI CASUALTY 11.1 DEFINITION OF "SUBSTANTIAL DAMAGE" AND "PARTIAL DAMAGE" The term "substantial damage," as used herein, shall refer to damage which is of such a character that in Landlord's reasonable, good faith estimate the same cannot, in ordinary course, be expected to be repaired within 90 calendar days from the time that such repair work would commence. Any damage which is not "substantial damage" is "partial damage." 11.2 PARTIAL DAMAGE TO THE PREMISES If during the Lease Term there shall be partial damage to the Premises by fire or other casualty and if such damage shall materially interfere with Tenant's use of the Premises as contemplated by this Lease, Landlord shall proceed to restore the Premises to substantially the condition in which it was immediately prior to the occurrence of such damage. 11.3 SUBSTANTIAL DAMAGE TO THE PREMISES If during the Lease Term there shall be substantial damage to the Premises by fire or other casualty and if such damage shall materially interfere with Tenant's use of the Premises as contemplated by this Lease, Landlord shall restore the Premises to the extent reasonably necessary to enable Tenant's use of the Premises, unless Landlord, within ninety (90) days after the occurrence of such damage, shall give notice to Tenant of Landlord's election to terminate this Lease. The Landlord shall have the right to make such election in the event of substantial damage to the Building whether or not such damage materially interferes with Tenant's use of the Premises. If Landlord shall give such notice, then this Lease shall terminate as of the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof. 11.4 ABATEMENT OF RENT If during the Lease Term the Premises shall be damaged by fire or casualty and if such damage shall materially interfere with Tenant's use of the Premises as contemplated by this Lease, a just proportion of the Rent payable by Tenant hereunder shall abate proportionately for the period in which, by reason of such damage, there is such interference with Tenant's use of the Premises, having regard to the extent to which Tenant may be required to discontinue Tenant's use of the Premises, but such abatement or reduction shall end if and when Landlord shall have substantially restored the Premises or so much thereof as shall have been originally constructed by Landlord (exclusive of any of Tenant's fixtures, furnishings, equipment and the like or work performed therein by Tenant) to substantially the condition in which the Premises were prior to such damage. 11.5 MISCELLANEOUS In no event shall Landlord have any obligation to make any repairs or perform any restoration work under this Article XI if prevented from doing so by reason of any cause beyond its reasonable control, including, without limitation, the requirements of any applicable laws, codes, ordinances, rules, or regulations, the refusal of the holder of a mortgage or ground lease affecting the premises to make available to Landlord the net insurance proceeds attributable to such restoration, or the inadequacy of such proceeds to fund the full cost of such repairs or restoration, but reasonably promptly after Landlord ascertains the existence of any such cause, it shall either terminate this Lease or waive such condition to its restoration obligations and proceed to restore the Premises as otherwise provided herein. Further, Landlord shall not be obligated in any event to make any repairs or perform any restoration work to any alterations, additions, or improvements to the Premises performed by or for the benefit of Tenant (all of which Tenant shall repair and restore) or to any fixtures in or portions of the Premises or the Building which were constructed or installed by or for some party other than Landlord or which are not the property of Landlord. ARTICLE XII EMINENT DOMAIN 12.1 RIGHTS OF TERMINATION FOR TAKING If the Premises or such portion thereof as to render the balance (if reconstructed to the maximum extent practicable in the circumstances) physically unsuitable for Tenant's purposes, shall be taken (including a temporary taking in excess of 180 days) by condemnation or right of eminent domain or sold in lieu of condemnation, Landlord or Tenant may elect to terminate this Lease by giving notice to the other of such election not later than thirty (30) days after Tenant has been deprived of possession. Further, if so much of the Premises shall be so taken, condemned or sold or shall receive any direct or consequential damage by reason of anything done pursuant to public or quasi- public authority such that continued operation of the same would, in Landlord's opinion, be uneconomical, Landlord may elect to terminate this Lease by giving notice to Tenant of such election not later than thirty (30) days after the effective date of such taking. The Landlord shall have and hereby reserves and excepts, and Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Premises and the leasehold interest hereby created, and to compensation accrued or hereafter to accrue by reason of such taking or damage, as aforesaid. The Tenant covenants to deliver such further assignments and assurances thereof as Landlord may from time to time request. