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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 1999
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-27250
AML COMMUNICATIONS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 77-0130894
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 AVENIDA ACASO, CAMARILLO, CALIFORNIA 93012
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(Address of principal executive offices) (Zip Code)
(805) 388-1345
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, $.01 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ____
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $ 7,775,000.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant on June 25, 1999, was approximately $6,096,704.
The per share stock price for computational purposes was $1.44, based on the
closing sale price per share for the Registrant's common stock on the NASDAQ
National Market on June 25, 1999. This value is not intended to be a
representation as to the value or worth of the Registrant's common stock. The
number of non-affiliates of the Registrant has been calculated by subtracting
the number of shares held by persons affiliated with the Registrant from the
number of outstanding shares. The number of shares of the Registrant's common
stock outstanding on June 25, 1999 was 6,266,070.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on September
22, 1999, are incorporated by reference into Items 10 and 11 of Part III of this
Form 10-KSB. The Proxy Statement will be filed within 120 days after the end
of the fiscal year covered by this report.
Transitional Business Disclosure Format (Check One). Yes ____ No X
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This Annual Report on Form 10-KSB, the exhibits hereto and the information
incorporated by reference herein contain "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and such forward looking statements involve risks
and uncertainties. When used in this report, the words "expects," "anticipates"
and "estimates" and similar expressions are intended to identify forward looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. These risks and
uncertainties include those discussed below and those discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" or
incorporated by reference herein. AML Communications, Inc. undertakes no
obligation to publicly release any revisions to these forward looking statements
to reflect events or circumstances after the date this report is filed with the
Securities and Exchange Commission or to reflect the occurrence of unanticipated
events.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
AML Communications, Inc. ("AML" or the "Company") was incorporated in
California in 1986 as Advanced Milliwave Laboratories, Inc. In early 1994, the
Company changed its name to AML Communications, Inc. In December 1995, in
connection with the initial public offering of its common stock, the Company
changed its state of incorporation from California to Delaware. In May 1996,
the Company moved its principal office to 1000 Avenida Acaso, Camarillo,
California 93012.
AML Communications, Inc., designs, manufactures and markets amplifiers and
related products for the cellular, Personal Communication Services ("PCS"),
paging, Wireless Local Loop ("WLL"), satellite and other communication markets.
Since its inception, AML has also provided a number of catalog and custom
amplifiers to Original Equipment Manufacturers ("OEMs") and other customers in
the communications market. AML's wireless products support a broad range of
analog and digital transmission standards and formats including Advanced Mobile
Phone Services ("AMPS"), Total Access Communication System ("TACS"), Time
Division Multiple Access ("TDMA"), Code Division Multiple Access ("CDMA"),
Wideband CDMA ("W-CDMA"), Global System for Mobile Communications ("GSM") and
Frequency Hopping Multiple Access ("FHMA"). Products designed for application in
one or more of the markets mentioned above include single channel and multi-
channel power amplifiers, low-noise receive amplifiers for both indoor and
weather exposed installation and receiving multicouplers.
AML's cellular products, introduced in late 1994, were historically
marketed primarily to cellular operators. The products provided a cost effective
means to increase the quality and quantity of calls processed by new and
existing cellular base stations. The Company's initial success in the cellular
market was a result of selling directly to domestic operators. In the fourth
quarter of fiscal 1997 the Company experienced a significant decrease in its
revenue. The primary reasons for the decline were threefold: 1) OEMs developed
improved base stations enabling the operator to achieve cost effective
performance without having to upgrade to an AML amplifier, 2) macrocell base
stations were developed and sold at substantially lower prices than ever before,
thereby slowing the sales of microcell base stations in this country, and 3) the
industry focused both financial and human resources to develop the PCS market.
Consequently, further build-out of the cellular infrastructure slowed. As a
result, the Company began to focus on diversifying its product and customer base
(primarily international customers and OEMs). Late in fiscal 1997 the Company
entered the satellite communication gateway market by offering a high power
amplifier for data transmission applications in a Low Earth Orbit ("LEO")
satellite communications network.
During fiscal 1998, the Company recorded significant revenue from an OEM in
Brazil and introduced products for the PCS and two-way paging marketplace.
Additionally, the Company heavily invested in the development of products for
the WLL market.
During fiscal 1999, the Company continued to focus its efforts to diversify
its customer and product base and to invest in the development of WLL products.
The Company's revenue for the year was negatively impacted by
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customer rollout delays and cancellations in the development of infrastructure
products and technology related to WLL.
In February 1999, the Company announced a strategic shift in management.
Mr. Kirk A. Waldron was appointed President and Chief Executive Officer of the
Company following the resignation of Mr. Jacob Inbar. Mr. Scott T. Behan was
appointed Executive Vice President of Sales and Marketing following Mr. Edwin J.
McAvoy's resignation of his Vice President position. Mr. McAvoy was, in turn,
appointed Director of Customer Programs. Both Mr. Waldron and Mr. Behan were
also elected to the Board of Directors following the resignations of Mr. Tiberiu
Mazilu and Mr. McAvoy from the Board.
In March 1999, the Company announced the appointment of Gerald M. Starek to
the Board of Directors of the Company, expanding the board to six members. Mr.
Starek brings with him over 34 years of executive experience in the high
technology industry.
Wireless Industry Background
The market for wireless communications services has grown substantially
during the past decade as cellular, PCS, paging, wireless telephony, satellite
communication and other new and emerging applications have become increasingly
accessible and affordable to growing numbers of consumers. Among the various
types of wireless services, the subscriber base for cellular communications is
currently the largest, but the higher frequency PCS market is forecasted to
exhibit the most growth.
A wireless cellular or PCS system is structured as a grouping of cells.
Each cell contains a base station that is networked with adjoining cells to
provide the service providers coverage area. The networked base stations are
connected to a central switch that accesses the public switched telephone
network ("PSTN"). In a typical call set-up routine, a subscriber wireless phone
communicates with the base station that in turn signals the switch. The switch
allocates a channel to the subscriber phone via the base station. As the
subscriber moves from the coverage of one cell to an adjacent cell the switch
effects a hand off to support continued communication by the subscriber.
Traditional analog cellular communication requires that an exclusive
channel be allocated for the duration of the subscriber call. The domestic
analog air interface that supports this format is termed AMPS. More recently,
subscriber growth and finite frequency spectrum have placed demands on spectrum
economy. This has resulted in air interfaces that provide improved spectrum
efficiency. These later interfaces use digital techniques to enable multiple
calls to be supported in the bandwidth previously required for a single
subscriber call. The two major categories of digital interface TDMA and CDMA.
Cellular products typically operate at frequencies between 800 and 900 MHz while
PCS operates at 1700 to 1900KHz.
Dynamic channel allocation provides service providers another means of
increasing capacity. This permits unused channels in one cell to be used within
another cell that is experiencing high traffic levels, such as may occur during
commuter rush hours. Multicarrier power amplifiers support dynamic channel
allocation by virtue of their ability to amplify many channels concurrently
without introducing excessive noise or employing tuned cavity combiners. As the
subscriber base grows it is frequently necessary to split a cell into smaller
microcells. Microcells typically require low power and smaller size. The
ability to use one multicarrier power amplifier in place of many single channel
power amplifiers and the absence of the cavity tuned combiners, permits the
multicarrier amplifier to support microcell application.
A fundamental requirement of all multicarrier systems is the ability to
amplify signals with high linearity. With this characteristic, channels will
stay within their prescribed bandwidth, and the levels of intermodulation
(noise) will support correct system operation.
Many other applications within the wireless communication market require
both low noise and high power amplifiers such as paging, WLL, and satellite
communications. The requirements for amplifiers in these sectors are frequently
similar to those discussed above.
Generally, service providers obtain infrastructure equipment from large
OEM's such as Lucent Technologies Inc. ("Lucent"), Ericsson Telephone Company
("Ericsson"), Motorola Corporation ("Motorola"), Nortel Networks
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("Nortel"), Hyundai Corporation, LGIC Communication, etc. These OEM's may design
and build amplifiers that compete with the Company or they may choose to buy
amplifiers from an outside supplier. In some cases, these large OEM's will
market amplifier products to other infrastructure manufacturers.
The wireless communication market is a rapidly evolving environment with
constant change to standards, technologies and applications. The competitive
nature of service providers in gaining subscribers results in constant downward
cost pressure on the infrastructure manufacturers.
Strategy
AML has identified key customers in both the service provider and OEM
market where it wishes to focus its effort. Using proprietary technology
developed for supporting the wideband, high-speed data transmission formats as a
platform, AML has targeted specific customers requiring high linearity
amplifiers for volume deployment applications. AML also continues to seek
moderate to high volume niche applications that make use of either its receive
or transmit amplifier capability, or a combination thereof. These applications
provide a foothold to provide broader product solutions to a satisfied customer.
The Company provides innovative, application specific products to address a
customer's product requirements. Additionally, the Company must typically adhere
to a stringent time to market customer requests.
The Company works closely with its customers throughout the design process
to assist them in refining and developing their amplifier specifications.
Customer support involves problem evaluation, engineering recommendations and
solution implementation. After the product is delivered, the Company continues
to provide technical support to facilitate system integration, implementation
and operation. Through this process, the Company believes it will develop new
product definitions and implementation to further enhance the strategic position
of the Company in the wireless market.
Because the greatest wireless infrastructure growth is anticipated to be
outside the North American market, AML is concentrating efforts on expanding its
international presence. These efforts can and may take the form of foreign
sales representation, strategic partnering, and localized manufacturing.
Markets
The markets in which the Company competes are characterized by rapidly
changing technology, evolving industry standards and continuous improvements in
products and services. The Company's future success depends on its ability to
develop in a timely manner new products that compete effectively on the basis of
price and performance, and adequately address customer requirements. No
assurance can be given that the Company's product development efforts will be
successful or that its new products will achieve customer acceptance.
Growth, fueled by lower infrastructure cost, declining subscriber airtime
costs, rapid technological innovation and the embracing of mobile communication
by business and the public at large has fostered a dynamic global market.
Information published by the Cellular Telephone Information Association cites
statistics for 1998 in which domestic investment in capital equipment surged by
31% to a cumulative total of over $60 billion dollars. During this same year
subscribership registered the greatest ever one-year increase and the average
monthly subscriber bill fell by 7.8%. The continuing burgeoning of the
subscriber base pressures carrier capacity. In response the U.S. government
made spectrum available at 1800MHz and the industry made great strides in
bringing economy of spectrum to the 800MHz cellular band by the deployment of
CDMA and TDMA digital equipment.
On a global basis, worldwide subscribers are reported at 285 million as of
the calendar year end of 1998 (Strategis Group). Forecasts are for this to more
than double by 2003 (Strategis Group). High forecasted growth areas include
Latin America, which increased from 12.2 to 19.5 million subscribers during 1998
(Pyramid Research). Annual Latin America revenues from cellular and PCS services
are forecasted to climb from $20 billion to over $35 billion from the year 1999
to 2004 (Strategis Group). Asia-Pacific is projected to remain the largest
cellular/PCS market with subscribers increasing from 131 million in 1999 to 266
million in 2003, at which point Asia-Pacific will account for
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over 38% of the worldwide subscriber base. North America cellular and PCS
subscribers are forecasted to increase from 72 million at the end of 1998 to 139
million over a four-year period (Strategis Group).
The company believes that cellular/PCS is the major sector in the wireless
communications industry; however, other wireless markets sectors include paging
and Mobile Satellite Services ("MSS"). More recently, WLL, Local Multipoint
Distribution Services ("LMDS"), Multipoint Multichannel Distribution Services
("MMDS") and G3 (synonymous with IMT2000 and UMT 2000) are identified as
emerging markets.
Spurred by guaranteed message delivery, information delivery, e-mail and
interactive applications, the paging market sector is investing in two-way
paging infrastructure. This consists of adding receiving capability to each
base station. These new applications may offset the impact of reported total
subscriber declines.
Iridium LLC, Globalstar Telecommunications Limited, and Orbcomm Global,
L.P., are slated to provide a mix of voice and data MSS services. Using low
earth orbit satellites, they compete in many respects with terrestrial
cellular/PCS services. A potential differentiator is the MSS ability to cover
areas of very low population and difficult terrain.
WLL provides an alternate method to cover the "last mile" to a fixed
telephone subscriber point. It differs from the emerging G3 specifications in
that WLL does not provide for mobile operation. In certain developing countries,
such as Indonesia, China, Latin America and Eastern Europe, the traditional
wireline infrastructure is insufficient to meet subscriber demand. WLL provides
a cost effective means to provide telephone service. Recent WLL developments are
addressing broadband access for internet and other data applications. Broadband
WLL is forecasted to reach 21% of the total broadband wireless access market by
2004 (ABI).
Products
The Company designs and sells multicarrier transmit amplifiers, low noise
receive amplifiers, and related products for the cellular paging and PCS
communication markets, as well as to the WLL and satellite communications
segments of the wireless communications industry. The Company also provides
catalog and custom amplifiers to OEMs and to other customers in the
communications market in general. The following outlines the Company's products
and the markets addressed.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Product Frequency Market Category Format
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
M8, M30, M80, M140 869 to 894MHz Cellular/PCS Multicarrier Power Amplifiers AMPS
8 to 140 Watt CDMA
TDMA
- ------------------------------------------------------------------------------------------------------------------------
E-GSM Series 925 to 960MHz GSM 900MHz Single Carrier Power Amplifier GSM
50 to 250 Watt
- ------------------------------------------------------------------------------------------------------------------------
RMPA-1 935 to 940MHz Paging Single Carrier Power Amplifier GSM
30 Watt
- ------------------------------------------------------------------------------------------------------------------------
WLL2435 2370 to 2400MHz WLL Power Amplifier 35 Watt W-CDMA
- ------------------------------------------------------------------------------------------------------------------------
WLL3.5 Series 3400 to 3600MHz WLL Power Amplifier 30-Watt Rack Mount. W-CDMA
Power Amplifier 8 Watt Mast Head Mount
- ------------------------------------------------------------------------------------------------------------------------
Telephony Series 300 to 450MHz WLL Power Amplifier 12 to 16 Watt TDMA
- ------------------------------------------------------------------------------------------------------------------------
Sat1000/2000 Series 150MHz LEO Satellite Power Amplifier 1K Watt OQPSK
- ------------------------------------------------------------------------------------------------------------------------
Link Balancer (TM) 824 to 849MHz Cellular/PCS Receive Low Noise Amplifiers. AMPS
Series Mast Head and Rack Mount CDMA
TDMA
- ------------------------------------------------------------------------------------------------------------------------
Link Balancer (TM) 824 to 849MHz PCS Mast Head Low Noise Amplifiers CDMA
Series GSM
TDMA
- ------------------------------------------------------------------------------------------------------------------------
Link Balancer (TM) 901 to 902MHz Paging Mast Head Low Noise Amplifier Various
Series
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PowerTop Series(TM) 1850 to 1990MHz PCS Mast Head Transmit Receive Amplifiers GSM
- ------------------------------------------------------------------------------------------------------------------------
ALD8020-D8 824 to 849MHz Cellular Receiving Multicoupler GSM
AMPS
CDMA
TDMA
- ------------------------------------------------------------------------------------------------------------------------
Custom Products 2MHz to 12GHz Various Range of amplifiers, receiving Various
multicouplers and monopulse tracking
components.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Power Amplifiers. Utilizing its proprietary technology, the Company
developed a series of multicarrier (microcell) amplifiers for cellular
applications. During fiscal 1998, the Company introduced a second generation
LDMOS 30 Watt multicarrier cellular amplifier. This LDMOS product demonstrates
improved intermodulation suppression and offers efficiency, size and heat
contribution advantages over present industry standards. Additionally, the
Company offers power amplifiers for single channel cellular/PCS, WLL and
satellite communications applications.
Multicouplers. The Company developed and delivered a cellular multicoupler
designed to an OEM specification during fiscal 1998. The Company has received
several repeat orders for multicouplers. The Company delivers other
multicouplers through special orders so as to meet a wide range of applications.
Wireless Receive Amplifiers. AML's receive amplifiers are designed
primarily for use by system operators and OEMs in the wireless infrastructure
equipment market. The Company's dual low noise amplifiers in its microcell
products enhance the operation of the receiving section of the base station and
allow the cellular operator to balance its system. The mast paging receive
amplifier is custom designed for two paging applications.
In addition, the Company's Link Balancer receive amplifiers feature low
noise, sensitivity and high out-of-band rejection characteristics. The Company
believes that the Link Balancer amplifier improves the ability of unbalanced
macrocells to receive the weaker signals of level 2 power hand held phones more
efficiently, and therefore to expand the footprint of such macrocells.
Custom and Catalog Products. In addition to multicarrier transmit and
receive amplifiers, the Company also produces a variety of communication and
other products which meet the needs of particular markets. These products are
frequently designed and produced to customer specifications relating to noise,
power, frequency or spectral purity. The Company's catalog lists numerous
possible configurations for certain custom products and are used to promote
sales of its custom products to customers with special requirements. In order to
best utilize resources, the Company selectively solicits and accepts business
for these traditional AML products. Custom and catalog products include
receiving multicouplers, high dynamic range low noise amplifiers, microwave
amplifiers and telemetry tracking components.
Average Sales Price. The Company believes that average selling prices and
gross margins for its products are declining as system operators and OEMs face
pressure to reduce costs as competition intensifies. To counter these
conditions, the Company believes that it must successfully introduce and sell on
a timely basis innovative new products that incorporate innovative technologies
and features that can be sold at higher average selling prices and gross margins
or at greater volume. There can be no assurances, however, that the Company
will be successful in developing or marketing such products in such a manner.
Product Warranties. The Company typically warrants its products against
defects in materials and workmanship for a period of one year from the date of
shipment.
Customers
The Company markets its products into both domestic and overseas markets.
During fiscal 1999, more than 27% of the Company's revenue was generated from
the domestic two-way paging market.
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Historically, the Company has derived a substantial percentage of its net
sales from single customers during certain fiscal periods and until fiscal 1995,
the Company derived substantially all of its net sales from its custom
products. However, the Company has become less dependent on custom products as
the percentage of its net sales derived from sales of cellular and wireless
telephony products has increased.
Sales and Marketing
The Company employs a direct sales approach focused on providing its
wireless industry customers with specific application solutions to satisfy their
transmit and receive amplification needs. Sales of the Company's products
require close technical liaison with the customers' engineers and frequent
travel to customers' sites. The Company markets its products overseas with the
assistance of independent sales representatives in various parts of the world.
