SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __________)
Filed by Registrant: /x/
Filed by a Party other than the Registrant: / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held July 14, 1997
TO THE SHAREHOLDERS OF
ADVANCED AERODYNAMICS & STRUCTURES, INC.:
You are cordially invited to attend the Annual Meeting of Shareholders of
Advanced Aerodynamics & Structures, Inc. ("AASI" or the "Company") , which will
be held in the Earhart Room, Marriott Hotel, 4700 Airport Plaza Drive, Long
Beach, California 90815, on Monday, July 14, 1997, at 10:00 a.m. Pacific time,
to consider and act upon the following matters:
1. The election of directors; and
2. Such other business as may properly come before the Meeting or any
adjournments of the Meeting.
Only holders of record of Common Stock of the Company at the close of
business on May 15, 1997 will be entitled to notice of and to vote at the Annual
Meeting and any adjournments of the Annual Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING REGARDLESS
OF THE NUMBER OF SHARES YOU HOLD. YOU ARE INVITED TO ATTEND THE MEETING IN
PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND THE
MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY AND VOTE YOUR SHARES IN
PERSON.
By Order of the Board of Directors
Carl Chen, Ph.D.
Chairman of the Board,
President and Chief Executive Officer
3501 Lakewood Blvd.
Long Beach, California 90808
(562) 938-8618
June 1, 1997
<PAGE>
PROXY STATEMENT
ADVANCED AERODYNAMICS & STRUCTURES, INC.
3501 Lakewood Boulevard
Long Beach, California 90808
____________________
ANNUAL MEETING OF SHAREHOLDERS
To Be Held July 14, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Advanced Aerodynamics & Structures, Inc., a
Delaware corporation (the "Company") for use at the Annual Meeting of
Shareholders to be held in the Earhart Room, Marriott Hotel, 4700 Airport Plaza
Drive, Long Beach, California 90815, on Monday, July 14, 1997, at 10:00 a.m.
Pacific time, and at any and all adjournments thereof (the "Annual Meeting"),
for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders. Accompanying this Proxy Statement is the Board of Directors' Proxy
for the Annual Meeting, which you may use to indicate your vote as to the
proposals described in this Proxy Statement.
All Proxies which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will be
voted in favor of the proposals described in this Proxy Statement unless
otherwise directed. A Shareholder may revoke his or her Proxy at any time before
it is voted either by filing with the Secretary of the Company, at its principal
executive offices, a written notice of revocation or a duly executed proxy
bearing a later date or by attending the Annual Meeting and expressing a desire
to vote his or her shares in person.
The close of business on May 15, 1997 has been fixed as the record date for
the determination of Shareholders entitled to notice of and to vote at the
Annual Meeting or any adjournment of the Annual Meeting. As of the record date,
the Company had outstanding: 6,900,000 shares of Class A Common Stock, par value
$.0001 per share; 2,000,000 shares of Class B Common Stock, par value $.0001 per
share; 4,000,000 shares of Class E-1 Common Stock, par value $.0001 per share;
and 4,000,000 shares of Class E-2 Common Stock, par value $.0001 per share. The
Class A Common Stock, Class B Common Stock, Class E-1 Common Stock and Class E-2
Common Stock are substantially identical, except that the holders of Class A
Common Stock have the right to cast one vote, and the holders of Class B Common
Stock, Class E-1 Common Stock, and Class E-2 Common Stock have the right to cast
five votes, for each share held of record on all matters submitted to a vote of
the holders of Common Stock, including the election of directors. The Class A
Common Stock, Class B Common Stock, Class E-1 Common Stock and Class E-2 Common
Stock vote together as a single class on all matters on which stockholders may
vote, including the election of directors, except when voting by class is
required by applicable law. Holders of the Class A Common Stock, Class B Common
Stock, Class E-1 Common Stock and Class E-2 Common Stock have equal ratable
rights to dividends from funds legally available therefor, when, as and if
declared by the Board of Directors and are entitled to share ratably, as a
single class, in all of the assets of the Company available for distribution to
the holders of shares of Common Stock upon the liquidation, dissolution or
winding up of the affairs of the Company. Except as described herein, no
preemptive, subscription, or conversion rights pertain to the Common Stock and
no redemption or sinking fund provisions exist for the benefit thereof.