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for the value of any of Tenant's personal property installed in the Premises by Tenant at Tenant's expense and for relocation and increased occupancy and operating expenses, provided that such action shall not affect the amount of compensation otherwise recoverable hereunder by Landlord from the taking authority. In any action brought by Landlord with regard to any taking, Landlord will not claim as damages the value of Tenant's personal property maintained within the Premises. 12.2 ABATEMENT OF RENT In the event of any such taking of the Premises, the Rent or a fair and just proportion thereof, according to the nature and extent of the damage sustained, shall be suspended or abated, as appropriate and equitable in the circumstances. 12.3 MISCELLANEOUS In no event shall Landlord have any obligation to make any repairs under this Article XII if prevented from doing so by reason of any cause beyond its reasonable control, including, without limitation, requirements of any applicable laws, codes, ordinances, rules, or regulations or requirements of any mortgagee. Further, Landlord shall not be obligated to make any repairs to any portions of the Premises which were constructed or installed by or for some party other than Landlord or which are not the property of Landlord, and Tenant shall be obligated to perform any repairs on and restorations to any alterations, additions, or improvements to the Premises performed by Tenant. ARTICLE XIII 13.1 TENANT'S DEFAULT (a) Events of Default. The following shall be "Events of Default" under this Lease: (i) If Tenant shall fail to pay any monthly installment of Rent when due, and such default shall continue for five (5) days after written notice from Landlord; provided that no such notice shall be required if Tenant has received two (2) similar notices within three hundred sixty-five (365) days prior to such violation or failure; (ii) If Tenant shall fail to timely make any other payment required under this Lease and such default shall continue for five (5) days after written notice from Landlord; provided that no such notice shall be required if Tenant has received two (2) similar notices within three hundred sixty-five (365) days prior to such violation or failure; (iii) If Tenant shall violate or fail to perform any of the other terms, conditions, covenants or agreements herein made by Tenant in any material respect, if such violation or failure continues for a period of thirty (30) days after Landlord's written notice thereof to Tenant; provided that no such notice shall be required if Tenant has received two (2) similar notices within three hundred sixty-five (365) days prior to such violation or failure; (iv) Tenant's becoming insolvent, as that term is defined in Title 11 of the United States Code, entitled Bankruptcy, 11 U.S.C. Section 101 et. seq. (the "Bankruptcy Code"), or under the insolvency laws of any State, District, Commonwealth or Territory of the United States (the "Insolvency Laws"); (v) the appointment of a receiver or custodian for all or a substantial portion of Tenant's property or assets, or the institution of a foreclosure action upon all or a substantial portion of Tenant's personal property; (vi) the filing of a voluntary petition under the provisions of the Bankruptcy Code or Insolvency Laws; (vii) the filing of an involuntary petition against Tenant as the subject debtor under the Bankruptcy Code or Insolvency Laws, which is either not dismissed within ninety (90) days of filing, or results in the issuance of an order for relief against the debtor, whichever is earlier; (viii) Tenant's making or consenting to an assignment for the benefit of creditors or a common law composition of creditors; or (ix) Tenant's interest in this Lease being taken on execution in any action against the Tenant. (b) Landlord's Remedies. Should an Event of Default occur under this Lease, Landlord may pursue any or all of the following remedies: (i) Termination of Lease. Landlord may terminate this Lease by giving written notice of such termination to Tenant, or by reentry in accordance with applicable law, whereupon the mailing of such notice of termination addressed to Tenant, or in the case of reentry, upon such reentry, this Lease shall automatically cease and terminate and Tenant shall be immediately obligated to quit the Premises. If Landlord elects to terminate this Lease, everything contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice, subject, however, to the right of Landlord to