The Company uses the services of 10 independent, non-employee, sales
representatives in the United States, one sales representative in Brazil and
sales representatives in Korea, Venezuela, Israel and Europe. The Company
continuously evaluates whether to establish direct sales forces or to utilize
independent representatives in a particular region or for a given potential
customer depending upon the scope of potential sales opportunities. The
Company's direct sales staff provides sales direction and support to its
international sales representatives. Sales outside of the United States are
denominated in U.S. dollars in order to reduce the risks associated with the
fluctuations of foreign currency exchange rates. Sales outside of the United
States involve a number of inherent risks, including reduced protection for
intellectual property rights in some countries, the impact of recessionary
environments in economies outside the United States, generally longer receivable
collection periods, unexpected changes in regulatory requirements, tariffs and
other trade barriers. In addition, because substantially all of the Company's
foreign sales are denominated in U.S. dollars, increases in the value of the
dollar relative to the local currency would increase the price of the Company's
products in foreign markets and make the Company's products relatively more
expensive and less price competitive than competitors' products that are priced
in local currencies. There can be no assurances that these factors will not have
a material adverse effect on the Company's future international sales and,
consequently, on the Company's business, financial condition and results of
operations.
The Company's executive officers are involved in all aspects of the
Company's relationship with its major system operator and OEM customers. In
addition, as of March 31, 1999 the Company employed a direct sales staff of
three employees.
Competition
The wireless communication equipment industry is highly competitive. The
cellular and PCS communications market is dominated by a small number of large
OEMs, such as Ericsson, Lucent, Nokia, NEC and Northern Telecom, which provide
complete infrastructure systems to system operators. In addressing the needs of
the system operators, the Company competes on the basis of product
functionality, quality and reliability, technical performance, time-to-market
and delivery capability. The Company believes that overall it competes
favorably with respect to the foregoing elements.
Merchant amplifier manufacturers, such as Powerwave Technologies, Inc.,
Spectrian Corporation and Microwave Power Devices, Inc., have developed products
which are directly competitive with the Company's products. These products are
supplied to OEMs for incorporation into their systems and in some cases also to
the system operators. This competition may adversely impact the Company.
The OEM market, which the Company hopes to penetrate further, is very
competitive. A substantial portion of the present worldwide production of
amplifiers is dominated by a small number of wireless infrastructure OEMs who
sell these amplifiers as component parts of their wireless systems. There are
no assurances that the Company's efforts to further penetrate the OEM market
will be successful.
The Company experiences significant price competition and expects price
competition in the sale of amplifiers to increase. No assurances can be given
that the Company's competitors will not develop new technologies or enhancements
to existing products or introduce new products that will offer superior price or
performance features. The Company expects its competitors to offer new and
existing products at prices necessary to gain or retain market share. Several
of the Company's competitors have substantial financial resources, which may
enable them to withstand sustained price competition or a downturn in the
pricing of their products in the future. Substantially all of
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the Company's competitors have, and potential future competitors could have,
substantially greater technical, marketing, distribution and other resources
than the Company and have, or could have, greater name recognition and market
acceptance of their products and technologies.
Research and Development
The Company's Research and Development ("R&D") efforts are driven by the
short-term demands of the market, and potential future applications which have
developed as a result of the Company's relationships with wireless communication
customers. The R&D activity is mainly focused in the wireless market and, to a
lesser extent, the market for custom products. R&D expenditures in fiscal 1998
and 1999 were approximately $1,962,000 and $2,981,000, respectively.
Wireless Products. The Company engages in R&D programs focused on the
design of new products for the cellular, PCS, WLL, satellite and other markets,
improvement of existing product performance, cost reductions and improvements in
the manufacturability of existing products.
The Company uses a CAD environment employing networked workstations to
model and test new circuits. This design environment, together with the
Company's experience in interference cancellation technology and modular product
architecture, allows the Company to rapidly define, develop and deliver new and
enhanced products and subsystems sought by its customers.
Custom Products. The Company's R&D efforts with respect to custom products
focus primarily on developing new configurations of amplifiers and related
circuits. In addition, the Company intends to continue its R&D efforts for
certain custom low noise receive amplifiers and low noise automatic gain control
amplifiers for other portions of the wireless communication market.
Patents, Proprietary Technology and Other Intellectual Property
The Company's ability to successfully compete in a global market and
achieve future revenue growth will depend, in part, on its ability to protect
its proprietary technology and operate without infringing the rights of others.
The Company protects some of its intellectual property by seeking patent
protection on inventions resulting from ongoing research and development, and by
maintaining other knowledge as industrial trade secrets. The Company has been
issued three United States patents, and has two United States patents pending.
There can be no assurances that the Company's pending patent applications will
be allowed or issued, or that issued or pending patents will not be challenged
by competitors. The Company has applied for Federal trademark protection for the
mark Repeat-A-Cell and owns Federal registration of the mark Link Balancer(R).
Notwithstanding the Company's active pursuit of patent protection, the
Company believes that the success of the business depends on the collective
value of its patents, trade secrets, employee expertise, specifications,
technical processes, and cost-effective implementation of its technology. The
Company has a policy of entering into confidentiality and non-disclosure
agreements with its employees and limiting access to and distribution of its
proprietary technology. Although there are no pending technology lawsuits
against the Company, or unresolved notices that the Company is infringing the
intellectual property rights of others, there can be no assurance that
litigation or infringement claims will not occur in the future.
Government Regulation
Radio frequency transmissions and emissions, and certain equipment used in
connection therewith, are regulated in the United States, Canada and
internationally. Regulatory approvals often must be obtained by the Company in
connection with the manufacture and sale of its products, and by the Company's
customers to operate the Company's products. There can be no assurance that the
FCC, International Telecommunications Union ("ITU"), European Telecommunications
Standard Institute ("ETSI"), or other organizations charged with regulating the
requirements of RF equipment, will not adopt more stringent regulations for the
communications industry. If such regulations are adopted, the Company, the OEMs
and the wireless system operators may be required to alter the manner in which
radio signals are transmitted, or otherwise to alter the equipment transmitting
such signals, which could materially and adversely affect the Company's products
and markets. The enactment by federal, state, local or international
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governments of new laws or regulations, or a change in the interpretation of
existing laws or regulations, could affect the market for the Company's
products. Recent deregulation of international communications industries, along
with recent RF spectrum allocations made by the FCC, have increased the
potential demand for the Company's products by providing users of those products
with opportunities to establish new wireless personal communications services.
However, there can be no assurances that the trend toward deregulation and
current regulatory developments favorable to the promotion of new and expanded
personal communications services will continue or that other future regulatory
changes will have a positive impact on the Company. The increasing demand for
wireless communications has exerted pressure on regulatory bodies worldwide to
adopt new standards for such products, generally following extensive
investigation of and deliberation over competing technologies. The delays
inherent in this governmental approval process may cause the cancellation,
postponement or rescheduling of the installation of communications systems by
the Company's customers.
Employees
As of March 31, 1999, the Company had 68 full-time employees, including 12
in R&D; 44 in manufacturing, production engineering and quality assurance; 6 in
administration; and 6 in sales, marketing, order entry and customer support. The
Company believes that the success of its business depends, in part, on its
ability to attract and retain qualified personnel, particularly qualified
scientific, technical and key management personnel. Company employees are not
governed by collective bargaining agreements. The Company believes its
relationships with its employees are good.
Environmental Regulations
The Company is subject to federal, state and local governmental regulations
relating to the storage, discharge, handling, emission, generation, manufacture
and disposal of toxic or other hazardous substances used to manufacture the
Company's products. The Company believes that it is currently in compliance in
all material respects with such regulations. Failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes,
cessation of operations, or other actions which could materially and adversely
affect the Company's business, financial condition and results of operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's administrative, engineering and manufacturing facilities are
located in a 25,000 square foot leased building in Camarillo, California. The
Company's lease for this space expires in April 2003. The Company believes that
its current facilities are in reasonable condition and provide adequate
expansion capabilities.
ITEM 3. LEGAL PROCEEDINGS
The Company may be subject, from time to time, to various legal proceedings
relating to claims arising out of its operations in the ordinary course of its
business. Two purported class action lawsuits have been filed against the
Company and certain of its current and former officers and directors. The first
lawsuit, entitled Ronny Sussman v. AML Communications, Inc., et al., Case No.
-------------------------------------------------
CIV 179776, was filed on March 19, 1998 in the Superior Court for the State of
California (Ventura County) (the "State Action"). The second lawsuit, entitled
Ronny Sussman v. AML Communications, Inc., et al., Case No. 98-2010 CAS (Ex)
- -------------------------------------------------
(C.D. Cal.), was filed on March 20, 1998 in the federal district court in Los
Angeles, California (the "Federal Action"). The individual defendants named in
both of the actions are Jacob Inbar (the Company's then President and Chief
Executive Officer, and Chairman of the Board of Directors), Tiberiu Mazilu (the
Company's then Vice President of Custom Products and a member of the Board of
Directors), Edwin J. McAvoy (the Company's then Vice President of Sales and
Marketing and a member of the Board of Directors), Scott T. Behan (the Company's
then Vice President of New Product Development) and William E. Sheridan III (the
Company's then Chief Financial Officer). While the Federal Action asserts
claims under the federal securities laws and the State Action asserts claims
under California's securities laws, the complaints are otherwise essentially
identical. The complaints allege that during the purported class period of
April 10, 1996 to March 25, 1997, defendants made overly optimistic estimates
regarding the Company's anticipated financial performance for fiscal years 1997
and 1998, and overly optimistic statements regarding the Company's ability to
9
<PAGE>
develop and to sell new products for the PCS market, all allegedly in order to
profit from insider trading at artificially inflated prices.
In the Federal Action, four lead plaintiffs and co-lead council were
appointed on June 29, 1998 pursuant to the Private Securities Litigation Reform
Act of 1995. On September 3, 1998, plaintiffs filed an amended complaint by
filing a motion to dismiss the case. Plaintiff's opposition to the motion was
filed on December 3, 1998. The motion was heard by the court on February 8, 1999
and the judge has taken the motion under advisement. All discovery is stayed in
the federal action unless and until it is determined that plaintiffs have stated
an actionable claim. The Company denies the material allegations in the
complaints and intends to defend the actions vigorously. An adverse
determination could have a material adverse effect upon the Company.
In the State Action, all proceedings have been stayed until the stay of
discovery is lifted in the federal action. Plaintiffs also intend to file an
amended complaint in the state action once the case proceeds. The Company's
response will be due 45 days after the filing of the amended complaint. The
Company intends to respond by filing a demurrer, which is the California
equivalent of a motion to dismiss for failure to state an actionable claim.
The Company and its legal counsel are currently evaluating the claims. At
this stage, it is not possible to predict the outcome or determine a range of
possible losses, if any. The Company, its directors and officers deny the
material allegations in the complaints and intend to defend the actions
vigorously. An adverse determination could have a material adverse effect upon
the Company's financial position or results of operations. During the year
ended March 31, 1998, the Company recorded $150,000 as costs related to these
lawsuits. There were no additional costs recorded related to this lawsuit during
the fiscal year ended March 31, 1999.
The Company currently is not party to any other legal proceedings, the
adverse outcome of which, individually or in the aggregate, management believes
would have a material adverse effect on the business, financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on the NASDAQ National Market under the
symbol "AMLJ." The table below sets forth the high and low sales prices for the
Company's common stock on the NASDAQ National Market for the periods indicated.
<TABLE>
<CAPTION>
Price Range of Common Stock
High Low
---- ---
<S> <C> <C>
Fiscal year ended March 31, 1998
First quarter........................................ $ 4.88 $2.69
Second quarter....................................... $ 9.13 $2.81
Third quarter........................................ $11.13 $3.88
Fourth quarter....................................... $ 6.63 $4.31
Fiscal year ended March 31, 1999
First quarter........................................ $ 5.13 $3.00
Second quarter....................................... $ 4.13 $1.38
Third quarter........................................ $ 2.06 $0.94
Fourth quarter....................................... $ 1.88 $0.75
</TABLE>
10
<PAGE>
At June 24, 1999 there were approximately 67 holders of record of the Company's
common stock.
The Company has not paid cash dividends and does not anticipate paying cash
dividends in the foreseeable future. The Company expects to utilize future
earnings to finance future growth. The actual amount of any dividends paid
would be subject to the discretion of the Board of Directors of the Company and
would depend on the Company's operations, financial and business requirements,
compliance with bank covenants and other factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table summarizes the Company's results of operations both in
dollars and as a percentage of net sales for the fiscal years ended March 31,
1998 and 1999.
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended March 31,
------------------------------------------------------
1998 1999
------------------------ ----------------------------
<S> <C> <C> <C> <C>
Cellular and wireless telephony........................... $ 9,832 76.9% $ 4,160 53.5%
PCS/two-way paging........................................ 982 7.7 2,116 27.2
Custom and other.......................................... 1,972 15.4 1,499 19.3
------- ----- ------- ------
Total net sales....................................... 12,786 100.0 7,775 100.0
Cost of goods sold........................................ 7,111 55.6 5,733 73.7
------- ----- ------- ------
Gross profit.............................................. 5,675 44.4 2,042 26.3
Operating expenses:
Selling, general and administrative...................... 2,848 22.3 3,049 39.2
Research and development................................. 1,962 15.3 2,981 38.3
Legal expense related to stockholder's lawsuits 150 1.2 - -
------- ----- ------- ------
Operating income (loss)................................... 715 5.6 (3,988) (51.2)
Other income, net......................................... (353) (2.8) (384) (4.9)
------- ----- ------- ------
Income (loss) before provision (benefit) for income taxes 1,068 8.4 (3,604) (46.3)
Provision (benefit) for income taxes...................... 382 3.0 (475) (6.1)
------- ----- ------- ------
Net income (loss)......................................... $ 686 5.4% $(3,129) (40.2)%
======= ===== ======= ======
</TABLE>
Fiscal Years Ended March 31, 1999 and 1998
Net sales. Net sales for fiscal 1999 were $7.8 million compared to $12.8
million in fiscal 1998, a 39.2% decrease. The decrease in sales is attributable
to lower unit prices, lower demand in foreign customer product development, and
decreased volume due to increased competition. Cellular and WLL products
contributed $4.2 million, or 53.5% of net sales in fiscal 1999 compared to $9.8
million, or 76.9% of sales in fiscal 1998. The Company believes that the
difference in unit sales is primarily the result of slower than expected
customer development of foreign service areas, which in turn has caused
postponement of expected purchases from the Company. Sales of PCS/two-way
paging products totaled $2.1 million, or 27.2% of net sales in fiscal 1999,
compared to $982,000, or 7.7% of net sales in fiscal 1998. The Company hopes to
increase the sales volume in this market in future years. Custom and other sales
were $1.5 million, or 19.3% of net sales in fiscal 1999 compared to $2.0
million, or 15.4% of net sales in fiscal 1998. Sales of custom and other
products is expected to marginally increase as a result of management's
decision to re-establish sales and marketing efforts in this area. Sales of
products outside the United States represented approximately 42.4% and 20.0% of
net sales during fiscal 1998 and 1999, respectively. Approximately 95.8% of
international sales, or 40.6% of total sales in 1998 were to a single customer
in Brazil.
11
<PAGE>
Gross profit. Gross profit for fiscal 1999 was $2.0 million, or 26.3% of
net sales, compared to $5.7 million, or 44.4% of net sales, in fiscal 1998. The
decrease is a result of lower average selling prices and gross margins for the
Company's products in the highly competitive OEM market, increased inventory
reserves for obsolescence due to slow moving or discontinued product lines, and
insufficient absorption of overhead fixed costs at lower shipment levels. The
Company expects that the pressure on selling prices will continue in fiscal
2000.
Selling, general and administrative costs. Selling, general and
administrative costs for fiscal 1999 were $3.0 million, or 39.2% of net sales,
compared to $2.8 million, or 22.3% of net sales, for fiscal 1998. The increase
is attributable to higher commission rates for outside sales representatives,
costs associated with the implementation and support for ISO 9001 certification,
and certain one-time costs for severance and outplacement fees related to the
Company's head count reduction on March 12, 1999. The Company believes continued
investment in marketing and administration is necessary to compete profitably in
the intensely competitive wireless industry.
Research and development costs. R & D costs for fiscal 1999 were $3.0
million, or 38.3% of net sales, compared to $2.0 million, or 15.3% of net sales,
for the corresponding period in fiscal 1998. The increase is due primarily to
one-time charges related to the termination of unmarketable projects, increased
labor and benefits costs for additional technical staff, and depreciation
expense on increased levels of capital equipment required to design and develop
new products for the cellular and WLL markets.
Legal expense related to stockholders' lawsuits. On March 19, 1998, the
Company and certain of its current and former officers and directors were named
as defendants in two purported class action lawsuits. In consultation with the
Company's attorneys, management estimated that costs after potential insurance
reimbursement associated with defending the Company would not exceed $150,000.
Accordingly, the Company recorded a reserve against earnings to cover this
exposure. During fiscal 1999, legal expenses related to the shareholders'
lawsuit absorbed the $150,000 insurance reimbursement and all subsequent costs
are anticipated to be covered by the insurance carrier.
Other income, net. Other income for fiscal 1999 increased to $384,000
compared to $353,000 for fiscal 1998. The increase is due to interest income
generated from cash invested. The cash balances are a function of the net
proceeds from the Company's public offering in December 1995 and from the net
cash flow as a result of operations.
Provision/Benefit for taxes. The benefit from taxes for fiscal 1999 was
$475,000 compared to a provision for taxes of $382,000 or 36% of pretax income
for 1998. The Company is utilizing a net operating loss carryback to create the
benefit from taxes for the current period.
Net income (loss). For the reasons set forth above, the Company generated a
net loss in fiscal 1999 of $3.1 million, or 40.2% of net sales compared to net
income of $686,000, or 5.4% of net sales in fiscal 1998.
Liquidity and Capital Resources
Historically, the Company financed its operations primarily from internally
generated funds and, to a lesser extent, loans from stockholders and capital
lease obligations. In December 1995, the Company completed its initial public
offering of 1,725,000 shares of common stock (including the exercise of the
underwriters' over allotment option), raising net proceeds of approximately $7.7
million. Of such net proceeds, $425,000 was used to repay loans from certain
stockholders and the remainder has been used to expand manufacturing capability
through the leasing and outfitting of substantially larger facilities, the
acquisition of equipment sufficient to produce higher product quantities and the
employment and training of additional employees capable of expanding production
and sales. The net proceeds of the initial public offering have also been used
to maintain inventory and working capital balances, and increased research and
development expenses.
