[FIBERSTARS LETTERHEAD]
December 10, 1998
PERSONAL AND CONFIDENTIAL
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Mr Xxxxx Xxxxxx
Water Quality Management
Toronto, Canada
Re: Memorandum of Understanding for Catalyst(TM) product
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Dear Xxxxx,
This memorandum is designed to capture the understanding between the parties
with respect to the on-going operations of the Fiberstars Catalyst(TM)
("Catalyst") product line. The following has been agreed by Xxxxxxxxxx, Inc.
("Fiberstars") and Water Quality Management ("WQM"):
1. Catalyst Operations
(a) As soon as practical, Fiberstars will ship all existing
inventory for the productline from its current location at Magic Plastics or
Fiberstars to a facility run by WQM in Toronto, Canada. All inventory will
continue to be owned by Fiberstars. Fiberstars will purchase additional
inventory as requested by WQM in order to meet projected customer demand. WQM
will order materials, with Fiberstars approval. XX's will have the "ship to" as
WQM and will be invoiced to Fiberstars. WQM will maintain the inventory in good
order so that it may be counted from time to time by Fiberstars. WQM will
provide Fiberstars with a physical count of the Catalyst inventory by the 3rd
working day after each calendar quarter. Inventory will be managed by WQM so as
to minimize inventory levels, but still meet demand. After the transfer of
inventory to WQM, Fiberstars and WQM will agree on the starting inventory
balance as of January 1, 1999. From that date, WQM will take responsibility for
any inventory items which are agreed by both parties to have been lost, damaged,
or are otherwise unaccounted for while WQM is responsible for Catalyst
operations.
(b) WQM will take over the inventory control, materials orders
(to be approved by Fiberstars) assembly, shipping and processing of orders for
the Catalyst product by January 1, 1999. Orders will be processed in a timely
fashion, consistent with good business practices. WQM will insure that product
shipped is of the best quality possible and is consistent with product
specifications.
(c) WQM will provide customer support to Catalyst customers
after January 1, 1999.
Memorandum of Understanding
December __, 1998
Page 2
(d) Fiberstars will record sales and invoice customers for the
Catalyst product. Fiberstars will copy WQM on all customer invoices and
correspondence. All returns must follow a Returns Goods Authorization (RGA)
procedure. Customer returns with a value less than or equal to $3,000 will be
approved by WQM support personnel. Customer returns with a value greater than
$3,000 must be approved by Fiberstars. All authorized returned products will be
received and inventoried by WQM. WQM will advise Fiberstars Customer Support of
any product returns both upon authorization and upon receipt of returned items.
(e) Fiberstars will pay WQM per month for the above services
based on the Plan attached to this memo, on to following schedule:
January 1998 $12,000
February 1998 13,000
March 1998 14,000
Thereafter 14,000
This includes the costs for Offsite operation and for the Labor component of
Indirect costs. It is expected that all other costs itemized in the plan will be
paid by Fiberstars. In the event that revenues are running significantly short
of the planned amount, Fiberstars and WQM agree to take such action as necessary
to reduce the costs of the productline. This will include reducing the WQM
operations charge to Fiberstars, by up to $6,000 per month, so as to maintain a
profitable Catalyst operation. WQM and Xxxxxxxxxx agree to review the charge for
services rendered periodically so as to provide the best possible cost to
Fiberstars with a reasonable profit earned by WQM. A cost sheet from WQM is
attached.
2. Future sale or business combination.
(a) If Xxxxxxxxxx decides to sell the Catalyst productline,
WQM will have a first right to negotiate a reasonable buyout of this business.
Fiberstars will decide either to sell or not to sell the Catalyst productline
within 2 years of this agreement. If Xxxxxxxxxx decides it will not sell the
Calalyst productline, then Xxxxxxxxxx agrees to negotiate reasonable terms with
WQM to form a joint venture with or acquire WQM. Both parties recognize the
synergies that exist between the Catalyst and WQM products, and will be working
together to improve these synergies as of the date of this memorandum.
Fiberstars recognizes that WQM will be making an investment in the success of
Catalyst and the combined products of the two companies and will not
unreasonably put WQM in a position of having to walk away from this investment.
3. Term.
(a) The parties will review the business terms of the Catalyst
Operation in Q4 of 1999, and agree any changes to the terms by December 1, 1999.
This memorandum will no longer be in effect ater December 31, 2000, with the
exception that item 2 above will remain in
Memorandum of Understanding
December ___, 1998
Page 3
effect if their are substantive discussions going on between Fiberstars and WQM
on December 31, 2000.
Memorandum of Understanding
December ___,1998
Page 4
4. Consulting agreement
(a) The consulting agreement between Xxxxxxxxxx and Xxxxx
Xxxxxx continues in effect and is outside the services and payments agreed in
this memorandum. In the attached p1an, these costs are part of the Marketing
expense.
Very truly yours,
FIBERSTARS, INC.
By: /s/ Xxxxx Xxxxxxx
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Xxxxx Xxxxxxx, Chief Executive Officer
AGREED TO AND ACCEPTED:
WATER QUALITY MANAGEMENT
By: /s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx, President
Dated: December __, 1998
January 22, 1999