recover from Tenant all Rent and any other sums accrued up to the time of termination or recovery of possession by Landlord, whichever is later. (ii) Suit for Possession. Landlord may proceed to recover possession of the Premises under and by virtue of the provisions of the laws of the state in which the Premises are located or by such other proceedings, including reentry and possession, as may be applicable. (iii) Reletting of Premises. Should this Lease be terminated before the expiration of the Term of this Lease by reason of Tenant's default as hereinabove provided, or if Tenant shall abandon or vacate the Premises before the expiration or termination of the Term of this Lease without having paid the full rental for the remainder of such Term, Landlord shall use commercially reasonable efforts to relet the Premises for such rent and upon such terms as are not unreasonable under the circumstances and, if the full Annual Rent and Additional Rent reserved under this Lease (and any of the costs, expenses or damages indicated below) shall not be realized by Landlord, Tenant shall be liable for all damages sustained by Landlord, including, without limitation, deficiency in rent, reasonable attorneys' fees, brokerage fees and expenses of placing the Premises in rentable condition including without limitation any alterations and improvements. Landlord, in putting the Premises in good order or preparing the same for rerental may, at Landlord's option, make such alterations, repairs or replacements in the Premises as Landlord, in its sole judgment, considers advisable and necessary for the purpose of reletting the Premises, and the making of such alterations, repairs, or replacements shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to relet the Premises except as set forth herein, or in the event that the Premises are relet, for failure to collect the rent under such reletting, and in no event shall Tenant be entitled to receive the excess, if any, of such net rent collected over the sums payable by Tenant to Landlord hereunder. (iv) Acceleration of Payment. If Tenant shall fail to pay any monthly installment of Rent pursuant to the terms of this Lease, within five (5) days of the date when each such payment is due, for three (3) consecutive months, or three (3) times in any period of twelve (12) consecutive months, then Landlord may, by giving written notice to Tenant, exercise any of the following options: (A) declare the entire rent reserved under this Lease to be due and payable within ten (10) days of such notice; (B) declare the rent reserved under this Lease for the next six (6) months (or at Landlord's option for a lesser period) to be due and payable within ten (10) days of such notice; or (C) require an additional security deposit to be paid to Landlord within ten (10) days of such notice in an amount not to exceed six (6) months rent. Landlord may invoke any of the options provided for herein at any time during which an Event of Default remains uncured. (v) Monetary Damages. Any damage or loss of rent sustained by Landlord may be recovered by Landlord, at Landlord's option, at the time of the reletting, or in separate actions, from time to time, as said damage shall have been made more easily ascertainable by successive relettings, or at Landlord's option in a single proceeding deferred until the expiration of the Term of this Lease (in which event Tenant hereby agrees that the cause of action shall not be deemed to have accrued until the date of expiration of said Term) or in a single proceeding prior to either the time of reletting or the expiration of the Term of this Lease. In addition, should it be necessary for Landlord to employ legal counsel to enforce any of the provisions herein contained, Tenant agrees to pay all attorney's fees and court costs reasonably incurred. (vi) Cumulative Remedies. In the event of a breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if reentry, summary proceedings and other remedies were not provided for herein. Mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy, in law or in equity, whether or not mentioned herein. Landlord's election to pursue one or more remedies, whether as set forth herein or otherwise, shall not bar Landlord from seeking any other or additional remedies at any time and in no event shall Landlord ever be deemed to have elected one or more remedies to the exclusion of any other remedy or remedies. Any and all rights and remedies that Landlord may have under this Lease, and at law and in equity, shall be cumulative and shall not be deemed inconsistent with each other, and any two or more of all such rights and remedies may be exercised at the same time insofar as permitted by law. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of the Premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease, or otherwise. (c) Waiver. If, under the provisions hereof, Landlord shall institute proceedings against Tenant and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of any other covenant, condition or agreement herein contained, nor of any of Landlord's rights hereunder. No waiver by Landlord of any breach of any covenant, condition or agreement herein contained shall operate as a waiver of such covenant, condition, or agreement itself, or of any subsequent breach thereof. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installments of rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or letter accompanying a check for payment of Rent or any other sum be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or any other sum or so pursue any other remedy provided in this Lease. No reentry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of the Lease or Premises. (d) Right of Landlord to Cure Tenant's Default. If Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant, then Landlord may, but shall not be required to, make such payment or do such act, and charge the amount of the expense thereof, if made or done by Landlord, with interest thereon at the rate which is 1.5% per month, or the highest rate permitted by law, whichever may be less; with it being the express intent of the parties that nothing herein contained shall be construed or implemented in such a manner as to allow Landlord to charge or receive interest in excess of the maximum legal rate then allowed by law. Such payment and interest shall constitute Additional Rent hereunder due and payable with the next monthly installment of Rent; but the making of such payment or the taking of such action by Landlord shall not operate to cure such default or to stop Landlord from the pursuit of any remedy to which Landlord would otherwise be entitled. (e) Late Payment. If Tenant fails to pay any installment of Rent on or before the tenth (10th) day of the calendar month when such installment becomes due and payable, Tenant shall pay to Landlord a late charge of three percent (3%) of the amount of such installment, and, in addition, such unpaid installment shall bear interest at the rate per month which is 1.5%, or the highest rate permitted by law, whichever may be less; with it being the express intent of the parties that nothing herein contained shall be construed or implemented in such manner as to allow Landlord to charge or receive interest in excess of the maximum legal rate then allowed by law. Such late charge and interest shall constitute Additional Rent hereunder due and payable with the next monthly installment of Rent due, or if payments have been accelerated pursuant to this Lease, due and payable immediately. ARTICLE XIV 14.1 SUBORDINATION Upon the written request of Landlord, Tenant shall enter into a recordable agreement with the holder of any present or future mortgage of the Premises which shall provide that (i) this Lease shall be subordinated to such mortgage, (ii) in the event of foreclosure of said mortgage or any other action thereunder by the mortgagee, the mortgagee (and its successors in interest) and Tenant shall be directly bound to each other to perform the respective undischarged obligations of Landlord and Tenant hereunder (in the case of Landlord accruing after such foreclosure or other action and in the case of Tenant whether accruing before or after such foreclosure or other action), (iii) this Lease shall continue in full force and effect, and (iv) Tenant's rights hereunder shall not be disturbed, except as in this Lease provided. Tenant may request that the mortgage holder execute a nondisturbance and attornment agreement with Tenant. The word "mortgage" as used herein includes mortgages, deeds of trust and all similar instruments, all modifications, extensions, renewals and replacements thereof, and any and all assignments of the Landlord's interest in this Lease given as collateral security for any obligation of Landlord. 14.2 MODIFICATIONS In the event that any holder or prospective holder of any mortgage, as hereinbefore defined, which includes the Premises as part of the mortgaged Premises, shall request any reasonable modification of any of the provisions of this Lease, other than a provision directly related to the Rent or other sums payable hereunder, the duration of the Term hereof, or the size, use or location of the Premises, and such modification is not detrimental to Tenant, Tenant agrees that Tenant will enter into a written agreement in recordable form with such holder or prospective holder which shall effect such modification and provide that such modification shall become effective and binding upon Tenant and shall have the same force and effect as an amendment to this Lease in the event of foreclosure or other similar action taken by such holder or prospective holder or by anyone claiming by, through or under such holder or prospective holder. ARTICLE XV MISCELLANEOUS PROVISIONS 15.1 CAPTIONS The captions throughout this Lease are for convenience or reference only and shall in no way be held or deemed to define, limit, explain, describe, modify, or add to the interpretation, construction, or meaning of any provision of this Lease. 