In August 1998, the Company announced that its Board of Directors
authorized a stock buyback program of up to 400,000 shares of the Company's
outstanding common stock. Shares repurchased pursuant to the buyback were
purchased from time to time on the open market and are being held for issuance
in connection with the future exercise of employee stock options. During fiscal
1999, the Company repurchased 114,500 shares at an aggregate purchase price of
$224,000.
12
<PAGE>
In September 1998, the Company renegotiated its existing revolving bank
line of credit. The amended agreement is comprised of two separate credit
facilities. The initial facility is a $1,250,000 revolving line of credit, which
bears interest at the bank's reference rate (prime rate) plus 0.25%. The second
facility is a $500,000 non-revolving line of credit with term repayment options
which may be used to finance up to 80% of the purchase price of equipment used
in the Company's business. The second facility bears an interest rate at the
bank's reference rate plus 0.75%. Both facilities are secured by substantially
all of the Company's assets and expire on September 1, 1999. As of March 31,
1999, there were no borrowings outstanding under either facility. As of March
31, 1999, the Company was not in compliance with two financial covenants of the
loan agreement. The Company failed to meet the net income covenant and the
minimum net worth covenant and, therefore, the Company is currently prohibited
of borrowings on both facilities. The Company is currently in negotiations with
other financial institutions to establish new financing facilities although
there are no assurances the Company will be successful in its attempt.
In October 1998, the Company entered into a non-cancelable capital lease to
acquire test equipment valued at $226,000. Terms of the lease call for 60 equal
monthly payments of $4,468, commencing in November 1998, at an annual interest
rate of 8.64%.
At March 31, 1999, the Company had $6.6 million in cash and cash
equivalents. The Company's operating activities used cash of approximately $1.3
million in fiscal 1999 primarily, as a result of a loss from operations. The
Company's capital expenditures of $486,000 for fiscal 1999 were primarily for
manufacturing test equipment, and information system improvements.
The Company believes that the net proceeds from the initial public
offering, together with net cash from operations will be sufficient to finance
the Company for at least the next 12 months. Inflation has not had a significant
effect to date on the Company's results of operations.
Additional Factors That May Affect Future Results
Future operating results may be impacted by a number of factors that could
cause actual results to differ materially from those stated herein, which
reflect management's current expectations. These factors include industry
specific factors (including the reliance upon continued growth of the wireless
communications market, significant competition in the communications
infrastructure equipment industry characterized by rapid technological change,
new product development, product obsolescence, and significant price erosion
over the life of a product), the Company's ability to timely develop and produce
commercially viable products at competitive prices, the ability of the Company's
products to operate and be compatible with various OEM base station equipment,
the Company's ability to produce products which meet the quality standards of
both existing and potential new customers, the Company's ability to accurately
anticipate customer demand, the Company's ability to manage expense levels, the
availability and cost of components, and the Company's ability to finance its
activities, and maintain its financial liquidity and worldwide economic and
political conditions.
The Company experiences significant price competition and expects price
competition in the sale of its products to remain very competitive. No
assurances can be given that the Company's competitors will not develop new
technologies or enhancements to existing products or introduce new products that
will offer superior price or performance features. The Company expects its
competitors to offer new and existing products at prices necessary to gain or
retain market share. Several of the Company's competitors have substantial
financial resources, which may enable them to withstand sustained price
competition or a downturn in the pricing of their products, in the future.
Substantially all of the Company's competitors have, and potential future
competitors could have, substantially greater technical, marketing, distribution
and other resources than the Company and have, or could have, greater name
recognition and market acceptance of their products and technologies.
The Company expects that its customers will continue to establish demanding
specifications for quality, performance and reliability that must be met by the
Company's products. Products as complex as those offered by the Company often
encounter development delays and may contain undetected defects or failures when
first introduced or after commencement of commercial shipments. There can be no
assurances that defects or failures will not occur in the future relating to the
Company's product quality, performance and reliability that may have a material
adverse effect on the Company's business, financial condition and results of
operations.
13
<PAGE>
Sales of products outside the United States represented approximately 42.4%
and 20.0% of net sales during fiscal 1998 and 1999, respectively. The Company
is actively pursuing international customers, although no assurances can be
given as to the degree of success of the Company's strategic plan. These sales
involve a number of inherent risks, including imposition of government controls,
currency exchange fluctuations, potential insolvency of international
distributors and representatives or customers, reduced protection for
intellectual property rights in some countries, the impact of recessionary
environments in economies outside the United States, political instability and
generally longer receivable collection periods, as well as tariffs and other
trade barriers. In addition, because substantially all of the Company's foreign
sales are denominated in U.S. dollars, increases in the value of the dollar
relative to the local currency would increase the price of the Company's
products in foreign markets and make the Company's products relatively more
expensive and less price competitive than competitors' products that are priced
in local currencies. There can be no assurances that these factors will not
have a material adverse effect on the Company's future international sales and,
consequently, on the Company's business, financial condition and results of
operations.
The Company currently sells a majority of its product into the operator
distribution channel to market. As a result, the Company receives periodic
order forecasts from its major customers who have no obligation to purchase the
forecasted amounts. Nonetheless, the Company maintains significant work in
process and raw materials inventory as well as increased levels of technical
production staff to meet order forecasts and/or management's projections. To
the extent its major customers purchase less than the forecasted amounts, the
Company will have higher levels of inventory than otherwise needed, increasing
the risk of obsolescence and the Company will have increased levels of
production staff to support such forecasted orders. Such higher levels of
inventory and increased employee levels could reduce the Company's liquidity and
could have a material adverse effect on the Company's business, results of
operation and financial condition.
Demand for wireless infrastructure equipment is driven by demand for
wireless service. Although demand for power amplifiers has grown in recent
years, if demand for wireless services fails to increase or increases slower
than the Company or it's customers currently anticipate, the Company's business,
financial condition and results of operations would be materially and adversely
affected.
The markets in which the Company and its customers compete are
characterized by rapidly changing technology, evolving industry standards and
communications protocols and continuous improvements in products and services.
The Company's future success depends on its ability to enhance its current
products and to develop and introduce in a timely manner new products that keep
pace with technological developments, industry standards and communications
protocols, compete effectively on the basis of price, performance and quality,
adequately address OEM customer and end-user customer requirements, and achieve
market acceptance. The Company believes that to remain competitive in the future
it will need to continue to develop new products, which will require the
investment of significant financial resources in new product development. In
this regard, with the deployment of PCS, the Company has developed a line of
amplifiers for PCS networks. The Company has developed several WLL products and
has still more in development. There can be no assurances that the Company will
manufacture such products at competitive prices in sufficient volumes.
The Company's quarterly and annual results have in the past been, and will
continue to be, subject to significant fluctuations due to a number of factors,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will not experience such fluctuations in the future, and, in fact
the Company experienced a significant decrease in revenue in fiscal 1999. The
Company does not believe that demand for its products will return to fiscal 1998
levels during fiscal 2000, if at all. The Company establishes its expenditure
levels for product development and other operating expenses based on its
expected revenues, and expenses are relatively fixed in the short term. As a
result, variations in timing of revenues can cause significant variations in
quarterly results of operations. There can be no assurances that the Company
will be profitable on a quarter-to-quarter basis in the future. The Company
believes that period-to-period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. Due to these factors, it is likely that in some future quarter or
quarters the Company's revenues or operating results will not meet the
expectations of public stock market analysts or investors. In such event, the
market price of the Company's common stock would be materially adversely
affected.
14
<PAGE>
Year 2000 Compliance. The Company uses computer software programs purchased
from various independent vendors who may have written their programs using a two
digit date field rather than a four digit date field to define the applicable
year. Such computer programs which utilize a two digit date field may recognize
a date using "00" as the year 1900 rather than the year 2000 (the "Year 2000
Issue"). The Year 2000 Issue could potentially result in a system failure or in
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in other
similar normal business activities.
The Company has identified the Year 2000 Issue in certain of its computer
software applications and is in the process of upgrading or replacing such
applications with software which, according to representations from the software
providers, recognize two digit date fields "00" as the year 2000. The Company
plans to test all such applications that have been represented by software
providers to be year 2000 compliant. The Company has completed its assessment
of internal information technology systems that will be affected by the Year
2000 Issue. The affected information technology systems will be upgraded or
replaced to be year 2000 compliant by August 1999. The cost of upgrading or
replacing such applications is not expected to have a material effect on the
operations of the Company and has been and will continue to be funded through
operating cash flows.
The Company has contacted its key customers, suppliers, and other third
parties with whom the Company exchanges electronic information to determine the
impact, if any, the Year 2000 Issue may have on their information technology
systems, which in turn, would have an impact on the Company. The Company is
reviewing the responses from its key customers, suppliers, and other third
parties to assess any potential impact to the Company and to verify responses.
There can be no assurance that such customers, suppliers or third parties will
not suffer business disruptions due to the Year 2000 Issue. Such failures could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Because the Company is in the process of upgrading or replacing the
computer software applications which run most of its information technology
systems (which software has been represented by the software providers not to be
affected by the Year 2000 Issue) the Company has not developed Year 2000
specific contingency plans. The Company intends to develop such plans if it
identifies a business function at risk. The Company does not currently
anticipate that the Year 2000 Issue will have a material effect on its business,
results of operations, or financial condition.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Public Accountants................................................................. 17
Balance Sheet as of March 31, 1999....................................................................... 18
Statements of Operations for each of the two years ended March 31, 1999.................................. 19
Statements of Stockholders' Equity for each of the two years ended March 31, 1999........................ 20
Statements of Cash Flows for each of the two years ended March 31, 1999.................................. 21
Notes to Financial Statements............................................................................ 22
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AML Communications, Inc.:
We have audited the accompanying balance sheet of AML Communications, Inc.
(a Delaware corporation) as of March 31, 1999, and the related statements of
operations, stockholders' equity and cash flows for each of the two years ended
March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AML Communications, Inc. as
of March 31, 1999, and the results of its operations and its cash flows for each
of the two years ended March 31, 1999, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Los Angeles, California
May 12, 1999
17
<PAGE>
AML COMMUNICATIONS, INC.
BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Current Assets:
Cash and cash equivalents................................................. $ 6,597,000
Accounts receivable, net of allowance for doubtful accounts of $42,000.... 427,000
Inventories............................................................... 1,783,000
Income tax receivable..................................................... 537,000
Other current assets...................................................... 118,000
-----------
Total current assets................................................... 9,462,000
Property and Equipment, at cost:............................................ 4,370,000
Less--Accumulated depreciation and amortization........................... (2,288,000)
-----------
2,082,000
Deferred Taxes.............................................................. 288,000
Other Assets................................................................ 114,000
-----------
$11,946,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable.......................................................... $ 558,000
Current portion of capital lease obligations............................. 60,000
Accrued expenses:
Accrued payroll and payroll related expenses................... 349,000
Accrued commissions............................................ 40,000
Other accrued expenses.......................................... 364,000
-----------
Total current liabilities........................................... 1,371,000
Capital Lease Obligations, net of current portion........................... 185,000
Commitments and Contingencies (Notes 3 and 7)
Stockholders' Equity:
Preferred stock, $.01 par value:
1,000,000 shares authorized; no shares issued or
outstanding............................................................ --
Common stock, $.01 par value:
15,000,000 shares authorized;
6,374,629 shares issued and 6,260,129 outstanding...................... 63,000
Capital in excess of par value............................................ 9,365,000
Treasury stock--114,500 shares, at cost................................... (223,000)
Retained earnings......................................................... 1,185,000
-----------
Total stockholders' equity........................................... 10,390,000
-----------
$11,946,000
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
18
<PAGE>
AML COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
Year Ended
----------------------------------
March 31, March 31,
1998 1999
------------ -------------
<S> <C> <C>
Net Sales............................................. $12,786,000 $ 7,775,000
Cost of Goods Sold.................................... 7,111,000 5,733,000
----------- -----------
Gross profit..................................... 5,675,000 2,042,000
Operating Expenses:
Selling, general and administrative................. 2,848,000 3,049,000
Research and development............................ 1,962,000 2,981,000
Legal expense related to stockholders' lawsuits..... 150,000 --
----------- -----------
4,960,000 6,030,000
----------- -----------
Operating income (loss).......................... 715,000 (3,988,000)
Other (Income) Expense:
Interest income..................................... (366,000) (394,000)
Interest expense.................................... 16,000 16,000
Other............................................... (3,000) (6,000)
----------- -----------
(353,000) (384,000)
----------- -----------
Income (loss) before provision (benefit)
for income taxes............................... 1,068,000 (3,604,000)
Provision (Benefit) for Income Taxes.................. 382,000 (475,000)
----------- -----------
Net income (loss)................................ $ 686,000 $(3,129,000)
=========== ===========
Basic Earnings (Loss) Per Common Share................ $ 0.11 $ (0.50)
=========== ===========
Basic Weighted Average Number of Shares of
Common Stock Outstanding............................. 6,213,000 6,279,000
=========== ===========
Diluted Earnings (Loss) Per Common Share.............. $ 0.11 $ (0.50)
=========== ===========
Diluted Weighted Average Number of Shares of
Common Stock Outstanding............................. 6,332,000 6,279,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
AML COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
Common Stock Capital in Treasury Stock
----------------------- Excess of ------------------ Retained
Shares Amount Par Value Shares Amount Earnings Totals
----------------------- --------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997....... 6,082,190 $61,000 $9,048,000 -- $ -- $ 3,628,000 12,737,000
Exercise of stock options.... 209,740 2,000 86,000 -- -- -- 88,000
Tax benefit from exercise
of stock options..... -- -- 197,000 -- -- -- 197,000
Net income................... -- -- -- -- -- 686,000 686,000
--------- ------- ---------- ---------- --------- ----------- -----------
Balance, March 31, 1998....... 6,291,930 63,000 9,331,000 -- -- 4,314,000 13,708,000
Exercise of stock options.... 82,699 1,000 34,000 -- -- -- 35,000
Repurchase of treasury
shares.................... (114,500) (1,000) -- (114,500) (223,000) -- (224,000)
Net loss..................... -- -- -- -- -- (3,129,000) (3,129,000)
--------- ------- ---------- ---------- --------- ----------- -----------
Balance, March 31, 1999....... 6,260,129 $63,000 $9,365,000 $ (114,500) $(223,000) $ 1,185,000 $10,390,000
========= ======= ========== ========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
AML COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
Year Ended
March 31, March 31,
1998 1999
------------ --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)..................... $ 686,000 $ (3,129,000)
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization...... 650,000 726,000
Changes in assets and liabilities:
Decrease (increase) in:
Marketable securities........ 3,259,000 --
Accounts receivable.......... 282,000 1,201,000
Inventories.................. (765,000) 942,000
Income tax receivable........ -- (537,000)
Other assets................. 80,000 41,000
Deferred tax asset........... (17,000) 61,000
Increase (decrease) in:
Accounts payable............. (91,000) (208,000)
Accrued expenses............. 350,000 (200,000)
Income taxes payable......... 148,000 (195,000)
----------- -------------
Net cash provided by (used
in) 4,582,000 (1,298,000)
operating activities........ ----------- -------------
Cash Flows from Investing Activities:
Purchases of property and equipment... (783,000) (486,000)
----------- -------------
Net cash used in investing (783,000) (486,000)
activities.................. ----------- -------------
Cash Flows from Financing Activities:
Treasury stock repurchase....... -- (224,000)
Proceeds from exercise of stock 88,000 35,000
options..............................
Principal payments capital lease (45,000) (35,000)
obligations.......................... ----------- -------------
Net cash provided by (used
in) financing activities.... 43,000 (227,000)
----------- -------------
Net Increase (decrease) in Cash and 3,842,000 (2,011,000)
Cash Equivalents.......................
Cash and Cash Equivalents, beginning of 4,766,000 8,608,000
year................................... ----------- -------------
Cash and Cash Equivalents, end of year.. $ 8,608,000 $ 6,597,000
=========== =============
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest......................... $ 16,000 $ 16,000
=========== =============
Income taxes..................... $ 59,000 $ 191,000
=========== =============
Non-cash transactions:
Tax benefit related to exercise
of employee stock options $ 197,000 $ --
=========== =============
Debt incurred to purchase
equipment........ $ -- $ 226,000
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
AML COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
1. Line of Business
AML Communications, Inc. (the ''Company'') designs and manufactures multi-
carrier amplifiers and related products for the cellular, personal communication
services ("PCS"), paging, wireless local loop and other satellite communication
markets.
2. Summary of Significant Accounting Policies
Concentration of Cash
The Company considers all liquid investments with an original maturity of
three months or less to be cash equivalents. As of March 31, 1999, the Company
had cash and cash equivalent balances totaling $6,497,000 in financial
institutions which were in excess of federally insured amounts.
Credit Risk
The Company performs ongoing credit evaluations of its customers' financial
conditions and generally does not require collateral on accounts receivable,
hence the accounts receivable are unsecured and the Company is at risk to the
extent such amounts become uncollectable. As of March 31, 1999, two customers
comprised 45.9% and 14.1% of accounts receivable, respectively.
During fiscal 1998, the Company had sales to two customers which
represented 40.6% and 11.8% of net sales, respectively. During fiscal 1999, the
Company had sales to two customers which represented 20.5% and 11.9% of net
sales, respectively.
The Company's customers are comprised primarily of cellular service
providers and original equipment manufacturers ("OEMs"). Customers are located
primarily throughout the United States. However, the Company also had sales to
customers in South America, Western Europe, Canada, Israel, Russia, China and
Korea. During the fiscal years ended March 31, 1998 and March 31, 1999,
international sales were $5.4 million, or 42.4% of net sales and $1.6 million,
or 20.0% of net sales, respectively. In fiscal year 1998, 95.8% of international
sales were to a single customer in Brazil. In fiscal 1999, 42.8%, 21.3%, and
14.3% of international sales were to individual customers in Germany, Brazil,
and Israel, respectively.