As of the record date, there were approximately ____ shareholders of record
of the Company's Class A Common Stock, 4 holders of record of the Company's
Class B Common Stock and Class E-1 Common Stock and 5 holders of record of the
Company's Class E-2 Common Stock. The Company believes that there are a
significant number of beneficial owners of its Class A Common Stock whose shares
are held in "street name."
The Company's principal executive offices are located 3501 Lakewood Blvd.,
Long Beach, California 90808. This Proxy Statement and the accompanying proxy
were mailed to Shareholders on or about June 1, 1997.
<PAGE>
ELECTION OF DIRECTORS
In accordance with the Certificate of Incorporation and Bylaws of the
Company, the Board of Directors consists of not less than three nor more than
seven members, the exact number to be determined by the Board of Directors. At
each annual meeting of the Shareholders of the Company, directors are elected
for a one year term. The Board of Directors is currently set at five members.
The Board of Directors proposes the election of the nominees named below.
Shareholders are entitled to cumulate their votes for directors. This means
that a shareholder may give one nominee as many votes as are equal to the number
of Directors to be elected, multiplied by the number of shares owned by such
shareholder, or to distribute his or her votes as the shareholder sees fit among
two or more nominees on the same principle, up to the total number of nominees
to be elected. The five nominees receiving the highest number of votes at the
Annual Meeting from the holders of Common Stock will be elected.
Unless marked otherwise, proxies received will be voted FOR the election of
the each of the nominees named below, and the votes will be distributed equally
among the nominees. If any such person is unable or unwilling to serve as a
nominee for the office of director at the date of the Annual Meeting or any
postponement or adjournment thereof, the proxies may be voted for a substitute
nominee, designated by the proxy holders or by the present Board of Directors to
fill such vacancy. The Board of Directors has no reason to believe that any such
nominee will be unwilling or unable to serve if elected a director.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF THE DIRECTORS NOMINATED HEREIN.
The Board of Directors proposes the election of the following nominees as
members of the Board of Directors:
Carl Chen, Ph.D.
Gene Comfort
C.M. Cheng
Steve Gorlin
James A. Lovell
If elected, the nominees are expected to serve until the 1996 Annual
Meeting of Shareholders.
Information with Respect to Each Nominee and Executive Officers.
The following table sets forth certain information with respect to each
nominee and executive officer of the Company as of May 31, 1997.
Name Age Position
- --------------------- ------ -------------------------------------------
Carl Leei Chen, Ph.D. 50 Chairman of the Board, President,
Chief Executive Officer, Director and
Director Nominee
Gene Comfort 53 Executive Vice President, General Manager,
Director and Director Nominee
C.M. Cheng 50 Director and Director Nominee
Steve Gorlin 59 Director and Director Nominee
James A. Lovell 68 Director and Director Nominee
<PAGE>
Other Officers:
William V. Leeds 53 Senior Vice President
David M. Turner, CPA 61 Chief Financial Officer
Directors serve until the next annual meeting or until their successors are
elected or appointed. All officers are appointed by and serve at the discretion
of the Board of Directors, other than Dr. Chen, who has an employment agreement
with the Company. See "Management - Employment Agreement." There are no family
relationships between any directors or officers of the Company.
Dr. Carl L. Chen is the founder of the Company and has been its President
and a director since the Company's incorporation in January 1990 and the Chief
Executive Officer of the Company since December 1994. From January 1992 to
October 1995, Dr. Chen served as President, and since January 1992 has been a
minority stockholder, of Union China Investment and Development Group, Inc.
("Union China"), a company located in Monterey Park, California, which was
formed to invest in commercial real estate. Union China confirmed a plan of
reorganization pursuant to Chapter 11 of the Federal bankruptcy laws in
August 1995. The bankruptcy case for Union China was closed in May 1996 pursuant
to a Final Decree and Order Closing Case entered by the Bankruptcy Court for the
Central District of California. Since January 1992, Dr. Chen has served as the
President of California Aerospace Technology, Inc., a consulting company for the
satellite industry, located in Monterey Park, California. Dr. Chen was Chairman
of SIDA Corporation, a high technology trading company located in Monterey Park,
California, from 1989 to May 1996. Prior to founding the Company in 1990,
Dr. Chen was a Satellite System Engineering Manager at Hughes Space and
Communications, Inc. for 15 years. Dr. Chen has a Ph.D. in Engineering from the
California Institute of Technology and Masters Degrees in Control Engineering
and Aerospace Engineering from UCLA and West Virginia University, respectively.
