UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10013
Larson-Davis Incorporated
(Exact name of small business issuer as specified in charter)
Nevada 87-0429944
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1681 West 820 North
Provo, Utah 84601
(Address of principal executive offices) (Zip Code)
(801) 375-0177
(Issuer's Telephone number, including area code)
N/A
(Former name, former address, and former fiscal
year, if changed since last report)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the Issuer 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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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Issuer filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 7, the Issuer had 8,244,301 shares of its common stock, par value
$0.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LarsonoDavis Incorporated (the "Registrant") files herewith unaudited
condensed consolidated balance sheets of the Registrant and its subsidiaries as
of March 31, 1996 and June 30, 1995 (the Registrant's most recent fiscal year),
unaudited condensed consolidated statements of operations for the three and nine
months periods ended March 31, 1996 and 1995, and unaudited condensed
consolidated statements of cash flows for the nine months ended March 31, 1996
and 1995, together with unaudited condensed notes thereto. In the opinion of
management of the Registrant, the financial statements reflect all adjustments,
all of which are normal recurring adjustments, necessary to fairly present the
financial condition of the Registrant for the interim periods presented. The
financial statements included in this report on form 10-QSB should be read in
conjunction with the audited financial statements of the Registrant and the
notes thereto included in the annual report of the Registrant on form 10-KSB for
the year ended June 30, 1995.
LARSON-DAVIS INCORPORATED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
1996 1995
CURRENT ASSETS:
Cash $ 71,989 $ 83,334
Trade accounts receivable, net 2,877,376 2,130,835
Inventories 3,125,407 2,152,768
Other current assets 151,626 135,348
Due from related parties 81,000 -
Unbilled contract receivables 59,250 200,318
Total Current Assets 6,366,648 4,702,603
PROPERTY, PLANT AND EQUIPMENT
net of accumulated depreciation 1,410,272 1,337,574
ASSETS UNDER CAPITAL LEASE
net of accumulated amortization 402,696 303,522
ASSETS HELD FOR SALE (net) 3,044,497 3,135,776
OTHER ASSETS:
Product technology and license
costs net of amortization 4,656,729 1,975,699
Goodwill 113,822 124,493
$15,994,664 $11,579,667
The accompanying notes are an integral part of these financial statements
LARSON-DAVIS INCORPORATED
UNAUDITED CONDENSED FINANCIAL STATEMENTS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
1996 1995
CURRENT LIABILITIES:
Bank overdreaft $ - $ 40,039
Short-term notes payable 1,910,604 2,219,187
Accounts payable 913,022 886,489
Accrued liabilities 610,679 469,003
Current maturities of long-term
debt 206,408 206,409
Current maturities of capital
lease obligation 131,009 133,719
Total Current Liabilities 3,771,722 3,954,846
LONG-TERM DEBT
less current maturities 1,391,155 958,251
CAPITAL LEASE OBLIGATIONS
less current maturities 371,091 255,080
Total Liabilities 5,533,968 5,168,177
STOCKHOLDERS' EQUITY:
Preferred stock 200 200
Common stock
8,177 6,559
Additional paid-in capital 11,645,891 7,406,114
Retained earnings (1,197,269) (997,362)
Foreign currency translation 3,697 (4,021)
Total Stockholders' Equity 10,460,696 6,411,490
$15,994,664 $11,579,667
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
LARSON-DAVIS INCORPORATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the 3 Months For the 9 Months
Ended Ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES, net $2,317,430 $1,524,549 $6,469,703 $4,295,456
COSTS AND OPERATING EXPENSES:
Costs of sales and operating expenses 1,211,960 608,007 2,726,377 1,713,076
Research and development 583,878 165,814 1,417,285 467,186
Selling, general and administrative 794,975 573,187 2,198,090 1,614,969
Total costs and operating expenses 2,590,813 1,347,008 6,341,752 3,795,231
INCOME (LOSS) FROM CONTINUING OPERATIONS (273,383) 177,541 127,951 500,225
OTHER INCOME (EXPENSE) (117,465) (70,260) (298,867) (197,961)
INCOME FROM CONTINUING OPERATIONS
BEFORE TAXES AND DISCONTINUED OPERATION (390,848) 107,281 (170,916) 302,264
PROVISION (BENEFIT) FOR INCOME TAXES 1,759
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE DISCONTINUED OPERATIONS (390,848) 107,281 (170,916) 300,505
INCOME (LOSS) FROM OPERATION OF
DISCONTINUED OPERATION (56,753) 41,811
NET INCOME (LOSS) $(390,848) $50,528 $(170,916) $342,316
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operation $ (0.05) $ 0.02 $ (0.02) $ 0.05
Income (loss) from discontinued operation $ - $(0.01) $ - $ 0.01
$ (0.05) $ 0.01 $ (0.02) $ 0.