Industry Risk
The wireless communications equipment industry is highly competitive and is
characterized by rapid technology change, new product development, product
obsolescence, evolving industry standards and substantial price erosion over the
life of a product. The Company continues to be subject to such risk.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
22
<PAGE>
Inventories
Inventories include costs of materials, labor and manufacturing overhead
and are stated at the lower of cost (first-in, first-out) or market, and consist
of the following:
<TABLE>
<CAPTION>
March 31, 1999
--------------
<S> <C>
Raw materials............. $1,217,000
Work in process........... 343,000
Finished goods............ 223,000
----------
$1,783,000
==========
</TABLE>
Depreciation and Amortization
Property and equipment are being depreciated and amortized on the straight-
line basis over the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment..................... 3 to 5 years
Furniture and fixtures...................... 5 years
Leasehold improvements...................... Life of lease
</TABLE>
The Company capitalizes expenditures that materially increase asset lives
and charges ordinary repairs and maintenance to operations as incurred. When
assets are sold or otherwise disposed of, the cost and related depreciation or
amortization are removed from the accounts and any resulting gain or loss is
included in other income (expense) in the accompanying statements of operations.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, 1999
--------------
<S> <C>
Machinery and equipment................... $3,676,000
Furniture and fixtures.................... 129,000
Leasehold improvements.................... 565,000
----------
$4,370,000
==========
</TABLE>
Warranty and Customer Support
The Company typically warrants its products against defects in materials
and workmanship for a period of one year from the date of shipment. A provision
for estimated future warranty and customer support is recorded when products are
shipped. To date, warranty and customer support costs have not been material.
Earnings Per Share
Earnings per share calculations are in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share".
Accordingly, "basic" earnings per share is computed by dividing net income or
loss by the weighted average number of shares outstanding for the year.
"Diluted" earnings per share is computed by dividing net income or loss by the
total of the weighted average number of shares outstanding plus, if applicable,
the dilutive effect of outstanding stock options (applying the treasury stock
method).
23
<PAGE>
A reconciliation of the basic weighted average number of shares outstanding
and the diluted weighted average number of shares outstanding for each of the
two years ended March 31, 1999 follows:
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------
1998 1999
------------ ------------
<S> <C> <C>
Weighted average number of common shares outstanding - Basic............ 6,213,000 6,279,000
Dilutive effect of outstanding stock options............................ 119,000 --
--------- ---------
Weighted average number of common shares outstanding - Diluted.......... 6,332,000 6,279,000
========= =========
</TABLE>
Due to the loss in fiscal 1999, the effect of outstanding options was not
included as the effect would be anti-dilutive.
Use of Estimate in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Business Segments
The Company operates as one reportable business segment. The Company
designs and manufactures multi-carrier amplifiers and related products for the
cellular, PCS, paging, wireless local loop and other satellite communication
markets.
3. Debt and Lease Commitments
Bank Line of Credit
In September 1998, the Company renegotiated its existing revolving bank
line of credit. The amended agreement is comprised of two separate credit
facilities. The initial facility is a $1,250,000 revolving line of credit, which
bears interest at the bank's reference rate (prime rate) plus 0.25%. The second
facility is a $500,000 non-revolving line of credit with term repayment options
which may be used to finance up to 80% of the purchase price of equipment used
in the Company's business. The second facility bears interest at the bank's
reference rate plus 0.75%. Both facilities are secured by substantially all of
the Company's assets and expire on September 1, 1999. As of March 31, 1999,
there were no borrowings outstanding under either facility. As of March 31,
1999, the Company was not in compliance with two financial covenants of the loan
agreement. The Company failed to meet the net income covenant and the minimum
net worth covenant and, therefore, the Company is currently prohibited of
borrowings on both facilities. The Company is currently in negotiations with
other financial institutions to establish new financing facilities although
there are no assurances the Company will be successful in its attempt.
Capital and Operating Lease Obligations
The Company leases its office space, manufacturing facility and certain
equipment under long-term operating leases expiring at various dates through
April 2003. Total rent expense under these operating leases was approximately
$172,000 and $158,000 during the years ended March 31, 1998 and 1999,
respectively. Included in property and equipment is approximately $319,000 of
equipment, which is leased under non-cancelable leases, accounted for as capital
leases which expire through September 30, 2003. The effective interest rate for
these leases range from 8.64% to 12.68%.
24
<PAGE>
Total minimum lease payments under the above leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases Total
------------ ------------- -------------
<S> <C> <C> <C>
Year ending March 31,
2000....................................... $ 79,000 $158,000 $237,000
2001....................................... 73,000 160,000 233,000
2002....................................... 56,000 161,000 217,000
2003....................................... 56,000 163,000 219,000
2004....................................... 28,000 16,000 44,000
Thereafter................................. -- -- --
-------- -------- --------
292,000 $658,000 $950,000
======== ========
Less--Amount representing interest.............. (47,000)
--------
Present value of minimum lease payments......... 245,000
Less--Current portion........................... (60,000)
--------
$185,000
========
</TABLE>
4. Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"). Under SFAS 109, deferred
income tax assets or liabilities are computed based on the temporary difference
between the financial statement and income tax bases of assets and liabilities
using the currently enacted marginal income tax rate. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period.
The provision (benefit) for income taxes for each of the years ended March
31, 1998 and 1999, consists of the following:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
March 31, 1998 March 31, 1999
--------------- --------------
<S> <C> <C>
Current:
Federal.............................. $339,000 $(485,000)
State................................ 60,000 (51,000)
-------- ---------
399,000 (536,000)
-------- ---------
Deferred.................................. (17,000) 61,000
-------- ---------
Provision (benefit) for income taxes...... $382,000 $(475,000)
======== =========
</TABLE>
Differences between the provision (benefit) for income taxes and income
taxes at the statutory federal income tax rate for years ended March 31, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1999
--------------------------- --------------------------
Amount Percent Amount Percent
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Income tax at statutory federal rate $363,000 34% $(1,209,000) (34%)
State income taxes, net of federal
income tax............................ 64,000 6 (33,000) (1)
Effect of permanent differences........ 7,000 1 65,000 2
Research and development credit........ (67,000) (6) -- -
Change in valuation allowance.......... -- - (111,000) (3)
Other.................................. 15,000 1 813,000 23
---------- ---- ----------- ----
$382,000 36% $ (475,000) (13%)
========== ==== =========== ====
</TABLE>
25
<PAGE>
Under SFAS 109, deferred tax assets may be recognized for temporary
differences that will result in deductible amounts in future periods and for
loss carry forwards. A valuation allowance is recognized if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax asset will not be realized.
A detail of the Company's deferred tax asset as of March 31, 1999 follows:
<TABLE>
<S> <C>
Inventory reserves................................ $ 265,000
Allowance for doubtful accounts................... 17,000
Accrued vacation.................................. 37,000
Accrued bonus..................................... 60,000
Accrued warranty and customer support............. 55,000
Other............................................. 108,000
Net operating loss carryforwards.................. 702,000
Depreciation...................................... (54,000)
----------
1,190,000
Valuation allowance............................... (902,000)
----------
$ 288,000
==========
</TABLE>
5. Stockholders' Equity
Stock Repurchase Program
In August 1998, the Company announced that its board of directors
authorized a stock repurchase program of up to 400,000 shares of the Company's
outstanding common stock. Shares repurchased pursuant to the repurchase program
were bought from time to time in the open market and are held for issuance in
connection with the future exercise of employee stock options. For the year
ended March 31, 1999, the Company repurchased 114,500 shares at an aggregate
cost of $224,000.
Stock Option Plan
The Company's Stock Incentive Plan provides for the granting of non-
qualified and incentive stock options to purchase up to 1,096,586 shares of
common stock for periods not to exceed 10 years. Options typically vest 25%
after one year from the date of grant with remaining options vesting at a rate
of 25% per year thereafter. Options may be granted to employees, officers,
directors and consultants. Activity under this plan is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
---------- --------------
<S> <C> <C>
Outstanding at March 31, 1997....................................... 430,327 $ 3.50
Granted............................................................. 214,838 5.02
Exercised........................................................... (209,740) .42
Canceled............................................................ (92,043) 10.80
--------
Outstanding at March 31, 1998....................................... 343,382 4.39
Granted............................................................. 298,500 2.14
Exercised........................................................... (82,699) .41
Canceled............................................................ (108,091) 7.18
--------
Outstanding at March 31, 1999....................................... 451,092 $ 3.74
========
</TABLE>
26
<PAGE>
The weighted average fair value for options granted during each year was
$4.51 and $2.14 for fiscal 1998 and fiscal 1999, respectively.
The number of common stock options available for grant as of each year
were 114,861 for fiscal 1998 and 327,566 for fiscal 1999.
Options outstanding at March 31, 1999 and related weighted average price
and life information is as follows:
<TABLE>
<CAPTION>
Weighted Total
Total Average Weighted Weighted
Range of Options Remaining Life Average Options Average
Exercise Prices Outstanding (Years) Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.60 6,854 0.1 $ 0.60 6,854 $ 0.60
$1.00 - $ 1.44 150,000 9.8 $ 1.26 -- --
$2.00 - $ 2.44 25,000 9.5 $ 2.18 -- --
$3.56 - $ 4.88 169,738 6.1 $ 3.87 24,878 $ 3.82
$5.44 - $ 8.06 78,000 6.0 $ 5.97 34,500 $ 6.17
$12.33 -$ 15.75 21,500 5.9 $14.72 10,750 $14.72
- ------------------- ------- ---- ------ ------ ------
$ 0.60 -$ 15.75 451,092 73.4 $ 3.74 76,982 $ 6.11
</TABLE>
As permitted by SFAS 123, the Company continues to apply the accounting
rules of APB 25 governing the recognition of compensation expense from its Stock
Incentive Plan. Such accounting rules measure compensation expense on the first
date at which both the number of shares and the exercise price are known. Under
the Company's plan, this would typically be the grant date. To the extent that
the exercise price equals or exceeds the market value of the stock on the grant
date, no expense is recognized. As options are generally granted at exercise
prices not less than the fair market value on the date of grant, no compensation
expense is recognized under this accounting treatment in the accompanying
statements of operations.
The fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Expected life (years)................................ 10 10
Dividend yield....................................... -- --
</TABLE>
The interest rate range is 4.53% - 6.82% and the range for volatility is
96.7%- 102.9%. The estimated stock-based compensation cost calculated using the
assumptions indicated totaled $439,000 and $567,000 in fiscal 1998 and fiscal
1999, respectively. This would result in a pro forma net income resulting from
the increased compensation cost of $423,000, or $.07 per diluted share, and pro
forma net loss of $3,696,000, or $(0.58) per diluted share, in fiscal 1998 and
fiscal 1999, respectively. The effect of stock-based compensation on net income
(loss) for fiscal 1998 and 1999 may not be representative of the effect on pro
forma net income (loss) in future years because compensation expense related to
grants made prior to fiscal 1997 is not considered.
Warrants
In connection with the initial public offering in December 1995, the
Company sold the underwriters five-year warrants to purchase an aggregate of
150,000 shares of the Company's common stock at $6.40 per common share. As of
March 31, 1999, all 150,000 warrants are outstanding and currently exercisable.
27
<PAGE>
6. Employee Benefit Plan
The Company has a defined contribution 401(k) employee retirement plan (the
"Plan"). Under the terms of the Plan, eligible employees, as defined, may
contribute from 1% to 16% of their pre-tax earnings to the Plan. At its
discretion, the Company may match the employees' contribution up to 6%. The
Company made no matching contribution for the years ended March 31, 1998 and
1999. However, for the years ended March 31, 1998 and 1999 the Company
contributed $82,000 and $36,000 in discretionary contributions, respectively.
7. Legal Proceedings
The Company may be subject, from time to time, to various legal proceedings
relating to claims arising out of its operations in the ordinary course of its
business. Two purported class action lawsuits have been filed against the
Company and certain of its current and former officers and directors. The first
lawsuit, entitled Ronny Sussman v. AML Communications, Inc., et al., Case No.
-------------------------------------------------
CIV 179776, was filed on March 19, 1998 in the Superior Court for the State of
California (Ventura County) (the "State Action"). The second lawsuit, entitled
Ronny Sussman v. AML Communications, Inc., et al., Case No. 98-2010 CAS (Ex)
- -------------------------------------------------
(C.D. Cal.), was filed on March 20, 1998 in the federal district court in Los
Angeles, California (the "Federal Action"). The individual defendants named in
both of the actions are Jacob Inbar (the Company's then President, Chief
Executive Officer and Chairman of the Board of Directors), Tiberiu Mazilu (the
Company's then Vice President of Custom Products and a member of the Board of
Directors), Edwin J. McAvoy (the Company's then Vice President of Sales and
Marketing and a member of the Board of Directors), Scott T. Behan (the Company's
then Vice President of New Product Development) and William E. Sheridan III (the
Company's then Chief Financial Officer). While the Federal Action asserts
claims under the federal securities laws and the State Action asserts claims
under California's securities laws, the complaints are otherwise essentially
identical. The complaints allege that during the purported class period of
April 10, 1996 to March 25, 1997, defendants made overly optimistic estimates
regarding the Company's anticipated financial performance for fiscal years 1997
and 1998, and overly optimistic statements regarding the Company's ability to
develop and to sell new products for the PCS market, all allegedly in order to
profit from insider trading at artificially inflated prices.
In the Federal Action, four lead plaintiffs and co-lead council were
appointed on June 29, 1998 pursuant to the Private Securities Litigation Reform
Act of 1995. On September 3, 1998, plaintiffs filed an amended complaint by
filing a motion to dismiss the case. Plaintiff's opposition to the motion was
filed on December 3, 1998. The motion was heard by the court on February 8,
1999, and the judge has taken the motion under advisement. All discovery is
stayed in the federal action unless and until it is determined that plaintiffs
have stated an actionable claim. The Company denies the material allegations in
the complaints and intends to defend the actions vigorously. An adverse
determination could have a material adverse effect upon the Company.
In the State Action, all proceedings have been stayed until the stay of
discovery is lifted in the federal action. Plaintiffs also intend to file an
amended complaint in the state action once the case proceeds. The Company's
response will be due 45 days after the filing of the amended complaint. The
Company intends to respond by filing a demurrer, which is the California
equivalent of a motion to dismiss for failure to state an actionable claim.
The Company and its legal counsel are currently evaluating the claims. At
this stage, it is not possible to predict the outcome or determine a range of
possible losses, if any. The Company, its directors and officers deny the
material allegations in the complaints and intend to defend the actions
vigorously. An adverse determination could have a material adverse effect upon
the Company's financial position or results of operations. During the year
ended March 31, 1998, the Company recorded $150,000 as costs related to these
lawsuits. There were no additional costs recorded related to the lawsuit during
the fiscal year ended, March 31, 1999.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
28
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The Board of Directors consists of six directors divided into three classes
serving staggered three-year terms. The following table sets forth certain
information with respect to the executive officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position Term Expires
- ---- --- -------- ------------
<S> <C> <C> <C>
Jacob Inbar 50 Chairman of the Board 2001
Kirk A. Waldron 36 President, Chief Executive Officer and Director 2000
Scott T. Behan 38 Executive Vice President, Sales and Marketing 1999
and Director
Tiberiu Mazilu, Ph.D. 53 Vice President of Engineering --
David A. Derby 58 Director 2000
Richard W. Flatow 58 Director 1999
Gerald Starek 58 Director 2001
</TABLE>
All officers are appointed by and serve at the discretion of the Board of
Directors. There are no family relationships among any directors or officers of
the Company.
Jacob Inbar is a co-founder of the Company and has been a Director and
Chairman of the Board since September 1985. From 1986 to 1999, Mr. Inbar served
as President and Chief Executive Officer of the Company. Mr. Inbar holds a B.S.
in Electrical Engineering from Ben Gurion University, Israel and an M.B.A. from
California Lutheran University.
Kirk A. Waldron has been a Director, President and Chief Executive Officer
of the Company since February 1999. From 1996 up until his current appointment,
Mr. Waldron served as the Company's Chief Financial Officer and in 1998 he was
appointed as the Company's Chief Operating Officer. From 1994 to 1996, Mr.
Waldron was Chief Financial Officer at Dynamotion/ATI Corp., a publicly held
high-tech manufacturer of precision drilling equipment. Mr. Waldron holds a B.S.
in Business Administration from the University of Southern California.
Scott T. Behan has been a Director and Executive Vice President of Sales
and Marketing of the Company since February 1999, and has been a Director of
Interactive Buyers Network, a high-tech Internet E-commerce service provider,
since 1998. From 1994 up until his current appointment, Mr. Behan served as the
Company's Vice President of New Business Development. From 1987 to 1994, Mr.
Behan held a variety of engineering and sales and marketing positions within the
Company. Mr. Behan holds a B.S. in Electrical Engineering from Worcester
Polytechnical Institute.
Tiberiu Mazilu, Ph.D. is a co-founder of the Company and has served as its
Vice President of Engineering since February, 1999. Dr. Mazilu served as the
Company's Vice President, Custom Products and as a Director from January 1987 to
February 1999. Dr. Mazilu served as the Company's Chairman of the Board from
January 1987 until September 1995. Dr. Mazilu holds a Ph.D. in Electrical
Engineering, with a specialty in electromagnetics, from the University of
California, Los Angeles.
David A. Derby has been a Director of the Company since December 1995, and
has been President, Chief Executive Officer and a Director of Datron Systems
Incorporated (Nasdaq: DTSI), a manufacturer of radio and
29
<PAGE>
satellite communication systems and products, since May 1982. In April 1998, Mr.
Derby was elected Chairman of the Board of Datron Systems Incorporated.
Richard W. Flatow has been a Director of the Company since December 1995
and has been the President of RWF Enterprises, a management consulting firm,
since 1994. From 1993 to 1994, Mr. Flatow was President and Chief Executive
Officer of Futurekids, Inc., a franchiser of computer training for children.
Previously, Mr. Flatow was a Managing Partner and Senior Consultant for Hankin &
Co., a middle-market management consulting firm.
Gerald M. Starek has been a Director of the Company since March 1999, and
has served as a Director of Advanced Energy Industries, Inc. since 1998. From
1993 to 1995, Mr. Starek served on the Board of Directors of Systems Chemistry,
Inc., a privately held company that was purchased in 1995 by SubMicron Systems,
Inc.. Previously, Mr. Starek served as President, Chief Executive Officer and
Chairman of the Silicon Valley Group, a supplier of automated wafer processing
equipment for the semiconductor industry that he founded in 1977.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Act"), requires directors, certain officers of the Company and persons holding
more than 10% of the Company's Common Stock to file reports concerning their
ownership of Common Stock by dates established under the Act and also requires
that the Company disclose in this annual report on Form 10-KSB any non-
compliance with those requirements during the fiscal year ended March 31, 1999.
Based solely upon a review of reports delivered to the Company for fiscal 1999,
all Section 16(a) filing requirements were satisfied.
ITEM 10. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the
information under the captions "Executive Compensation" and "Election of
Directors" in the Company's definitive proxy statement for the 1999 Annual
Meeting of Stockholders to be held on September 22, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT
Information required by this item is incorporated by reference to the
information under the caption "Principal Stockholders" in the Company's
definitive proxy statement for the 1999 Annual Meeting of the Stockholders to be
held on September 22, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1999, the Company paid two of its directors amounts
aggregating approximately $3,000 each for consulting services.