Dr. Chen is a graduate of the Owner/President Management program at the Graduate
School of Business Administration of Harvard University.
Gene Comfort has been the Executive Vice President and General Manager of
the Company since September 1995 and a director since May 1996. From July 1993
to September 1995, Mr. Comfort was the Vice President-Marketing of the Company,
and he was the Director of Marketing of the Company from April 1991 to
July 1993. Mr. Comfort has been involved in the aircraft industry for over 25
years in a variety of marketing, sales and management positions. Mr. Comfort is
a single and multi engine rated pilot.
C.M. Cheng has served as a director of the Company since June 1996. Since
April 1996, Mr. Cheng has been a Vice President of Eurotai International, Ltd.,
a private company located in Taipei, Taiwan, which distributes health food
products. From 1984 to April 1996, Mr. Cheng served as a Vice President,
Director of the Office of the President, and Manager of Corporate Planning with
Taiwan Yeu Tyan Machinery, Mfg. Co. Ltd., a public company located in Taipei,
Taiwan, which manufactures automobiles and heavy equipment. From 1980 to 1983,
Mr. Cheng was an Associate Professor of Economics and Management at Taiwan
National Sun-Yet-Sen University. Mr. Cheng is the director of Harpa Limited, a
corporation organized under the laws of the Cayman Islands ("Harpa"), a
principal stockholder of the Company. See "Certain Relationships and Related
Transactions" and "Principal Shareholders."
<PAGE>
Steve Gorlin has served as a director of the Company since July 1996. Over
the past twenty-five years, Mr. Gorlin has founded several biotechnology and
pharmaceutical companies, including Hycor Biomedical, Inc., Theragenics
Corporation, CytRx Corporation, and Medicis Corporation, which are public
companies, and SeaLite Sciences, Inc., which is a private company. Mr. Gorlin
founded, and served as Chairman of the Board of, EntreMed Inc., a public
company, from its inception in 1991 until December 1995 (EntreMed was privately
held during his tenure). He founded, and is a member of the Board of Directors
of, Perma-Fix Environmental Services, Inc., a public company involved in the
disposal of hazardous waste. Mr. Gorlin also established the Touch Foundation, a
non-profit organization for the blind. He is a single and multi-engine pilot.
James A. Lovell Jr. is the former spacecraft commander of the Apollo 13
mission. He currently is the President of Lovell Communications, a business
devoted to disseminating information about the United States Space Program.
Prior to that he was Executive Vice President of Centel Corporation. Mr. Lovell
is a Fellow in the Society of Experimental Test Pilots and a member of the
Golden Eagles. He has been granted many honors and awards, including the
Presidential Medal for Freedom, the French Legion of Honor and the Congressional
Space Medal of Honor. In 1994 he and Jeff Kluger wrote Lost Moon, the story of
the Apollo 13 mission.
William V. Leeds served as the Senior Vice President of the Company from
1991 to September 1994 and acted as a consultant to the Company on an as-needed
basis since that time and rejoined the company as an officer in January of 1997.
He was one of the key employees responsible for obtaining the Type Certificate
for the JETCRUZER 450. From October 1994 until January 1997, Mr. Leeds has
served as the General Manager of Aerostar Corporation, a private company located
in the State of Washington engaged in the development and sale of small
aircraft. From February 1986 to January 1990, Mr. Leeds was the General Manager
of Quiet Nacelle Corp., a private company which retrofits aircraft engine
nacelles for noise reduction. Mr. Leeds has an Aeronautical Engineering Degree
from Northrop Institute of Technology and is an FAA Structure Designated
Engineering Representative (DER). He is a single engine, instrument rated pilot.