</TABLE>
The accompanying notes are an integral part of these financial statements
LARSON-DAVIS INCORPORATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the 9 Months Ended
March 31,
1996 1995
CASH FLOWS FROM (TO) OPERATIONS:
Net Income (Loss) $ (170,916) $ 342,316
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 361,155 216,941
Amortization 552,681 338,197
Changes in assets and liabilities:
Accounts receivable (746,541) (1,225,747)
Inventories (972,639) (298,121)
Prepaid expenses and other (16,278) (181,639)
Due from related parties (81,000) 29,817
Other current receivable 141,068 405,022
Accounts payable 26,533 486,681
Accrued liabilities 141,676 (101,386)
Total Adjustments (593,345) (330,235)
Net Cash Provided (Used) by Operations (764,261) 12,081
CASH FLOWS TO INVESTING:
Foreign currency transactions 7,718
Net change in assets held for sale (225,986)
Preferred stock (37,500)
Payments for software development cost &
technology (2,905,777) (923,506)
Purchase of instruments and equipment (533,027) (259,815)
Net Cash (Used) in Investing Activities (3,694,572) (1,183,321)
CASH FLOWS FROM (TO) FINANCING
Net borrowings (repayments) under
short-term debt (308,583) 380,364
Increases (decreases) in capital
lease obligation 116,011 159,371
Borrowings (repayments) on
long-term debt 432,903 (247,115)
Foreign currency translation 5,801 (27,214)
Proceeds from capital stock 4,241,395 566,363
Net Cash Provided (Used) by Financing 4,487,527 831,769
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 28,694 (339,471)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 43,295 432,261
CASH EQUIVALENT AT END OF PERIOD $71,989 $ 92,790
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the current quarter for:
Interest $ 308,258 $ 271,316
Income taxes $ - $ -
The accompanying notes are an integral part of these financial statements
LARSON-DAVIS INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared by the Registrant
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations, and changes in financial position at March 31,
1996 and for all periods presented have been made.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the Registrant's June 30, 1995 audited
financial statements and the notes thereto. The results of the operations for
the periods ended March 31, 1996 may not necessarily be indicative of the
operating results for the full year.
Business Presentation. The accompanying consolidated financial statements
of LarsonoDavis Incorporated include the accounts of the Registrant and its
wholly-owned subsidiaries LarsonoDavis Laboratories, Advantage Software, Inc.,
LD Info, Inc., Sensar Corporation, and LarsonoDavis Limited (a UK Corporation).
All significant intercompany transactions and accounts have been eliminated in
consolidation.
Inventories. Inventories are valued at the lower of cost (using average
cost method) or market.
Plant and Equipment. Equipment is carried at cost less related accumulated
depreciation. Depreciation, including amortization of capitalized leases, is
computed using the straight-line method over useful lives ranging from 3 to 5
years. Real estate is being depreciated over a useful life of 25 years using
the straight-line method.
Preferred Stock Dividend. During the period ended March 31, 1996, the
Registrant recognized preferred stock dividends payable on 200,000 shares of
issued and outstanding preferred stock in the amount of $11,250 for the three
months and $37,500 for the nine months ended March 31, 1996:
Retained earnings balance 7/1/95 $ (997,362)
Net loss (170,916)
Preferred stock dividend (37,500)
Foreign currency translation 8,509
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$(1,197,269)
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Earnings Per Share. The computation of earnings per share of common stock
is based on the weighted average number of shares and common stock equivalents
outstanding during the period. The weighted average number of shares
outstanding for the periods ended March 31, 1996 and 1995, is 7,576,427 and
6,065,017 respectively.