30
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following are attached as Exhibits to this Form 10-KSB:
<TABLE>
<S> <C>
3.1 Articles of Incorporation*
3.2 Bylaws*
10.1 AML Communications, Inc. Stock Incentive Plan*
10.2 Form of Incentive Stock Option Agreement*
10.3 Form of Non-employee Director Incentive Stock Option Agreement*
10.4 Incentive Stock Option Agreement, dated August 1, 1994, between the Company and Jacob Inbar.*******
10.5 Stock Option Agreement, dated December 15, 1995, between the Company and David A. Derby.*******
10.6 Stock Option Agreement, dated August 28, 1996, between the Company and David A. Derby.*******
10.7 Stock Option Agreement, dated December 15, 1995, between the Company and Richard W. Flatow.*******
10.8 Stock Option Agreement, dated August 28, 1996, between the Company and Richard W. Flatow.*******
10.9 Incentive Stock Option Agreement, dated April 28, 1997, between the Company and Kirk A. Waldron.*******
10.10 Form of Indemnity Agreement*
10.11 Standard offer, Agreement and Escrow Instructions for Purchase of Real Estate dated January 30,
1996, between the Company and Parr-Bohn Properties, Ltd. II, a California Limited Partnership**
10.12 Lease, dated March 11, 1996, between the Company and Parr-Bohn Properties, Ltd. II, a California
Limited Partnership***
10.13 Business Loan Agreement dated August 2, 1996, between the Company and Bank of America National
Trust and Savings Association ****
10.14 Security Agreement dated August 2, 1996, between the Company and Bank of America National Trust and
Savings Association****
10.15 Amendment No. 1 dated September 2, 1997 to Business Loan Agreement dated August 2, 1996 between the
Company and Bank of America National Trust and Savings Association*****
10.16 Stock Incentive Plan of AML Communications, Inc., as Amended and Restated on June 24, 1998 ******
10.17 Form of amended Nonemployee Director Stock Option Agreement. ******
10.18 Amendment No. 2 dated September 1, 1998 to Business Loan Agreement dated August 2, 1996 between the
Company and Bank of America National Trust and Savings Association. ******
10.19 Change in Control Agreement dated August 25, 1998 between the Company and Kirk A. Waldron.+
10.20 Employment Agreement dated February 23, 1999 between the Company and Jacob Inbar+
10.21 Employment Agreement dated February 23, 1999 between the Company and Tiberiu Mazilu+
10.22 Employment Agreement dated February 23, 1999 between the Company and Edwin J. McAvoy+
23.1 Consent of Arthur Andersen, LLP
27 Financial Data Schedule
* Previously filed with the Securities and Exchange Commission as an exhibit to the Registration
Statement on Form SB-2 No. 33-99102-LA and incorporated herein by reference
** Previously filed with the Securities and Exchange Commission as an exhibit to Current Report on
Form 8-K of the Company, as filed with the Securities and Exchange Commission on March 13, 1996,
and incorporated herein by reference
*** Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-KSB for fiscal year ended March 31, 1996 and incorporated herein by reference
**** Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference
***** Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-QSB for the quarter ended September 30, 1997 and incorporated herein by reference
****** Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-QSB for the quarter ended September 30, 1998 and incorporated herein by reference
******* Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-KSB for the fiscal year ended March 31, 1998 and incorporated herein by reference
+ Management contract or compensatory plan or arrangement required to be filed as an exhibit to
this Form 10-KSB
</TABLE>
31
<PAGE>
******* Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's Form 10-KSB for the fiscal year ended March 31,
1998.
(b) Reports on Form 8-K
During the three months ended March 31, 1999, the Company filed a report on
Form 8-K reflecting the February 24, 1999 change in senior management,
appointing Kirk A. Waldron as President and Chief Executive Officer, and
Scott T. Behan to the newly created position of Executive Vice President of
Sales and Marketing.
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AML Communications, Inc.
By: /s/ Kirk A. Waldron Dated: June 28, 1999
------------------------------- -------------
Kirk A. Waldron
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
- ------------------------------ ------------------------------ -------------
/s/ Jacob Inbar Chairman of the June 28, 1999
- ------------------------------ -------------
Jacob Inbar Board
/s/ Kirk A. Waldron President, Chief June 28, 1999
- ------------------------------ -------------
Kirk A. Waldron Executive Officer and
Director
/s/ Scott T Behan Secretary, Executive Vice June 28, 1999
- ------------------------------ -------------
Scott T. Behan President-Sales and Marketing,
and Director
/s/ David A. Swoish Controller and Chief June 28, 1999
- ------------------------------ -------------
David A. Swoish Accounting Officer
/s/ David A. Derby Director June 28, 1999
- ------------------------------ -------------
David A. Derby
/s/ Richard W. Flatow Director June 28, 1999
- ------------------------------ -------------
Richard W. Flatow
/s/ Gerald M Starek Director June 28, 1999
- ------------------------------ -------------
Gerald M. Starek
33
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Articles of Incorporation*
3.2 Bylaws*
10.1 AML Communications, Inc. Stock Incentive Plan*
10.2 Form of Incentive Stock Option Agreement*
10.3 Form of Non-employee Director Incentive Stock Option Agreement*
10.4 Incentive Stock Option Agreement, dated August 1, 1994, between the Company and Jacob Inbar.*******
10.5 Stock Option Agreement, dated December 15, 1995, between the Company and David A. Derby.*******
10.6 Stock Option Agreement, dated August 28, 1996, between the Company and David A. Derby.*******
10.7 Stock Option Agreement, dated December 15, 1995, between the Company and Richard W. Flatow.*******
10.8 Stock Option Agreement, dated August 28, 1996, between the Company and Richard W. Flatow.*******
10.9 Incentive Stock Option Agreement, dated April 28, 1997, between the Company and Kirk A. Waldron.*******
10.10 Form of Indemnity Agreement*
10.11 Standard offer, Agreement and Escrow Instructions for Purchase of Real Estate dated January 30, 1996,
between the Company and Parr-Bohn Properties, Ltd. II, a California Limited Partnership**
10.12 Lease, dated March 11, 1996, between the Company and Parr-Bohn Properties, Ltd. II, a California Limited
Partnership***
10.13 Business Loan Agreement dated August 2, 1996, between the Company and Bank of America National Trust and
Savings Association****
10.14 Security Agreement dated August 2, 1996, between the Company and Bank of America National Trust and
Savings Association****
10.15 Amendment No. 1 dated September 2, 1997 to Business Loan Agreement dated August 2, 1996 between the
Company and Bank of America National Trust and Savings Association*****
10.16 Stock Incentive Plan of AML Communications, Inc., as Amended and Restated on June 24, 1998******
10.17 Form of amended Non-employee Director Stock Option Agreement.*******
10.18 Amendment No. 2 dated September 1, 1998 to Business Loan Agreement dated August 2, 1996 between the Company
and Bank of America National Trust and Savings Association.******
10.19 Change in Control Agreement dated August 25, 1998 between the Company and Kirk A. Waldron.+
10.20 Employment Agreement dated February 23, 1999 between the Company and Jacob Inbar.+
10.21 Employment Agreement dated February 23, 1999 between the Company and Tiberiu Mazilu.+
10.22 Employment Agreement dated February 23, 1999 between the Company and Edwin J. McAvoy.+
23.1 Consent of Arthur Andersen, LLP.
27 Financial Data Schedule
_________________________
* Previously filed with the Securities and Exchange Commission as an exhibit to the Registration
Statement on Form SB-2 No. 33-99102-LA and incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as an exhibit to Current Report on
Form 8-K of the Company, as filed with the Securities and Exchange Commission on March 13,
1996, and incorporated herein by reference.
*** Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-KSB for fiscal year ended March 31, 1996 and incorporated herein by reference.
**** Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference.
***** Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-QSB for the quarter ended September 30, 1997 and incorporated herein by reference.
****** Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-QSB for the quarter ended September 30, 1998 and incorporated herein by reference.
******* Previously filed with the Securities and Exchange Commission as an exhibit to the Company's
Form 10-KSB for the fiscal year ended March 31, 1998 and incorporated herein by reference.
+ Management contract or compensatory plan or arrangement required to be filed as an
exhibit to this Form 10-KSB.
</TABLE>
34
<PAGE>
EXHIBIT 10.19
CHANGE IN CONTROL AGREEMENT
---------------------------
THIS AGREEMENT made as of August 25, 1998 by and between AML
Communications, Inc., a Delaware corporation (the "Company"), and Kirk A.
Waldron ("Executive").
WITNESSETH
----------
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the threat or the occurrence of a Change in Control (as hereinafter
defined) can result in significant distractions of its key management personnel
because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of Executive
in the event of a threat or occurrence of a Change in Control and to ensure his
continued dedication and efforts in such event without undue concern for his
personal financial and employment security; and
WHEREAS, in order to induce Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this Agreement with Executive to
provide Executive with certain benefits in the event of a termination of
employment as a result of a Change in Control.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of the date hereof
-----------------
and shall continue in effect so long as Executive is an employee of the Company.
2. Definitions.
-----------
2.1. Base Amount. For purposes of this Agreement, "Base Amount"
-----------
shall mean Executive's annual base salary at the rate in effect immediately
prior to the Change in Control and shall include all amounts of his base salary
that are deferred under any other agreement or arrangement with the Company.
2.2. Change in Control. For purposes of this Agreement, a "Change in
-----------------
Control" shall mean any consolidation or merger of the Company with or into
another corporation or corporations in which the stockholders of the Company
immediately prior to the consolidation or merger do not retain a majority of the
voting power of the surviving corporation or a sale of all or substantially all
of the assets of the Company.
<PAGE>
2.3. Company. For purposes of this Agreement, the "Company" shall
-------
include the Company's "Successors and Assigns" (as hereinafter defined).
2.4. Successors and Assigns. For purposes of this Agreement,
----------------------
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all the assets and business of the Company whether by operation
of law or otherwise, and any affiliate of such Successors and Assigns.
3. Payment Upon a Change in Control.
--------------------------------
3.1 Change in Control. If, during the term of this Agreement, a
-----------------
Change in Control occurs and employment is terminated within one year of the
effective date of the Change in Control, the Company shall pay Executive in a
single payment an amount in cash equal to the Base Amount.
3.2 Date of Payment. The amount provided for in Section 3.1 shall be
---------------
paid in a single lump sum cash payment within ten (10) days after the effective
date of the Change in Control (or earlier, if required by applicable law).
4. Successors; Binding Agreement. This Agreement shall be binding upon
-----------------------------
and shall inure to the benefit of the Company, its Successors and Assigns, and
the Company shall require any Successors and Assigns to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by Executive's
legal personal representative.
5. Notice. For the purposes of this Agreement, notices and all other
------
communications shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, by overnight courier or by facsimile, addressed to the
respective addresses and facsimile numbers last given by each party to the
other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
6. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company and for which
Executive may qualify, nor shall anything herein limit or reduce such rights as
Executive may have under any other agreements with the Company. Amounts which
are vested benefits or which Executive is otherwise entitled to receive under
any plan or program of the Company shall be payable in accordance with such plan
or program, except as explicitly modified by this Agreement.
2
<PAGE>
7. No Guaranteed Employment. Executive and the Company acknowledge that
------------------------
the employment of Executive by the Company is "at will" and may be terminated by
either Executive or the Company at any time.
8. Settlement of Claims. The Company's obligation to make the payment
--------------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against Executive or others.
9. Mutual Non-Disparagement. The Company and its affiliates agree and the
------------------------
Company shall use its best efforts to cause their respective executive officers
and directors to agree, that they will not make or publish any statement
critical of Executive, or in any way adversely affecting or otherwise maligning
Executive's reputation. The Executive agrees that he will not make or publish
any statement critical of the Company, its affiliates and their respective
executive officers and directors, or in any way adversely affecting or otherwise
maligning the business or reputation of any member of the Company and its
affiliates and their respective officers, directors and employees.
10. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
11. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of California without giving
effect to the conflict of laws principles thereof.
12. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
13. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and Executive has executed this Agreement as of the
day and year first above written.
AML COMMUNICATIONS, INC.
By:----------------------------------
Name:
Title:
By:----------------------------------
Executive
4
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of February 23, 1999, is made and entered
into among AML Communications, Inc., a Delaware corporation (the "Company"), and
Jacob Inbar, an individual (the "Executive").
R E C I T A L S
---------------
WHEREAS, it is the desire of the Company to assure itself of the
management services of the Executive by directly engaging the Executive on a
part-time basis. This position is independent of the Executive's role as
Chairman of the Board of Directors.
WHEREAS, the Executive desires to accept such engagement by the
Company on the terms herein provided.
NOW THEREFORE, in consideration of the respective covenants and
agreements set forth below and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A G R E E M E N T
-----------------
1. Employment
----------
(a) The Company shall employ the Executive and the Executive shall
enter the employ of the Company, for the period set forth in this Section 1
unless sooner terminated in accordance with the provisions of this Agreement, in
the positions (or comparable positions) set forth in Section 2 and upon the
other terms and conditions herein provided. The initial term of employment
under this Agreement (the "Initial Term") shall be for the period beginning on
the date of this Agreement and ending on August 23, 2001, unless earlier
terminated as provided in Section 6.
(b) At the expiration of the Initial Term and each anniversary
thereafter, the terms of this Agreement shall automatically be terminated. The
agreement may be extended for an additional year (the "Extension Term") by
mutual agreement between the Company and the Executive transacted through
written notice given to the Executive at any time prior to or on the anniversary
date. If the Executive's employment term under this Agreement is extended for an
Extension Term, it shall thereafter or during any Extension Term be terminable
(other than upon expiration) only as provided in this Section or Section 6.
Reference herein to the "Term of Employment" of this Agreement shall refer to
both such Initial Term and any Extension Term.
2. Position and Duties
-------------------
(a) During the Initial Term of Employment, the Executive shall have
such part-time duties, functions, responsibilities and authority as are
consistent with that of a Chairman, working part-time, former senior executive
and co-founder of the Company.
1
<PAGE>
3. Competition
-----------
(a) At any time during employment of the Executive by the Company,
and for one year following the Term of Employment, the Executive shall be
prohibited from engaging in Competition (as defined in subsection 3(b) below)
with the Company; provided, however, that if the Executive is terminated by the
--------- -------
Company without Cause (as defined in subsection 6(c) below) or if the Executive
terminates his employment for Good Reason (as defined in subsection 6(d) below),
or if by mutual agreement (as defined in subsection 6(g) below), the foregoing
prohibition shall terminate on the date of such termination.
(b) The term "Competition" for purposes of this Agreement shall be
outlined in the attached "Consulting/Employment Agreement Relating to Inventions
and Confidential Information."
(c) The Executive covenants that the Company shall, in addition to
any other rights and remedies available under this Agreement, at law or
otherwise, be entitled to an injunction to be issued by any court of competent
jurisdiction enjoining and restraining the Executive from committing any
violation of subsection 3(a) above.
(d) Any provision of this Agreement which is deemed invalid, illegal
or unenforceable in any jurisdiction shall, as to that jurisdiction and subject
to this paragraph be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope of
activity, geographic area or duration, or any combination thereof, is considered
excessive, such covenant shall be modified and reformed so that the scope of
activity, geographic area and duration of the covenant is reduced only to the
minimum extent necessary to render the modified covenant valid, legal and
enforceable.
4. Place of Performance
--------------------
In connection with his employment during the Term of Employment, the
Executive shall be based at the Executive's principal residence located at
Westlake Village, California or at a Company designated location within 15 miles
of the Executive's current principal residence. Notwithstanding the foregoing,
the Executive shall undertake normal business travel on behalf of the Company.
The Company shall provide the Executive with a functionally equipped office at
the Company's principal executive offices located at Camarillo, California.
The Executive is expected to incur up to approximately four hours per week, at
the Executive's choice, at the Company's principal executive offices.
5. Compensation and Related Matters
--------------------------------
2
<PAGE>
(a) Annual Base Salary. The Executive shall receive an aggregate
-------------------
base salary ("Annual Base Salary") which shall comprise of two (2) elements: an
annual salary and an Initial Annual Bonus. For the first year of the Initial
Term, the annual salary shall be $12,000 and the Initial Annual Bonus ("IBS")
shall be $58,000. The Executive, in recognition of past services, is entitled to
a $58,000 per year IBS for each year of the term of this contract, pro rata for
the last six months. Therefore, the total IBS aggregates to $145,000. The IBS
will be payable, in advance, on a quarterly basis beginning February 23, 1999.
The Annual Base Salary for the second year and the last six months of the
Initial Term will be adjusted at a rate to be negotiated between the Executive
and the Chief Executive Officer but never less than the agreed upon Annual Base
Salary in effect on the date of this agreement. Initial Annual Bonus is separate
from the Bonus Compensation in subsection 5(b) below.
In addition to the Annual Base Salary, the Executive shall receive an
office stipend of $400 a month, to cover expenses incurred as a result of the
Executive working from his residence. The Executive shall submit for approval
to the Chief Executive Officer, requests for any office equipment necessary to
facilitate his working from home.
The Annual Base Salary for any period during the Extension Term shall
be negotiated between the Executive and the Company.
The Annual Base Salary shall be payable in accordance with the
Company's normal payment practices but in no event shall such salary be payable
less frequently than monthly, in equal installments, subject to tax and other
withholding as required by applicable law.
(b) Bonus Compensation. The Executive shall be entitled, on an
------------------
annual basis, to a cash bonus ("Bonus Compensation") in an amount to be
determined by the Compensation Committee of the Board of Directors based upon
the Company achieving certain targets of growth determined by the Compensation
Committee of the Board on an annual basis.
(c) Benefits. During the Term of Employment, the Executive shall be
---------
entitled to:
(i) receive, at the discretion of the Compensation Committee of the
Board, stock options under the Company's Stock Incentive Plan;
(ii) participate in the Company's 401 (k) plan; and
(iii) participate in or receive benefits under any employee benefit
plan or other arrangement including, but not limited to, any medical, dental,
retirement, disability, life insurance, sick leave or arrangements made
available by the Company to any of its employees (collectively, "Benefits"),
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans or arrangements
3
<PAGE>
(d) Expenses. The Company shall promptly pay directly or reimburse
--------
the Executive for all reasonable travel and other business expenses incurred by
the Executive in the performance of his duties to the Company under this
Agreement, including without limitation, with respect to professional
memberships and continuing education. Through December 1, 1999, the Company
shall provide the Executive with an automobile comparable to the automobile
currently provided to the Executive, and shall continue to pay or reimburse the
Executive for all expenses related to the business use thereof (including
insurance, gasoline and maintenance).