15.2 COUNTERPARTS This Lease is executed in any number of counterparts, each copy of which is identical, and any one of which shall be deemed to be complete in itself and may be introduced in evidence or used for any purpose without the production of the other copies. 15.3 CONSTRUCTION AND GRAMMATICAL USAGE This Lease shall be governed, construed and interpreted in accordance with the laws of the Commonwealth of Massachusetts, and each party agrees to submit to the personal jurisdiction of any court (federal or state) in said Commonwealth for any dispute, claim or proceeding arising out of or relating to this Lease. 15.4 COVENANT OF QUIET ENJOYMENT Subject to the terms and provisions of this Lease and on payment of the Rent, additional rent, and other sums due hereunder and compliance with all of the terms and provisions of this Lease, Tenant shall lawfully, peaceably, and quietly have, hold, occupy, and enjoy the Premises during the term hereof, without hindrance or ejection by Landlord or by any persons claiming by, through or under Landlord; except as otherwise specifically provided herein, the foregoing covenant of quiet enjoyment is in lieu of any other covenant, express or implied. 15.5. ESTOPPEL CERTIFICATES. Landlord and Tenant both agree on the Term Commencement Date and from time to time thereafter, upon not less than fifteen (15) days' prior written request by either party to execute, acknowledge and deliver to the other party a statement in writing, certifying that this Lease is unmodified and in full force and effect, that such party has, except to the extent set forth therein, no defenses, offsets or counterclaims against its obligations to pay rent and other charges required under this Lease and to perform its other covenants under this Lease and that, except to the extent set forth therein, there are no uncured defaults of Landlord or Tenant under this Lease (or, if there have been any modifications, that this Lease is in full force and effect, as modified, and stating the modifications, and, if there are any defenses, offsets, counterclaims or defaults, setting them forth in reasonable detail), and the dates to which the Rent and other charges have been paid. Any such statement delivered pursuant to this Section 15.5 may be relied upon by any prospective purchaser or mortgagee of the property which includes the Premises or any prospective assignee of any such mortgagee. 15.6 HOLDOVER If Tenant remains in the Premises after the termination of this Lease, by its own terms or for any other reason, such holding over shall not be deemed to create any tenancy, but Tenant shall be a tenant at sufferance only, at a daily rate equal to 125% of the Rent applicable immediately prior to such termination plus the then applicable additional rent and other charges under this Lease. Tenant shall also pay to Landlord all damages, direct or indirect, sustained by Landlord by reason of any such holding over. Otherwise, such holding over shall be on the terms and conditions set forth in this Lease as far as applicable. 15.7 ENTIRE AGREEMENT This Lease sets forth all the covenants, promises, agreements conditions, representations and understandings between Landlord and Tenant concerning the Premises and there are no covenants, promises, agreements, conditions, representations or understandings, either oral or written between them other than those herein set forth and this Lease expressly supersedes any proposals or other written documents relating hereto. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord and Tenant unless reduced to writing and signed by them. IN WITNESS WHEREOF, the parties hereto have executed this instrument under seal as of the date set forth in Section 1.2, above. LANDLORD: OPTOMETRICS HOLDINGS LLC _/s/ Frank Denton By: Frank Denton, Member /s/ Laura Lunardo By: Laura Lunardo, Member TENANT: DYNASIL CORPORATION OF AMERICA By: /s/ Craig T. Dunham Print: Craig T. Dunham Title: President/ CEO TENANT: DYNASIL CORPORATION OF AMERICA By: /s/ Craig T. Dunham Print: Craig T. Dunham Title: President EX-23 4 ex23-1.txt EXHIBIT 23.1 Belanger & Company, P.C. Certified Public Accountants 6 Courthouse Lane Chelmsford, MA 01824 (978) 458-3700 May 23, 2005 To Whom It May Concern: Belanger & Company, P.C. does hereby consent to the use of Optometrics LLC's 2004 and 2003 audited financial statements in Dynasil Corporation's Form 8K and subsequent Dynasil Corporation documents. Respectfully submitted, /s/ Belanger & Company,P.C. Belanger & Company, P.C. Chelmsford, Massachusetts -----END PRIVACY-ENHANCED MESSAGE-----