David M. Turner, CPA joined the Company in January 1997. Prior to that,
from 1994, he served as the Chief Financial Officer of Taitron Incorporated, a
publicly held company that distributes discrete semiconductors. From 1991 to
1994, Mr. Turner was President and sole owner of Maynard Enterprises,
Incorporated, a privately held consulting business working primarily in the
health care industry. From 1988 to 1991, Mr. Turner was the Chief Financial
Officer and Corporate Vice President of Finance of the Greater Southeast
Management Company, a Washington D.C. company that operated an inner city health
care system, which included two hospitals, three nursing homes and several
subsidiary health care companies in the Mid Atlantic area. During the same
period, Mr. Turner was President and a Director of Greater Southeast Asset
Management Company, the asset-holding subsidiary of the Greater Southeast
Healthcare System. Mr. Turner received a Master of Business of Administration
from the University of Cincinnati.
The Board of Directors held no meetings in 1996. The Board of Directors has
a Compensation Committee, which makes recommendations to the Board concerning
salaries and incentive compensation for officers and employees of the Company.
The members of the Compensation Committee are Messrs. Cheng, Gorlin and Lovell.
The Board of Directors also has an Audit Committee which reviews the results and
scope of the audit and other accounting related matters. The members of the
Audit Committee are currently Messrs. Cheng and Lovell. Neither committee met
during 1996.
<PAGE>
The Company has agreed to nominate a designee of the Underwriter of its
recent public offering who is reasonably acceptable to the Company for election
to the Company's Board of Directors, if so requested by the Underwriter, for a
period of five years from December 6, 1996.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has authorized the firm of Price Waterhouse LLP,
independent public accountants, to serve as auditors for the fiscal year ending
December 31, 1997. A representative of Price Waterhouse LLP, will be present at
the Annual Meeting and will have the opportunity to make a statement if he or
she desires to do so. Further, the representative of Price Waterhouse LLP, will
be available to respond to appropriate questions.
MANAGEMENT
Executive Compensation
The following tables set forth certain information as to the Company's
Chief Executive Officer and each of the Company's four most highly compensated
executive officers whose total annual salary and bonus for the fiscal year
ending December 31, 1996 exceeded $100,000:
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
-----------------------
Name and Principal Position Year Salary Bonus Other Compensation
- ------------------------------- ---- ------ ------ -------------------
Carl L. Chen, Ph.D. 1996 $304,099 $242,763(2)
Chairman and Chief Executive 1995 $ 53,000(3) $242,000(2)
Officer 1994 $ 0 $ 0
Gene Comfort 1996 $136,276 $ 33,000(4)
Executive Vice President 1995 $ 90,000 $ 0
1994 $ 55,000 $ 0
__________________
(1) The compensation described in this table does not include medical
insurance, retirement benefits and other benefits which are available
generally to all employees of the Company and certain perquisites and other
personal benefits, the value of which did not exceed the lesser of $50,000
or 10% of the executive officer's compensation in the table.
(2) Represents the approximate fair market value of 135,416 shares of Class B
Common Stock, 270,832 shares of Class E-1 Common Stock, and 270,832 shares
of Class E-2 Common Stock issued to Dr. Chen in June 1996 and earned by him
under the New Management Agreement during 1995. See "Certain Relationships
and Related Transactions."
(3) Pursuant to the New Management Agreement, which became effective on January
29, 1995 (the "New Management Agreement"), Dr. Chen was entitled to receive
a salary of $323,000 in 1995. This amount was accrued and unpaid as of
December 31, 1995. In May 1996, Dr. Chen agreed to convert $300,000 of such
accrued amount into 16,724 shares of Class B Common Stock, 33,448 shares of
Class E-1 Common Stock and 33,448 shares of Class E-2 Common Stock and to
receive the remainder in cash. See "Certain Transactions" and Note 6 of
Notes to Financial Statements. $30,000 of the amount stated reflects the
approximate fair value of such shares. In May 1996, the New Management
Agreement was terminated, and Dr. Chen's annual salary was changed to
$200,000 per year. See "Employment Agreement."