6. Termination
-----------
The Executive's employment hereunder may be terminated by the Company
or the Executive, as applicable, under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
------
his death. In the case of the Executive's death, the Company shall pay to the
Executive's beneficiaries or estate, as appropriate, (i) promptly after the
Executive's death, the unpaid Annual Base Salary to which the Executive is
entitled pursuant to subsection 5(a) prorated through the date of his
termination and (ii) as soon as practical after the close of the Company's
fiscal year in which the Executive's death occurs, a prorated portion of unpaid
Bonus Compensation. This subsection 6(a) shall not limit the entitlement of the
Executive's estate or beneficiaries to any death or other benefits then
available to the Executive under the life insurance or other benefit plan or
policy which is maintained by the Company for the Executive's benefit.
(b) Disability.
-----------
(i) If the Company determines in good faith, after considering all
relevant medical evidence, that the Executive has incurred a Disability (as
defined below) during the Term of Employment, such party may give the Executive
written notice of their intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall terminate
effective on the 30th day after the receipt of such notice by the Executive,
provided that within 30 days after such receipt, the Executive shall not have
returned to perform his duties. The Executive shall continue to receive his
Annual Base Salary and Benefits until the date of termination. In the case of
the Executive's Disability, the Company shall pay to the Executive (a) promptly
after the Executive's termination, the unpaid Annual Base Salary to which the
Executive is entitled pursuant to subsection 5(a) prorated through the date of
the Executive's termination and (b) as soon as practical after the close of the
Company's fiscal year in which the Executive's termination occurs, a prorated
portion of unpaid Bonus Compensation. In addition, the Company shall pay the
Executive the severance benefits as set forth in Section 7. This subsection 6(b)
shall not limit the entitlement of the Executive to any disability or other
benefits then available to the Executive under any disability insurance or other
benefit plan or policy which is maintained by the Company for the Executive's
benefit.
4
<PAGE>
(ii) For the purpose of this Section, "Disability" shall mean the
Executive's failure to perform his duties to the Company for a total of 16
consecutive weeks during any 12 -month period as a result of incapacity due to
mental or physical illness which is determined to be total and permanent by a
physician selected by the Company and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to be
withheld, delayed or conditioned unreasonably).
(c) Cause.
------
(i) The Company may terminate the Executive's employment hereunder
for Cause (as defined below). In the case of the Executive's termination for
Cause, the Company shall promptly pay to the Executive (or his representative)
the unpaid Annual Base Salary to which he is entitled pursuant to subsection
5(a) prorated through the date of the Executive's termination and the Executive
shall be entitled to no other compensation.
(ii) For the purpose of this Agreement, the Company shall have "Cause"
to terminate the Executive's employment hereunder upon finding by the Board that
the Executive has (1) engaged in acts or omissions with respect to the Company
or any affiliate of the Company which constitute intentional misconduct or a
knowing violation of law as reasonably determined by the disinterested members
of the Board; (2) personally receive a benefit in money, property or services
from the Company or any affiliate of the Company or from another person dealing
with the Company in violation of applicable law; (3) breached his non-
competition covenant with the Company; (4) breached his fiduciary duty of
loyalty to the Company or any affiliate of the Company; (5) engaged in gross
negligence in the performance of his duties to the Company or any affiliate of
the Company; or (6) frequently and repeatedly failed to perform services for the
Company or any affiliate of the Company which have been reasonably requested of
him by the Board and which are consistent with the terms of this Agreement;
provided, however, that "Cause" shall not exist unless and until the Company
- --------- --------
provides the Executive with (a) at least 15 days' prior written notice of its
intention to terminate his employment for Cause, with a certified copy of the
resolution of the Board approving the termination of the Executive's employment
for Cause by the affirmative vote of not less than a majority of the Board
(other than the Executive) and a written statement describing the nature of the
Cause and (b) a reasonable opportunity and a reasonable period of time to cure
any curable acts or omissions on which the finding of Cause is based. If the
Executive cures the acts or omissions on which the finding of Cause is based,
the Company shall not have Cause to terminate the Executive's employment
hereunder.
(d) Good Reason
-----------
(i) The Executive may terminate his employment for Good Reason (as
defined below). In the event that the Executive so terminates his employment
for Good Reason, the Company shall pay to the Executive (a) promptly after the
Executive's termination, the unpaid Annual Base Salary to which the Executive is
entitled pursuant to subsection 5(a) prorated through the date of the
Executive's termination and (b) as soon as practical after the close of the
Company's fiscal year in which the Executive's
5
<PAGE>
termination occurs, a prorated portion of unpaid Bonus Compensation. In
addition, the Company shall pay the Executive severance benefits as set forth in
Section 7.
(ii) For the purpose of this Agreement, the Executive shall have "Good
Reason" to terminate his employment with the Company in the event of (a) any
reduction in the Executive's compensation (including Annual Base Salary, Bonus
Compensation and Benefits, but excluding any termination or amendment of
Benefits pursuant to a termination or amendment generally of the plan or
arrangements relating thereto and excluding discretionary bonuses or similar
discretionary payments), without the Executive's consent; (b) any material
breach by the Company of, or default by it under, the provisions of the
Agreement; provided, however, that in the case of any breach or default, the
--------- --------
Executive shall not have Good Reason to terminate his employment unless and
until he has provided the Company with written notice of such breach at least 15
days in advance of his intended termination date and a reasonable opportunity
and period of time to cure such breach or default (provided, further, however,
-------- ------- -------
if the Company cures such breach, the Executive shall not have Good Reason to
terminate this Agreement); (c) any substantial diminution of duties,
responsibilities or status, or other imposition by the Company of unreasonable
requirements or working conditions on the Executive which are not withdrawn or
corrected in all material respects within a 30-day period following notice by
the Executive to the Company of such diminution or imposition or, if any of the
foregoing arose because of conditions or circumstances outside the control of
the Company, such longer period as may be reasonably required under the
circumstances.
(e) Without Cause. The Company may terminate the Executive's employment
-----------------
hereunder Without Cause upon 30 days' written notice. In the event the Company
terminates the Executive's employment Without Cause at any time during the
Initial Term, the Company shall pay to the Executive (i) promptly after the
Executive's termination, the unpaid Annual Base Salary to which the Executive is
entitled pursuant to subsection 5(a) prorated through the date of the
Executive's termination and (ii) as soon as practical after the close of the
Company's fiscal year in which the Executive's termination occurs, a prorated
portion of unpaid Bonus Compensation. In addition, the Company shall pay the
Executive severance benefits as set forth in Section 7.
(f) Resignation Without Good Reason. The Executive may resign his
-----------------------------------
employment Without Good Reason upon 30 days' written notice to the Company. In
the case of the Executive's resignation Without Good Reason, the Company shall
pay promptly to the Executive (or his Representative) the unpaid Annual Base
Salary which he is entitled pursuant to subsection 5(a) prorated through the
date of the Executive's termination. The Executive shall be entitled to no
other compensation.
(g) Mutual Agreement. The Executive's employment may be terminated by
----------------
Mutual Agreement between the Executive and the Company at any time. In the
event of the Executive's termination by mutual agreement, the Company shall pay
to the Executive (i) promptly after the Executive's termination, the unpaid
Annual Base Salary to which the Executive is entitled pursuant to subsection
5(a) prorated through the date of the Executive's termination and (ii) as soon
as practical after the close of the Company's fiscal year in which the
Executive's termination occurs, a prorated portion of
6
<PAGE>
unpaid Bonus Compensation. In addition, the Company shall pay the Executive the
severance benefits as set forth in Section 7.
(h) Expiration. If either the Company or the Executive elects to
----------
terminate this Agreement pursuant to subsection 1(b) above, the Company shall
pay to the Executive (i) promptly after the Executive's termination, the unpaid
Annual Base Salary to which the Executive is entitled pursuant to subsection
5(a) prorated through the date of the Executive's termination and (ii) as soon
as practical after the close of the Company's fiscal year in which the
Executive's termination occurs, a prorated portion of unpaid Bonus Compensation.
7. Severance Benefits
------------------
(a) Termination. If the Executive's employment shall be terminated
-----------
by the Company pursuant to Section 6 (b), (d), (e), and (g) within the Initial
Term, the Executive shall receive severance compensation which shall consist of
bi-weekly payments in an amount equal to the Annual Base Salary effective upon
the date of termination, prorated bi-weekly through August 23, 2001, except in
the event this Agreement has theretofore been terminated by the Company or the
Executive pursuant to subsection 1(b) above. In addition, all theretofore
unvested stock options, restricted stock and other awards issued pursuant to the
Stock Incentive Plan shall immediately vest and the Company shall continue to
provide the Executive and his dependents with medical benefits for the duration
of the Initial Term. Without limiting the provisions of Sections 6(a) and 6(b),
the Company shall have the right at no cost or expense to the Executive to
obtain additional insurance for the specific purpose of paying all or any
portion of the severance compensation to the Executive as required by this
Section 7(a).
(b) Survival. The expiration or termination of the Term of
--------
Employment shall not impair the rights or obligations of any party hereto, which
shall have accrued hereunder prior to such expiration.
(c) Mitigation of Damages. In the event of any termination of the
---------------------
Executive's employment, the Executive shall not be required to seek other
employment to mitigate damages, and any income earned by the Executive from
other employment or self-employment shall not be offset against any obligations
of the Company to the Executive under this Agreement.
8. Confidential Information
------------------------
The Executive agrees not to disclose to any person not employed by the
Company or any affiliated entity and not engaged to render services to the
Company or any affiliated entity any confidential information obtained while in
the employ of the Company; provided, however, that the restrictions contained
-------- -------
herein shall not apply to information that (i) was in the Executive's possession
prior to any disclosure to him by the Company, (ii) is or becomes generally
available to the public other than as a result of disclosure by the Executive or
his representatives in violation of this Agreement, (iii) is or becomes
available to the Executive on a non-confidential basis from a source (other than
the Company or its representatives) which is not, to the Executive's knowledge,
7
<PAGE>
prohibited from transmitting the information to the public generally by a
contractual, legal, fiduciary or other obligation, (iv) was independently
acquired or developed by the Executive outside the scope of his employment
hereunder or by any predecessor of the Company or any affiliated entity without
violating the Executive's obligation under this Agreement and without any
obligation of the Executive to hold for the benefit of or contribute to the
Company, or (v) is knowingly furnished to a third party by the Company or any
representative of the Company without similar non-disclosure restrictions on the
third party's use of such information. In addition, this Section 8 shall not
preclude the Executive from the use or disclosure of information known generally
to the public or of information not considered confidential by the Company or
any affiliated entity or from making disclosures required by law or court order.
For purposes of this Agreement, the term "confidential information"
shall include all information of any nature and in any form which is owned by
the Company or any affiliated entity and which is not publicly available or
generally known to persons engaged in businesses similar to that of the Company
including, but not limited to, research techniques; patents and patent
applications; inventions and improvements, whether patentable or not;
development projects; computer software and related documentation and materials
(including source and use codes); designs, practices, processes, methods, know-
how and other facts relating to the business of the Company; practices,
processes, methods, know-how and other facts related to sales, advertising,
promotions, financial matters, customers, customer lists or customers' purchases
of goods or services from the Company; industry contracts; and all other secrets
and information of a confidential and proprietary nature.
9. Disputes
--------
(a) Except as provided in subsection 3(c), any dispute or controversy
arising under, out of, in connection with or in relation to this Agreement
shall, at the election and upon written demand of any party to this Agreement,
be finally determined and settled by arbitration in Los Angeles, California, in
accordance with the rules and procedures of the American Arbitration
Association, and judgement upon the award may be entered in any court having
jurisdiction thereof.
(b) If any legal action or arbitration or other proceeding is brought
for the enforcement of this Agreement or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief that may be granted.
10. Binding on Successors. This Agreement shall be binding upon and inure
---------------------
to the benefit of the Company, the Executive and their respective successors,
assigns, personal and legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees, as applicable.
11. Governing Law. This Agreement is being made and executed in and is
-------------
intended to be performed in the State of California and shall be governed,
construed,
8
<PAGE>
interpreted and enforced in accordance with the substantive laws of the State of
California, without regard to the conflict of law principles thereof.
12. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Notices. Any notice, request, claim, demand, document and other
-------
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Company, addressed to its principal offices to the
attention of the Chief Executive Officer at 1000 Avenida Acaso, Camarillo,
California 93012;
(b) If to the Executive, to him at his residence.
or any other address as any party shall have specified by notice in writing to
the other parties.
14. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
15. Entire Agreement. The terms of this Agreement are intended by the
----------------
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further intend
that this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative or other legal proceeding to vary the terms of this
Agreement.
16. Amendments: Waivers. This Agreement may not be modified, amended, or
--------------------
terminated except by an instrument in writing, approved by the Chief Executive
Officer and signed by the Executive and the Company. By an instrument in
writing similarly executed, the Executive or the Company may waive compliance by
the other party or parties with any provision of this Agreement that such other
party was or is obligated to comply with or perform; provided, however, that
-------- -------
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in exercising
any right, remedy or power hereunder shall preclude any other or further
exercise of any other right, remedy or power provided herein or by law or in
equity.
17. No Effects on Other Contractual Rights. Notwithstanding Section 7,
--------------------------------------
the provisions of this Agreement, and any other payment provided for hereunder,
shall not reduce any amounts otherwise payable to the Executive under any other
agreement
9
<PAGE>
between the Executive and the Company, or in any way diminish the Executive's
rights under any other agreement with the Company or other officers of the
Company, or employee benefit plan, program or arrangement of the Company to
which he may be entitled as an employee of the Company.
18. No Inconsistent Actions. The parties hereto shall not voluntarily
-----------------------
undertake or fail to undertake any action or course of action inconsistent with
the provisions or essential intent of this Agreement. Furthermore, it is the
intent of the parties hereto to act in a fair and reasonable manner with respect
to the interpretation and application of the provisions of this Agreement.
19. Non-Renewal of This Agreement. In the event the term of this
-----------------------------
Agreement is not extended or renewed for any or no reason upon expiration of the
Initial Term or an Extended Term, and this Agreement had not otherwise been
previously terminated pursuant to Section 6, the Executive shall not be entitled
to any severance compensation whatsoever under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first above written.
EXECUTIVE:
__________________________________________
Jacob Inbar
AML COMMUNICATIONS, INC.,
A Delaware Corporation
By:_______________________________________
Kirk Waldron, CEO
10
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of February 23, 1999, is made and entered
into among AML Communications, Inc., a Delaware corporation (the "Company"),
Tiberiu Mazilu, an individual (the "Executive").
R E C I T A L S
---------------
WHEREAS, it is the desire of the Company to assure itself of the
management services of the Executive by directly engaging the Executive as the
Vice President of Engineering of the Company.
WHEREAS, the Executive desires to accept such engagement by the
Company on the terms herein provided.
NOW THEREFORE, in consideration of the respective covenants and
agreements set forth below and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A G R E E M E N T
-----------------
1. Employment
----------
(a) The Company shall employ the Executive and the Executive shall
enter the employ of the Company, for the period set forth in this Section 1
unless sooner terminated in accordance with the provisions of this Agreement, in
the positions (or comparable positions) set forth in Section 2 and upon the
other terms and conditions herein provided. The initial term of employment under
this Agreement (the "Initial Term") shall be for the period beginning on the
date of this Agreement and ending on February 23, 2001, unless earlier
terminated as provided in Section 6.
(b) At the expiration of the Initial Term and each anniversary
thereafter, the terms of this Agreement shall automatically be terminated. The
agreement may be extended for an additional year (the "Extension Term") by
mutual agreement between the Company and the Executive transacted through
written notice given to the Executive at any time prior to or on the anniversary
date. If the Executive's employment term under this Agreement is extended for an
Extension Term, it shall thereafter or during any Extension Term be terminable
(other than upon expiration) only as provided in this Section or Section 6.
Reference herein to the "Term of Employment" of this Agreement shall refer to
both such Initial Term and any Extension Term.
<PAGE>
2. Position and Duties.
-------------------
(a) During the first year of the Initial Term of employment, the
Executive shall serve as the Vice President of Engineering of the Company and
shall have such duties, functions, responsibilities and authority as are
consistent with the Executive's position as the Vice President of Engineering
for the Company, and, in all such cases, the Executive shall serve in a position
of senior executive responsibility. During the second year of the Initial Term
of employment, the Executive shall resign his position as the Vice President of
Engineering and shall have such duties, functions, responsibilities and
authority as are consistent with that of a consultant, former senior executive
and co-founder of the Company.
(b) During the first year of the Initial Term of employment, the
Executive shall be a full-time employee of the Company and shall devote
substantially all of his business time and attention to the performance of his
duties to the Company. During the second year of the Initial Term of
employment, the Executive shall be a part-time employee of the Company and shall
devote an amount of his business time and attention as is appropriate, but no
less than twenty hours per week, to the performance of his duties to the
Company.
3. Competition.
-----------
(a) At any time during employment of the Executive by the Company,
and for one year following the Term of Employment, the Executive shall be
prohibited from engaging in Competition (as defined in subsection 3(b) below)
with the Company; provided, however, that if the Executive is terminated by the
-------- -------
Company without Cause (as defined in subsection 6(c) below) or if the Executive
terminates his employment for Good Reason (as defined in subsection 6(d) below),
the foregoing prohibition shall terminate on the date of such termination.
(b) The term "Competition" for purposes of this Agreement shall be
outlined in the attached "Consulting/Employment Agreement Relating to Inventions
and Confidential Information."
(c) The Executive covenants that the Company shall, in addition to
any other rights and remedies available under this Agreement, at law or
otherwise, be entitled to an injunction to be issued by any court of competent
jurisdiction enjoining and restraining the Executive from committing any
violation of subsection 3(a) above.
(d) Any provision of this Agreement which is deemed invalid, illegal
or unenforceable in any jurisdiction shall, as to that jurisdiction and subject
to this paragraph be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other
2
<PAGE>
jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable
because its scope of activity, geographic area or duration, or any combination
thereof, is considered excessive, such covenant shall be modified and reformed
so that the scope of activity, geographic area and duration of the covenant is
reduced only to the minimum extent necessary to render the modified covenant
valid, legal and enforceable.
4. Place of Performance. In connection with his employment during the
--------------------
Term of Employment, the Executive shall be based at the Company's principal
executive offices located in Camarillo, California or at a Company designated
location within 15 miles of the Executive's current principle residence.