(4) Represents the approximate fair market value of 17,460 shares of Class B
Common Stock, 34,919 shares of Class E-1 Common Stock, and 34,919 shares of
Class E-2 Common Stock issued to Mr. Comfort in May 1996 in exchange for
services rendered.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Percentage of
Total Options
Number of Share Granted to
Underlying Employees and Exercise or
Options Directors in Base Price Expiration
Name Granted Fiscal Year Per Share Date
- --------------- ----------------- --------------- ------------ ----------------
Gene Comfort 25,000 22.73 $5.0 July 15, 2006
C.M. Cheng 25,000 22.73 $5.0 July 15, 2006
Steve Gorlin 25,000 22.73 $5.0 July 15, 2006
William V. Leeds 25,000 22.73 $5.0 September 3, 2006
___________________
(1) None of the reported options were in-the-money at the end of the fiscal
year as a result of the closing price of the Common Stock as reported on
the NASDAQ System on December 31, 1996 ($3.875/share) being less than the
exercise price of those options ($5.00/share).
Employment Agreement
The Company entered into an eight-year employment agreement (the "Chen
Employment Agreement") with Dr. Carl Chen, the Company's, Chairman, Chief
Executive Officer and President, commencing in May 1996. The Chen Employment
Agreement provides that, in consideration for Dr. Chen's services, he is to be
paid an annual salary of $200,000. He will receive increases in salary and
bonuses as deemed appropriate by the Board of Directors. The Company will
maintain life insurance coverage on Dr. Chen, and Dr. Chen may name the
beneficiary of such policy. The Chen Employment Agreement also provides that he
will not compete with the Company during the term of the Agreement and for
eighteen months thereafter and that, if Dr. Chen's employment is terminated by
the Company without cause (as defined therein), he will receive up to eighteen
months' salary as severance, payable monthly commencing on the thirtieth day
following such termination without cause.
Compensation of Directors
Non-employee directors receive $1,000 for each Board of Directors meeting
attended. The Company pays all out- of-pocket expenses of attendance.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 1, 1997 by (i) each person who
is known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, (ii) each of the Company's directors and executive
officers, and (iii) all officers and directors of the Company as a group.
<TABLE>
Common Stock Percent of Percent of Total
Name and Address of Beneficial Owner(1) Beneficially Owned(2) Ownership Voting Power(3)
- ------------------------------------------- ----------------------- ------------ -----------------
<S> <C> <C> <C>
Dr. Carl L. Chen(4)........................ 4,196,460 24.83% 36.88%
Gene Comfort(5)............................ 87,298 .52 .77
C.M. Cheng(5)(6)........................... 5,217,860 30.87 5.85
Steve Gorlin(7)............................ 15,000 .09 .03
James A. Lovell Jr.(5)..................... 0 0 0
Harpa Limited(8)........................... 5,217,860 30.87 45.85
Shih Jen Yeh(8)............................ 5,217,860 30.87 45.85
Chyao Chi Yeh(8)........................... 5,217,860 30.87 45.85
All executive officers and directors as a
group (5 persons).......................... 9,516,618 56.31 83.53
</TABLE>
______________________
(1) Except as otherwise indicated, the address of each principal stockholder is
c/o the Company at 3501 Lakewood Blvd., Long Beach, California 90808. The
Company believes that all persons named have sole voting power and sole
investment power, subject to community property laws where applicable.
(2) Except as otherwise noted, all shares beneficially owned are 20% Class B
Common Stock and 80% Class E Common Stock, which shares of Class E Common
Stock are subject to redemption by the Company if the Company does not
achieve certain income or market price levels.
(3) The Common Stock of the Company is divided into four classes. Each share of
Class B Common Stock, Class E-1 Common Stock and Class E-2 Common Stock is
entitled to five votes per share, and Class A Common Stock is entitled to
one vote per share.
(4) Includes 200,000 shares of Class E-2 Common Stock held by Julie C. Chen, as
trustee of the Eric F. Chen Trust under Declaration of Trust dated
August 31, 1996, for the benefit of Eric F. Chen, Dr. Chen's son. Julie
Chen is Dr. Chen's sister-in-law. Dr. Chen disclaims beneficial ownership
of the 200,000 shares held by the Trust for the benefit of his son.
(5) Excludes 25,000 shares of Class A Common Stock issuable upon the exercise
of options not exercisable within 60 days of this Proxy Statement.
(6) Includes 5,217,860 shares of Common Stock held by Harpa Limited, a Cayman
Island corporation ("Harpa"). C.M. Cheng is a director of Harpa and has
sole voting and investment control over the shares of Common Stock held by
Harpa and thus may be deemed to beneficially own such shares. Mr. Cheng
disclaims beneficial ownership of such shares. The address of Harpa is c/o
Coutts Co. (Cayman) Ltd., Coutts House, P.O. Box 707, West Bay Road, Grand
Cayman, Cayman Islands.
(7) Common Stock beneficially owned is Class A Common Stock which was contained
in Units purchased by Mr. Gorlin in March and April 1997. Excludes 25,000
shares of Class A Common Stock issuable upon the exercise of options not
exercisable within 60 days of the date of this Proxy Statement.
(8) The voting stock of Harpa is currently held equally by Shih Jen Yeh and
Chyao Chi Yeh, who are children of Song Gen Yeh, the former Chairman and
principal stockholder of the Company. See "Certain Transactions." The
address of Mr. Shih Jen Yeh and Mr. Chyao Chi Yeh is 14th Floor, No. 55,
Section 2, Chung-Cheng Road, Shih-Lin District, Taipei, Taiwan.
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that each person listed under the Principal
Shareholder table (other than James Lovell, who was not a director of the
Company in fiscal 1996) failed to timely file the report on Form 3 as required
pursuant to Rule 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). As of April 30, 1997, all Form 3 reports required to be filed
during fiscal 1996 had been filed, and the Company is not aware of any failures
to file a required form. The reports on Form 3 which were not timely filed each
related to the initial registration of the Company's securities under Section 12
of the Exchange Act.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From January 1990 through December 1993, Mr. Song Gen Yeh, who was at that
time a principal stockholder and director of the Company, advanced funds to the
Company in the aggregate amount of $10,478,000. In December 1993, the Company
entered into an agreement with Mr. Yeh to repay such advances through the
issuance of 584,074 shares of Class B Common Stock, 1,168,148 shares of
Class E-1 Common Stock, and 1,168,148 shares of Class E-2 Common Stock of the
Company. Such shares were issued to Mr. Yeh in June 1996. From 1994 through
1995, Mr. Yeh provided additional advances to the Company aggregating $250,000.
In June 1996, such advances were repaid by the Company through the issuance of
13,937 shares of Class B Common Stock, 27,873 shares of Class E-1 Common Stock,
and 27,873 shares of Class E-2 Common Stock. Such shares were subsequently
transferred to Harpa Limited ("Harpa"), a Cayman Islands corporation the voting
stock of which is controlled by two of Mr. Yeh's children. C.M. Cheng, a
director of the Company, is the Director of Harpa and, as such, has the power to
vote the shares of the Company's Common Stock held by Harpa. See "Principal
Stockholders."
In January 1990, the Company entered into a five-year agreement (the
"Management Agreement") with SIDA Corporation ("SIDA"). Dr. Carl L. Chen, the
Chairman, Chief Executive Officer and President of the Company, was, at that
time, a principal stockholder of SIDA, and the other two stockholders of SIDA
were also, at that time, stockholders of the Company. The Management Agreement
provided for annual payments to SIDA of $140,000 for management services
consisting essentially of those customarily performed by the President of a
company. The SIDA agreement expired by its terms in January 1995. As of June 30,
1996, SIDA was owed $259,000 of unpaid management fees. This amount, together
with accrued interest of $64,000 through August 30, 1996, was paid from the
proceeds of a Bridge Financing in September 1996. In October 1993 and February
1994, the Company obtained loans from SIDA in the aggregate principal amount of
$110,000, bearing interest at 12%. These loans, together with accrued interest
of $31,000, were repaid from the proceeds of the Bridge Financing in September
1996.
In February and July 1994, the Company received loans in an aggregate
principal amount of $565,000, bearing interest at a rate of 12%, from four
individuals who were at the time not affiliated with the Company. One of such
persons, C.M. Cheng, became a director of the Company in June 1996. These loans,
together with accrued interest of $161,000, were repaid with the proceeds of the
Bridge Financing in September 1996.
In December 1994, the Company entered into a New Management Agreement (the
"New Management Agreement") with Dr. Chen which took effect in January 1995.