Notwithstanding the foregoing, Executive shall undertake normal business travel
on behalf of the Company.
5. Compensation and Related Matters.
--------------------------------
(a) Annual Base Salary. The Executive shall receive an aggregate base
------------------
salary ("Annual Base Salary") at a rate of $117,000 per annum for the first year
of the Initial Term. The Executive shall receive an aggregate base salary
("Adjusted Annual Base Salary") at a rate of $58,500 per annum for the second
year of the Initial Term, and thereafter at a rate to be negotiated between the
Executive and the Chief Executive Officer.
The Annual Base Salary and Adjusted Annual Base Salary shall be payable
in accordance with the Company's normal payment practices but in no event shall
such salary be payable less frequently than monthly in equal installments,
subject to tax and other withholding as required by applicable law.
(b) Bonus Compensation. The Executive shall be entitled, on an annual
-------------------
basis, to a cash bonus ("Bonus Compensation") in an amount to be determined by
the Compensation Committee of the Board of Directors based upon the Company
achieving certain targets of growth determined by the Compensation Committee of
the Board on an annual basis.
(c) Benefits. During the Term of Employment, the Executive shall be
--------
entitled to:
(i) receive, at the discretion of the Compensation Committee of
the Board, stock options under the Company's Stock Incentive Plan;
(ii) participate in the Company's 401(k) plan; and
(iii) participate in or receive benefits under any employee
benefit plan or other arrangement including, but not limited to, any medical,
dental, retirement, disability, life insurance, sick leave and vacation plans or
arrangements made available by the Company to any of its employees
(collectively, "Benefits"), subject to and on a basis consistent with the terms,
conditions and overall administration of such plans or arrangements.
3
<PAGE>
(d) Expenses. The Company shall promptly pay directly or reimburse
--------
the Executive for all reasonable travel and other business expenses incurred by
the Executive in the performance of his duties to the Company, respectively,
under this Agreement, including without limitation, with respect to professional
memberships and continuing education. Through November 11, 1999, the Company
shall provide the Executive with an automobile comparable to the automobile
currently provided to the Executive, and shall continue to pay, or reimburse the
Executive for, all expenses related to the business use thereof (including
insurance, gasoline and maintenance).
(e) Vacation. The Executive shall be entitled to vacation benefits in
--------
accordance with the Company's normal vacation policies.
6. Termination. The Executive's employment hereunder may be terminated by
-----------
the Company or the Executive, as applicable, under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
his death. In the case of the Executive's death, the Company shall pay to the
Executive's beneficiaries or estate, as appropriate, (i) promptly after the
Executive's death, the unpaid Annual Base Salary or Adjusted Annual Base Salary
to which he is entitled pursuant to subsection 5(a) prorated through the date of
his termination and (ii) as soon as practicable after the close of the Company's
fiscal year in which the Executive's death occurs, a prorated portion of any
unpaid Bonus Compensation. This subsection 6(a) shall not limit the entitlement
of the Executive's estate or beneficiaries to any death or other benefits then
available to the Executive under any life insurance or other benefit plan or
policy which is maintained by the Company for the Executive's benefit.
(b) Disability.
----------
(i) If the Company determines in good faith, after considering
all relevant medical evidence, that the Executive has incurred a Disability (as
defined below) during the Term of Employment, such party may give the Executive
written notice of their intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive,
provided that within 30 days after such receipt, the Executive shall not have
returned to full-time performance of his duties. The Executive shall continue to
receive his Annual Base Salary or Adjusted Annual Base Salary and Benefits until
the date of termination. In the case of the Executive's Disability, the Company
shall pay to the Executive, (a) promptly after the Executive's termination, the
unpaid Annual Base Salary or Adjusted Annual Base Salary to which he is entitled
pursuant to subsection 5(a) prorated through the Executive's termination and (b)
as soon as practicable after the close of the fiscal year in which the
Executive's termination occurs, a prorated portion of any unpaid Bonus
Compensation. In addition, the Company shall pay the Executive the severance
benefits as set forth in Section 7. This subsection 6(b) shall not limit the
entitlement of the Executive to any disability or other benefits then available
to the
4
<PAGE>
Executive under any disability insurance or other benefit plan or policy which
is maintained by the Company for the Executive's benefit.
(ii) For the purpose of this Section, "Disability" shall mean the
Executive's failure to perform his duties to the Company on a full-time basis
for a total of 16 consecutive weeks during any 12-month period as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company and acceptable to the Executive
or the Executive's legal representative (such agreement as to acceptability not
to be withheld, delayed or conditioned unreasonably).
(c) Cause.
-----
(i) The Company may terminate the Executive's employment
hereunder for Cause (as defined below). In the case of the Executive's
termination for Cause, the Company shall promptly pay to the Executive (or his
representative) the unpaid Annual Base Salary or Adjusted Annual Base Salary to
which he is entitled pursuant to subsection 5(a) prorated through the date the
Executive is terminated and the Executive shall be entitled to no other
compensation.
(ii) For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder upon a finding by the
Board that the Executive has (1) engaged in acts or omissions with respect to
the Company or any affiliate of the Company which constitute intentional
misconduct or a knowing violation of law as reasonably determined by the
disinterested members of the Board; (2) personally received a benefit in money,
property or services from the Company or any affiliate of the Company or from
another person dealing with the Company in violation of applicable law; (3)
breached his non-competition covenant with the Company; (4) breached his
fiduciary duty of loyalty to the Company or any affiliate of the Company; (5)
engaged in gross negligence in the performance of his duties to the Company or
any affiliate of the Company; or (6) frequently and repeatedly failed to perform
services for the Company or any affiliate of the Company which have been
reasonably requested of him by the Board and which are consistent with the terms
of this Agreement; provided, however, that "Cause" shall not exist unless and
-------- -------
until the Comp provides the Executive with (a) at least 15 days' prior written
notice of its intention to terminate his employment for Cause, with a certified
copy of the resolution of the Board approving the termination of the Executive's
employment for Cause by the affirmative vote of not less than a majority of the
Board (other than the Executive) and a written statement describing the nature
of the Cause and (b) a reasonable opportunity and a reasonable period of time to
cure any curable acts or omissions on which the finding of Cause is based. If
the Executive cures the acts or omissions on which the finding of Cause is
based, the Company shall not have Cause to terminate the Executive's employment
hereunder.
5
<PAGE>
(d) Good Reason.
-----------
(i) The Executive may terminate his employment for Good Reason
(as defined below). In the event that the Executive so terminates his employment
for Good Reason, the Company shall pay to the Executive (a) promptly after the
Executive's termination, the unpaid Annual Base Salary or Adjusted Annual Base
Salary to which he is entitled pursuant to subsection 5(a) prorated through the
Executive's termination and (b) as soon as practicable after the close of the
Company's fiscal year in which the Executive's termination occurs, a prorated
portion of any unpaid Bonus Compensation. In addition, the Company shall pay the
Executive severance benefits as set forth in Section 7.
(ii) For purposes of this Agreement, the Executive shall have
"Good Reason" to terminate his employment with the Company in the event of (a)
any reduction in the Executive's compensation (including Annual Base Salary or
Adjusted Annual Base Salary, Bonus Compensation and Benefits, but excluding any
termination or amendment of Benefits pursuant to a termination or amendment
generally of the plan or arrangements relating thereto and excluding
discretionary bonuses or similar discretionary payments) without the Executive's
consent; (b) any material breach by the Company of, or default by it under, the
provisions of the Agreement; provided, however, that in the case of any breach
-------- -------
or default, the Executive shall not have Good Reason to terminate his employment
unless and until he has provided the Company with written notice of such breach
at least 15 days in advance of his intended termination date and a reasonable
opportunity and period of time to cure such breach or default (provided,
--------
further, however, if the Company cures such breach, the Executive shall not have
- ------- -------
Good Reason to terminate this Agreement); (c) any substantial diminution of
duties, responsibilities or status, or other imposition by the Company of
unreasonable requirements or working conditions on the Executive which are not
withdrawn or corrected in all material respects within a 30-day period following
notice by the Executive to the Company of such diminution or imposition or, if
any of the foregoing arose because of conditions or circumstances outside of the
control of the Company, such longer period as may be reasonably required under
the circumstances.
(e) Without Cause. The Company may terminate the Executive's
-------------
employment hereunder without Cause upon 30 days' written notice. In the event
the Company terminates the Executive's employment without Cause at any time
during the Initial Term, the Company shall pay to the Executive (i) promptly
after the Executive's termination, the unpaid Annual Base Salary or Adjusted
Annual Base Salary to which he is entitled pursuant to subsection 5(a) at the
rate effective upon the date of termination and (ii) as soon as practicable
after the close of the fiscal year in which the Executive's termination occurs,
a prorated portion of any unpaid Bonus Compensation. In addition, the Company
shall pay the Executive severance benefits as set forth in Section 7.
6
<PAGE>
(f) Resignation without Good Reason. The Executive may resign his
-------------------------------
employment without Good Reason upon 30 days' written notice to the Company. In
the case of the Executive's resignation without Good Reason, the Company shall
promptly pay to the Executive (or his representative) the unpaid Annual Base
Salary or Adjusted Annual Base Salary to which he is entitled pursuant to
subsection 5(a) prorated through the date the Executive is terminated. The
Executive shall be entitled to no other compensation.
(g) Mutual Agreement. The Executive's employment may be terminated by
----------------
mutual agreement of the Executive and the Company at any time.
(h) Expiration. If either the Company or the Executive elects to
----------
terminate this Agreement pursuant to subsection 1(b) above, the Executive shall
only be entitled to his unpaid Annual Base Salary or Adjusted Annual Base Salary
and Bonus Compensation, in each case through the date of termination.
7. Severance Benefits.
------------------
(a) Termination. If the Executive's employment shall be terminated by
-----------
the Company pursuant to Section 6(b), (d), or (e) within the first twelve months
of the Initial Term, the Executive shall receive severance compensation which
shall consist of bi-weekly payments in an amount equal to the Annual Base Salary
effective upon the date of Termination, prorated bi-weekly, through August 23,
2000, except in the event this Agreement has theretofore been terminated by the
Company or the Executive pursuant to subsection 1(b) above. If the Executive's
employment shall be terminated by the Company pursuant to Section 6(b), (d), or
(e) within the second twelve months of the Initial Term, the Executive shall
receive severance compensation which shall consist of bi-weekly payments in an
amount equal to the Annual Base Salary effective upon the date of Termination,
prorated bi-weekly, for a period of six months from the date of Termination. In
addition, all theretofore unvested stock options, restricted stock and other
awards issued pursuant to the Stock Incentive Plan shall immediately vest and
the Company shall continue to provide the Executive and his dependents with
medical benefits for the duration of the Initial Term. Without limiting the
provisions of Sections 6(a) and 6(b), the Company shall have the right at no
cost or expense to the Executive to obtain additional insurance for the specific
purpose of paying all or any portion of the severance compensation to the
Executive as required by this Section 7(a).
(b) Survival. The expiration or termination of the Term of Employment
--------
shall not impair the rights or obligations of any party hereto, which shall have
accrued hereunder prior to such expiration.
(c) Mitigation of Damages. In the event of any termination of the
---------------------
Executive's employment, the Executive shall not be required to seek other
employment to mitigate damages, and any income earned by the Executive from
other employment or self-
7
<PAGE>
employment shall not be offset against any obligations of the Company to the
Executive under this Agreement.
8. Confidential Information.
------------------------
The Executive agrees not to disclose to any person not employed by the
Company or any affiliated entity and not engaged to render services to the
Company or any affiliated entity any confidential information obtained while in
the employ of the Company; provided, however, that the restrictions contained
-------- -------
herein shall not apply to information that (i) was in the Executive's possession
prior to any disclosure to him by the Company, (ii) is or becomes generally
available to the public other than as a result of disclosure by the Executive or
his representatives in violation of this Agreement, (iii) is or becomes
available to the Executive on a non-confidential basis from a source (other than
the Company or its representatives) which is not, to the Executive's knowledge,
prohibited from transmitting the information to the public generally by a
contractual, legal, fiduciary or other obligation, (iv) was independently
acquired or developed by the Executive outside the scope of his employment
hereunder or by any predecessor of the Company or any affiliated entity without
violating the Executive's obligations under this Agreement and without any
obligation of the Executive to hold for the benefit of or contribute to the
Company, or (v) is knowingly furnished to a third party by the Company or any
representative of the Company without similar non-disclosure restrictions on the
third party's use of such information. In addition, this Section 8 shall not
preclude the Executive from the use or disclosure of information known generally
to the public or of information not considered confidential by the Company or
any affiliated entity or from making disclosures required by law or court order.
For purposes of this Agreement, the term "confidential information"
shall include all information of any nature and in any form which is owned by
the Company or any affiliated entity and which is not publicly available or
generally known to persons engaged in businesses similar to that of the Company
including, but not limited to, research techniques; patents and patent
applications; inventions and improvements, whether patentable or not;
development projects; computer software and related documentation and materials
(including source and use codes); designs, practices, processes, methods, know-
how and other facts relating to the business of the Company; practices,
processes, methods, know-how and other facts related to sales, advertising,
promotions, financial matters, customers, customer lists or customers' purchases
of goods or services from the Company; industry contracts; and all other secrets
and information of a confidential and proprietary nature.
9. Disputes.
--------
(a) Except as provided in subsection 3(c), any dispute or controversy
arising under, out of, in connection with or in relation to this Agreement
shall, at the election and upon written demand of any party to this Agreement,
be finally determined
8
<PAGE>
and settled by arbitration in Los Angeles, California, in accordance with the
rules and procedures of the American Arbitration Association, and judgment upon
the award may be entered in any court having jurisdiction thereof.
(b) If any legal action or any arbitration or other proceeding is
brought for the enforcement of this Agreement or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief that may be granted.
10. Binding on Successors. This Agreement shall be binding upon and inure
---------------------
to the benefit of the Company, the Executive and their respective successors,
assigns, personal and legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees, as applicable.
11. Governing Law. This Agreement is being made and executed in and is
-------------
intended to be performed in the State of California and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principles
thereof.
12. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Notices. Any notice, request, claim, demand, document and other
-------
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Company, addressed to its principal offices to the
attention of Chief Executive Officer at 1000 Avenida Acaso, Camarillo,
California 93012;
(b) If to the Executive, to him at the address set forth below under
his signature;
or at any other address as any party shall have specified by notice in writing
to the other parties.
14. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
15. Entire Agreement. The terms of this Agreement are intended by the
----------------
parties to be the final expression of their agreement with respect to the
employment of the
9
<PAGE>
Executive by the Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement shall
constitute the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial, administrative
or other legal proceeding to vary the terms of this Agreement.
16. Amendments: Waivers. This Agreement may not be modified, amended, or
--------------------
terminated except by an instrument in writing, approved by the Chief Executive
Officer and signed by the Executive and the Company. By an instrument in
writing similarly executed, the Executive or the Company may waive compliance by
the other party or parties with any provision of this Agreement that such other
party was or is obligated to comply with or perform; provided, however, that
-------- -------
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in exercising
any right, remedy or power hereunder shall preclude any other or further
exercise of any other right, remedy or power provided herein or by law or in
equity.
17. No Effect on Other Contractual Rights. Notwithstanding Section 7, the
-------------------------------------
provisions of this Agreement, and any other payment provided for hereunder,
shall not reduce any amounts otherwise payable to the Executive under any other
agreement between the Executive and the Company, or in any way diminish the
Executive's rights under any other agreement with the Company or other officers
of the Company, or employee benefit plan, program or arrangement of the Company
to which he may be entitled as an employee of the Company.
18. No Inconsistent Actions. The parties hereto shall not voluntarily
-----------------------
undertake or fail to undertake any action or course of action inconsistent with
the provisions or essential intent of this Agreement. Furthermore, it is the
intent of the parties hereto to act in a fair and reasonable manner with respect
to the interpretation and application of the provisions of this Agreement.
19. Non-Renewal of This Agreement. In the event the Term of this
-----------------------------
Agreement is not extended or renewed for any or no reason upon the expiration of
the Initial Term or an Extended Term and this Agreement had not otherwise been
previously terminated pursuant to Section 6, the Executive shall not be entitled
to any severance compensation whatsoever under this Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
EXECUTIVE:
______________________________________
ADDRESS:
AML COMMUNICATIONS, INC.,
a Delaware corporation
By: __________________________________
11
<PAGE>
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of February 23, 1999, is made and entered
into among AML Communications, Inc., a Delaware corporation (the "Company"),
Edwin J. McAvoy, an individual (the "Executive").
R E C I T A L S
---------------
WHEREAS, it is the desire of the Company to assure itself of the
management services of the Executive by directly engaging the Executive as the
Director of Programs of the Company.
WHEREAS, the Executive desires to accept such engagement by the
Company on the terms herein provided.
NOW THEREFORE, in consideration of the respective covenants and
agreements set forth below and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A G R E E M E N T
-----------------
1. Employment
----------
(a) The Company shall employ the Executive and the Executive shall
enter the employ of the Company, for the period set forth in this Section 1
unless sooner terminated in accordance with the provisions of this Agreement, in
the positions (or comparable positions) set forth in Section 2 and upon the
other terms and conditions herein provided. The initial term of employment under
this Agreement (the "Initial Term") shall be for the period beginning on the
date of this Agreement and ending on February 23, 2001, unless earlier
terminated as provided in Section 6.
(b) At the expiration of the Initial Term and each anniversary
thereafter, the terms of this Agreement shall automatically be terminated. The
agreement may be extended for an additional year (the "Extension Term") by
mutual agreement between the Company and the Executive transacted through
written notice given to the Executive at any time prior to or on the anniversary
date. If the Executive's employment term under this Agreement is extended for an
Extension Term, it shall thereafter or during any Extension Term be terminable
(other than upon expiration) only as provided in this Section or Section 6.
Reference herein to the "Term of Employment" of this Agreement shall refer to
both such Initial Term and any Extension Term.
<PAGE>
2. Position and Duties.
-------------------
(a) During the Initial Term of employment, the Executive shall serve
as the Director of Programs of the Company and shall have such duties,
functions, responsibilities and authority as are consistent with the Executive's
position as the Director of Programs for the Company.
(b) During the Initial Term of employment, the Executive shall be a
full-time employee of the Company and shall devote substantially all of his
business time and attention to the performance of his duties to the Company.
3. Competition.
-----------
(a) At any time during employment of the Executive by the Company,
and for one year following the Term of Employment, the Executive shall be
prohibited from engaging in Competition (as defined in subsection 3(b) below)
with the Company; provided, however, that if the Executive is terminated by the
-------- -------
Company without Cause (as defined in subsection 6(c) below) or if the Executive
terminates his employment for Good Reason (as defined in subsection 6(d) below),
the foregoing prohibition shall terminate on the date of such termination.
(b) The term "Competition" for purposes of this Agreement shall be
outlined in the attached "Consulting/Employment Agreement Relating to Inventions
and Confidential Information."
(c) The Executive covenants that the Company shall, in addition to
any other rights and remedies available under this Agreement, at law or
otherwise, be entitled to an injunction to be issued by any court of competent
jurisdiction enjoining and restraining the Executive from committing any
violation of subsection 3(a) above.
(d) Any provision of this Agreement which is deemed invalid, illegal
or unenforceable in any jurisdiction shall, as to that jurisdiction and subject
to this paragraph be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope of
activity, geographic area or duration, or any combination thereof, is considered
excessive, such covenant shall be modified and reformed so that the scope of
activity, geographic area and duration of the covenant is reduced only to the
minimum extent necessary to render the modified covenant valid, legal and
enforceable.
2
<PAGE>
4. Place of Performance. In connection with his employment during the
--------------------
Term of Employment, the Executive shall be based at the Company's principal
executive offices located in Camarillo, California or at a Company designated
location within 15 miles of the Executive's current principle residence.
Notwithstanding the foregoing, Executive shall undertake normal business travel
on behalf of the Company.
5. Compensation and Related Matters.
--------------------------------
(a) Annual Base Salary. The Executive shall receive an aggregate base
------------------
("Annual Base Salary") at a rate of $117,000 per annum during the Initial Term,
and thereafter at a rate to be negotiated between the Executive and the Chief
Executive Officer.
The Annual Base Salary shall be payable in accordance with the
Company's normal payment practices but in no event shall such salary be payable
less frequently than monthly in equal installments, subject to tax and other
withholding as required by applicable law.
(b) Bonus Compensation. The Executive shall be entitled, on an annual
------------------
basis, to a cash bonus ("Bonus Compensation") in an amount to be determined by
the Compensation Committee of the Board of Directors based upon the Company
achieving certain targets of growth determined by the Compensation Committee of
the Board on an annual basis.
(c) Benefits. During the Term of Employment, the Executive shall be
--------
entitle to:
(i) receive, at the discretion of the Compensation
Committee of the Board, stock options under the Company's Stock Incentive Plan;
(ii) participate in the Company's 401(k) plan; and
(iii) participate in or receive benefits under any employee
benefit plan or other arrangement including, but not limited to, any medical,
dental, retirement, disability, life insurance, sick leave and vacation plans or
arrangements made available by the Company to any of its employees
(collectively, "Benefits"), subject to and on a basis consistent with the terms,
conditions and overall administration of such plans or arrangements.
(d) Expenses. The Company shall promptly pay directly or reimburse
--------
the Executive for all reasonable travel and other business expenses incurred by
the Executive in the performance of his duties to the Company, respectively,
under this Agreement, including without limitation, with respect to professional
memberships and
3
<PAGE>
continuing education. Through December 26, 1999, the Company shall provide the
Executive with an automobile comparable to the automobile currently provided to
the Executive, and shall continue to pay, or reimburse the Executive for, all
expenses related to the business use thereof (including insurance, gasoline and
maintenance).
(e) Vacation. The Executive shall be entitled to vacation benefits in
--------
accordance with the Company's normal vacation policies.
6. Termination. The Executive's employment hereunder may be terminated by
-----------
the Company or the Executive, as applicable, under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
his death. In the case of the Executive's death, the Company shall pay to the
Executive's beneficiaries or estate, as appropriate, (i) promptly after the
Executive's death, the unpaid Annual Base Salary to which he is entitled
pursuant to subsection 5(a) prorated through the date of his termination and
(ii) as soon as practicable after the close of the Company's fiscal year in
which the Executive's death occurs, a prorated portion of any unpaid Bonus
Compensation. This subsection 6(a) shall not limit the entitlement of the
Executive's estate or beneficiaries to any death or other benefits then
available to the Executive under any life insurance or other benefit plan or
policy which is maintained by the Company for the Executive's benefit.
(b) Disability.
----------
(i) If the Company determines in good faith, after
considering all relevant medical evidence, that the Executive has incurred a
Disability (as defined below) during the Term of Employment, such party may give
the Executive written notice of their intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive, provided that within 30 days after such receipt, the Executive shall
not have returned to full-time performance of his duties. The Executive shall
continue to receive his Annual Base Salary and Benefits until the date of
termination. In the case of the Executive's Disability, the Company shall pay to
the Executive, (a) promptly after the Executive's termination, the unpaid Annual
Base Salary to which he is entitled pursuant to subsection 5(a) prorated through
the Executive's termination and (b) as soon as practicable after the close of
the fiscal year in which the Executive's termination occurs, a prorated portion
of any unpaid Bonus Compensation. In addition, the Company shall pay the
Executive the severance benefits as set forth in Section 7. This subsection 6(b)
shall not limit the entitlement of the Executive to any disability or other
benefits then available to the Executive under any disability insurance or other
benefit plan or policy which is maintained by the Company for the Executive's
benefit.
4
<PAGE>
(ii) For the purpose of this Section, "Disability" shall mean
the Executive's failure to perform his duties to the Company on a full-time
basis for a total of 16 consecutive weeks during any 12-month period as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld, delayed or conditioned unreasonably).
(c) Cause.
-----
(i) The Company may terminate the Executive's employment
hereunder for Cause (as defined below). In the case of the Executive's
termination for Cause, the Company shall promptly pay to the Executive (or his
representative) the unpaid Annual Base Salary to which he is entitled pursuant
to subsection 5(a) prorated through the date the Executive is terminated and the
Executive shall be entitled to no other compensation.
(ii) For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder upon a finding by the
Board that the Executive has (1) engaged in acts or omissions with respect to
the Company or any affiliate of the Company which constitute intentional
misconduct or a knowing violation of law as reasonably determined by the
disinterested members of the Board; (2) personally received a benefit in money,
property or services from the Company or any affiliate of the Company or from
another person dealing with the Company in violation of applicable law; (3)
breached his non-competition covenant with the Company; (4) breached his
fiduciary duty of loyalty to the Company or any affiliate of the Company; (5)
engaged in gross negligence in the performance of his duties to the Company or
any affiliate of the Company; or (6) frequently and repeatedly failed to perform
services for the Company or any affiliate of the Company which have been
reasonably requested of him by the Board and which are consistent with the terms
of this Agreement; provided, however, that "Cause" shall not exist unless and
-------- -------
until the Company provides the Executive with (a) at least 15 days' prior
written notice of its intention to terminate his employment for Cause, with a
certified copy of the resolution of the Board approving the termination of the
Executive's employment for Cause by the affirmative vote of not less than a
majority of the Board (other than the Executive) and a written statement
describing the nature of the Cause and (b) a reasonable opportunity and a
reasonable period of time to cure any curable acts or omissions on which the
finding of Cause is based. If the Executive cures the acts or omissions on which
the finding of Cause is based, the Company shall not have Cause to terminate the
Executive's employment hereunder.
5
<PAGE>
(d) Good Reason.
-----------
(i) The Executive may terminate his employment for Good Reason
(as defined below). In the event that the Executive so terminates his employment
for Good Reason, the Company shall pay to the Executive (a) promptly after the
Executive's termination, the unpaid Annual Base Salary to which he is entitled
pursuant to subsection 5(a) prorated through the Executive's termination and (b)
as soon as practicable after the close of the Company's fiscal year in which the
Executive's termination occurs, a prorated portion of any unpaid Bonus
Compensation. In addition, the Company shall pay the Executive severance
benefits as set forth in Section 7.
(ii) For purposes of this Agreement, the Executive shall have
"Good Reason" to terminate his employment with the Company in the event of (a)
any reduction in the Executive's compensation (including Annual Base Salary,
Bonus Compensation and Benefits, but excluding any termination or amendment of
Benefits pursuant to a termination or amendment generally of the plan or
arrangements relating thereto and excluding discretionary bonuses or similar
discretionary payments) without the Executive's consent; (b) any material breach
by the Company of, or default by it under, the provisions of the Agreement;
provided, however, that in the case of any breach or default, the Executive
- -------- -------
shall not have Good Reason to terminate his employment unless and until he has
provided the Company with written notice of such breach at least 15 days in
advance of his intended termination date and a reasonable opportunity and period
of time to cure such breach or default (provided, further, however, if the
-------- ------- -------
Company cures such breach, the Executive shall not have Good Reason to terminate
this Agreement); (c) any substantial diminution of duties, responsibilities or
status, or other imposition by the Company of unreasonable requirements or
working conditions on the Executive which are not withdrawn or corrected in all
material respects within a 30-day period following notice by the Executive to
the Company of such diminution or imposition or, if any of the foregoing arose
because of conditions or circumstances outside of the control of the Company,
such longer period as may be reasonably required under the circumstances.
(e) Without Cause. The Company may terminate the Executive's
-------------
employment hereunder without Cause upon 30 days' written notice. In the event
the Company terminates the Executive's employment without Cause at any time
during the Initial Term, the Company shall pay to the Executive (i) promptly
after the Executive's termination, the unpaid Annual Base Salary to which he is
entitled pursuant to subsection 5(a) at the rate effective upon the date of
termination and (ii) as soon as practicable after the close of the fiscal year
in which the Executive's termination occurs, a prorated portion of any unpaid
Bonus Compensation. In addition, the Company shall pay the Executive severance
benefits as set forth in Section 7.
6
<PAGE>
(f) Resignation without Good Reason. The Executive may resign his
-------------------------------
employment without Good Reason upon 30 days' written notice to the Company. In
the case of the Executive's resignation without Good Reason, the Company shall
promptly pay to the Executive (or his representative) the unpaid Annual Base
Salary to which he is entitled pursuant to subsection 5(a) prorated through the
date the Executive is terminated. The Executive shall be entitled to no other
compensation.
(g) Mutual Agreement. The Executive's employment may be terminated by
----------------
mutual agreement of the Executive and the Company at any time.
(h) Expiration. If either the Company or the Executive elects to
----------
terminate this Agreement pursuant to subsection 1(b) above, the Executive shall
only be entitled to his unpaid Annual Base Salary and Bonus Compensation, in
each case through the date of termination.
7. Severance Benefits.
------------------
(a) Termination. If the Executive's employment shall be terminated by
-----------
the Company pursuant to Section 6(b), (d), or (e) within the first twelve months
of the Initial Term, the Executive shall receive severance compensation which
shall consist of bi-weekly payments in an amount equal to the Annual Base Salary
effective upon the date of Termination, prorated bi-weekly, through August 23,
2000, except in the event this Agreement has theretofore been terminated by the
Company or the Executive pursuant to subsection 1(b) above. If the Executive's
employment shall be terminated by the Company pursuant to Section 6(b), (d), or
(e) within the second twelve months of the Initial Term, the Executive shall
receive severance compensation which shall consist of bi-weekly payments in an
amount equal to the Annual Base Salary effective upon the date of Termination,
prorated bi-weekly, for a period of six months from the date of Termination. In
addition, all theretofore unvested stock options, restricted stock and other
awards issued pursuant to the Stock Incentive Plan shall immediately vest and
the Company shall continue to provide the Executive and his dependents with
medical benefits for the duration of the Initial Term. Without limiting the
provisions of Sections 6(a) and 6(b), the Company shall have the right at no
cost or expense to the Executive to obtain additional insurance for the specific
purpose of paying all or any portion of the severance compensation to the
Executive as required by this Section 7(a).
(b) Survival. The expiration or termination of the Term of Employment
--------
shall not impair the rights or obligations of any party hereto, which shall have
accrued hereunder prior to such expiration.
7
<PAGE>
(c) Mitigation of Damages. In the event of any termination of the
---------------------
Executive's employment, the Executive shall not be required to seek other
employment to mitigate damages, and any income earned by the Executive from
other employment or self-employment shall not be offset against any obligations
of the Company to the Executive under this Agreement.
8. Confidential Information.
------------------------
The Executive agrees not to disclose to any person not employed by the
Company or any affiliated entity and not engaged to render services to the
Company or any affiliated entity any confidential information obtained while in
the employ of the Company; provided, however, that the restrictions contained
-------- -------
herein shall not apply to information that (i) was in the Executive's possession
prior to any disclosure to him by the Company, (ii) is or becomes generally
available to the public other than as a result of disclosure by the Executive or
his representatives in violation of this Agreement, (iii) is or becomes
available to the Executive on a non-confidential basis from a source (other than
the Company or its representatives) which is not, to the Executive's knowledge,
prohibited from transmitting the information to the public generally by a
contractual, legal, fiduciary or other obligation, (iv) was independently
acquired or developed by the Executive outside the scope of his employment
hereunder or by any predecessor of the Company or any affiliated entity without
violating the Executive's obligations under this Agreement and without any
obligation of the Executive to hold for the benefit of or contribute to the
Company, or (v) is knowingly furnished to a third party by the Company or any
representative of the Company without similar non-disclosure restrictions on the
third party's use of such information. In addition, this Section 8 shall not
preclude the Executive from the use or disclosure of information known generally
to the public or of information not considered confidential by the Company or
any affiliated entity or from making disclosures required by law or court order.
For purposes of this Agreement, the term "confidential information"
shall include all information of any nature and in any form which is owned by
the Company or any affiliated entity and which is not publicly available or
generally known to persons engaged in businesses similar to that of the Company
including, but not limited to, research techniques; patents and patent
applications; inventions and improvements, whether patentable or not;
development projects; computer software and related documentation and materials
(including source and use codes); designs, practices, processes, methods, know-
how and other facts relating to the business of the Company; practices,
processes, methods, know-how and other facts related to sales, advertising,
promotions, financial matters, customers, customer lists or customers' purchases
of goods or services from the Company; industry contracts; and all other secrets
and information of a confidential and proprietary nature.
8
<PAGE>
9. Disputes.
--------
(a) Except as provided in subsection 3(c), any dispute or controversy
arising under, out of, in connection with or in relation to this Agreement
shall, at the election and upon written demand of any party to this Agreement,
be finally determined and settled by arbitration in Los Angeles, California, in
accordance with the rules and procedures of the American Arbitration
Association, and judgment upon the award may be entered in any court having
jurisdiction thereof.
(b) If any legal action or any arbitration or other proceeding is
brought for the enforcement of this Agreement or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief that may be granted.
10. Binding on Successors. This Agreement shall be binding upon and inure
---------------------
to the benefit of the Company, the Executive and their respective successors,
assigns, personal and legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees, as applicable.
11. Governing Law. This Agreement is being made and executed in and is
-------------
intended to be performed in the State of California and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principles
thereof.
12. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Notices. Any notice, request, claim, demand, document and other
-------
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, as follows:
(a) If to the Company, addressed to its principal offices to the
attention of Chief Executive Officer at 1000 Avenida Acaso, Camarillo,
California 93012;
(b) If to the Executive, to him at the address set forth below under
his signature;
9
<PAGE>
or at any other address as any party shall have specified by notice in writing
to the other parties.
14. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
15. Entire Agreement. The terms of this Agreement are intended by the
----------------
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Company and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further intend
that this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative or other legal proceeding to vary the terms of this
Agreement.
16. Amendments: Waivers. This Agreement may not be modified, amended, or
--------------------
terminated except by an instrument in writing, approved by the Chief Executive
Officer and signed by the Executive and the Company. By an instrument in
writing similarly executed, the Executive or the Company may waive compliance by
the other party or parties with any provision of this Agreement that such other
party was or is obligated to comply with or perform; provided, however, that
-------- -------
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in exercising
any right, remedy or power hereunder shall preclude any other or further
exercise of any other right, remedy or power provided herein or by law or in
equity.
17. No Effect on Other Contractual Rights. Notwithstanding Section 7, the
-------------------------------------
provisions of this Agreement, and any other payment provided for hereunder,
shall not reduce any amounts otherwise payable to the Executive under any other
agreement between the Executive and the Company, or in any way diminish the
Executive's rights under any other agreement with the Company or other officers
of the Company, or employee benefit plan, program or arrangement of the Company
to which he may be entitled as an employee of the Company.
18. No Inconsistent Actions. The parties hereto shall not voluntarily
-----------------------
undertake or fail to undertake any action or course of action inconsistent with
the provisions or essential intent of this Agreement. Furthermore, it is the
intent of the parties hereto to act in a fair and reasonable manner with respect
to the interpretation and application of the provisions of this Agreement.
10
<PAGE>
19. Non-Renewal of This Agreement. In the event the Term of this
-----------------------------
Agreement is not extended or renewed for any or no reason upon the expiration of
the Initial Term or an Extended Term and this Agreement had not otherwise been
previously terminated pursuant to Section 6, the Executive shall not be entitled
to any severance compensation whatsoever under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
EXECUTIVE:
___________________________________
AML COMMUNICATIONS, INC.,
a Delaware corporation
By: _______________________________
11
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report included in this time Form 10-KSB into the Company's previously filed
Registration Statement File No. 333-1520.
ARTHUR ANDERSON LLP
Los Angles, California
June 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1999
<PERIOD-START> APR-01-1997 APR-01-1998
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 0 6,597,000
<SECURITIES> 0 0
<RECEIVABLES> 0 469,000
<ALLOWANCES> 0 42,000
<INVENTORY> 0 1,783,000
<CURRENT-ASSETS> 0 655,000
<PP&E> 0 4,370,000
<DEPRECIATION> 0 2,288,000
<TOTAL-ASSETS> 0 11,946,000
<CURRENT-LIABILITIES> 0 1,371,000
<BONDS> 0 0
0 0
0 0
<COMMON> 0 63,000
<OTHER-SE> 0 10,327,000
<TOTAL-LIABILITY-AND-EQUITY> 0 11,946,000
<SALES> 12,786,000 7,775,000
<TOTAL-REVENUES> 12,786,000 7,775,000
<CGS> 7,111,000 5,733,000
<TOTAL-COSTS> 7,111,000 5,733,000
<OTHER-EXPENSES> 4,960,000 6,030,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (353,000) (384,000)
<INCOME-PRETAX> 1,068,000 (3,604,000)
<INCOME-TAX> 382,000 (475,000)
<INCOME-CONTINUING> 686,000 (3,129,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 686,000 (3,129,000)
<EPS-BASIC> 0.11 (0.50)
<EPS-DILUTED> 0.11 (0.50)
</TABLE>