Pursuant to the New Management Agreement, Dr. Chen agreed to serve as the
Company's President and Chief Executive Officer. The New Management Agreement
had a term of 10 years and provided that Dr. Chen was to receive a signing bonus
of 139,365 shares of Class B Common Stock, 278,730 shares of Class E-1 Common
Stock, and 278,730 shares of Class E-2 Common Stock, an annual salary of
$350,000, and additional annual compensation payable in 147,727 shares of
Class B Common Stock, 295,454 shares of Class E-1 Common Stock, and
295,454 shares of Class E-2 Common Stock. In May 1996, Dr. Chen agreed to
terminate the New Management Agreement. Pursuant to the New Management Agreement
and in connection with its termination, the Company issued a total of 577,823
shares of Class B Common Stock, 1,155,647 shares of Class E-1 Common Stock, and
1,155,647 shares of Class E-2 Common Stock to Dr. Chen. At June 30, 1996,
$144,000 remained accrued and unpaid under the New Management Agreement. This
amount was paid to Dr. Chen with the proceeds of the Bridge Financing in
September 1996.
<PAGE>
In May 1996 the Company entered into an Employment Agreement with Dr. Chen
pursuant to which he agreed to serve as its Chairman, Chief Executive Officer
and President. See "Management Employment Agreement." As of August 31, 1996,
compensation of $69,000 was accrued and unpaid under this Agreement. This amount
was paid from the proceeds of the Bridge Financing in September 1996.
From September 1995 through August 1996, Dr. Chen made loans bearing
interest at a rate of 12% to the Company in the aggregate principal amount of
$562,000. In May 1996, Dr. Chen agreed to convert $336,000 of these loans into
187,118 shares of Class B Common Stock, 374,236 shares of Class E-1 Common
Stock, and 374,236 shares of Class E-2 Common Stock. The remaining $226,000
principal amount of these loans, together with $36,000 of accrued interest, was
repaid with the proceeds of the Bridge Financing in September 1996.
In 1994 and 1995, the Company obtained loans from General Bank in the
aggregate principal amount of $900,000. This loan bore interest at the prime
rate plus 1.5% and had a maturity date of October 1996. Repayment of the loan
was guaranteed by the Small Business Administration, the California Export
Finance Office and Dr. Chen and was secured by substantially all the assets of
the Company. The total outstanding balance of the loan of approximately $915,000
(including accrued interest) was repaid from the proceeds of the Bridge
Financing in September 1996.
In May 1996, the Company issued 17,460 shares of Class B Common Stock,
34,919 shares of Class E-1 Common Stock, and 34,919 shares of Class E-2 Common
Stock to Gene Comfort, its Executive Vice President, as partial consideration
for marketing and general administrative services performed by Mr. Comfort for
the Company. In September 1996, $34,000 of accrued but unpaid salary was paid to
Mr. Comfort from the proceeds of the Bridge Financing.
In September 1996, the Company granted options to purchase 25,000 shares of
Class A Common Stock to each of C.M. Cheng and Steve Gorlin, directors of the
Company, and Gene Comfort, an officer and director of the Company, and
5,000 shares of Class A Common Stock to Sandra Andre, an officer of the Company,
at an exercise price of $5.00 per share. The options vest in equal annual
installments over five years.
The Company believes that each of the foregoing transactions was on terms
at least as favorable to the Company as those that could have been obtained from
nonaffiliated third parties.
PROPOSALS OF SHAREHOLDERS
A proper proposal submitted by a shareholder for presentation at the
Company's 1998 Annual Meeting and received at the Company's executive offices no
later than December 31, 1997, will be included in the Company's proxy statement
and form of proxy relating to the 1998 Annual Meeting.
OTHER MATTERS
The Board of Directors is not aware of any matter to be acted upon at the
Annual Meeting other than described in this Proxy Statement. Unless otherwise
directed, all shares represented by the persons named in the accompanying proxy
will be voted in favor of the proposals described in this Proxy Statement. If
any other matter properly comes before the meeting, however, the proxy holders
will vote thereon in accordance with their best judgment.
<PAGE>
EXPENSES
The entire cost of soliciting proxies will be borne by the Company.
Solicitation may be made by mail. The Company will request brokerage houses,
nominees, custodians, fiduciaries and other like parties to forward soliciting
material to the beneficial owners of the Company's Common Stock held of record
by them and will reimburse such persons for their reasonable charges and
expenses in connection therewith.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report for the fiscal year ended December 31, 1996 is
being mailed to Shareholders along with this Proxy Statement. The Annual Report
is not to be considered part of the soliciting material.