Revenue Recognition. The Registrant recognizes revenues on the bulk of its
product sales and services at the time of product delivery or the rendering of
services. With respect to recognizing long-term contract revenues and charging
expenses to operations, the Registrant has adopted a "percentage-of-completion"
method of accruing revenues related to long-term contracts. Revenues are
accrued and a current, non-trade receivable is created based on "progress toward
completion" of the particular contract. Progress is determined by comparing
actual time incurred and materials used with expected estimates of total
contract costs. In short, revenues are accrued as services are performed by the
Registrant. Losses on long-term contracts are recognized when they become
apparent. Billings to the customer are made according to the payment terms of
the contract. When a billing is created, the amount of the billing is
transferred into the regular trade receivable account to await receipt of
payment.
Software Development Costs. Pursuant to FAS No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed", the
Registrant capitalizes all costs incurred to develop software after
technological feasibility has been established. Amortization of these
development costs is computed using the straight-line method over estimated
useful lives ranging from 10 to 17 years.
Product Technology and License Rights. The Registrant capitalizes costs
incurred to acquire product technology and license rights. These costs are
being amortized over estimated useful lives ranging from 10 to 17 years by the
straight-line method.
Cash and Cash Equivalents. For purpose of the statement of cash flows, the
Registrant considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
NOTE 2 - INVENTORIES
The composition of inventories at March 31, 1996, and June 30, 1995,
consists of the following:
March 31, 1996 June 30, 1995
Raw materials $1,163,958 $669,433
Work in process 876,661 765,617
Finished goods 1,084,788 717,718
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$3,125,407 $2,152,768
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NOTE 3 - EXPORT SALES
During the nine months periods ended March 31, 1996 and 1995, the
Registrant had export sales totaling approximately $1,809,200 and $1,435,700
respectively.
NOTE 4 - RELATED PARTY
During the quarter ended March 31, 1996 the Registrant loaned an aggregate
of $81,000 to two of its officers and directors. The notes are payable on
demand and bear interest at 8%, payable quarterly
During the quarter ended March 31, 1996, three executive officers entered
into individual Executive Employment Agreements with the Registrant. Terms of
the five year agreements provide for exclusivity of service, nondisclosure,
compensation, benefits, and termination rights.
NOTE 5 - DISCONTINUED OPERATION
The Registrant entered into a definitive agreement, effective August 15,
1995, to license proprietary technology, and transfer management and
implementation of its airport noise monitoring contracts to an established
airport consulting firm. As part of this agreement the Registrant has
discontinued its operations in this area and will not compete in the industry.
In return, the consulting firm will use its best efforts to utilize the
Registrant's instrumentation in any future airport noise monitoring system
installed.
Operations in the airport monitoring industry for the nine months ended
March 31, 1995 are included as Discontinued Operations in the financial
statements of the Registrant.
PART I
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
PRODUCT DEVELOPMENT EFFORT
Management has begun to commit funds on a planned basis for the development
of new products specifically directed to the CrossCheck and Sensar technologies.
These expenditures are in the nature of product design and prototyping,
analytical evaluation of resulting data and equipment, product refinement,
manufacturing engineering, production tooling and design, and marketing efforts.
This development commitment is reflected throughout the financial statement and
is not isolated to a single classification. As a way to separate the
operational portion of the Registrant's Statements of Operations from
expenditures for the planned development, Management presents the following
unaudited proforma for the nine month period ended March 31, 1996:
SALES, net $ 6,469,703
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COST AND OPERATING EXPENSES:
Cost of sales and operating expenses 2,717,275
Research and development 792,539
Selling, general and administrative 2,198,090
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Total costs and operating expenses 5,707,904
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OPERATING INCOME 761,799
OTHER INCOME (EXPENSE) (298,867)
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INCOME BEFORE PLANNED DEVELOPMENT 462,932
PLANNED DEVELOPMENT (633,848)
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NET INCOME (LOSS) $ (170,916)
--------------
Funding for the planned development has been provided through private
placements of the Registrant's securities which were negotiated for the express
purpose of applying a portion of the proceeds to this development. The
Registrant has received approximately $3,100,000 in cash proceeds from the sale
of capital stock during the nine month period. The Registrant anticipates there
will be further sales of common stock to supplement its planned development and
provide additional liquidity.
SIGNIFICANT FINANCIAL CHANGES - STATEMENT OF INCOME
Total Revenue
Total revenues from continuing operation for the three months ended March
31, 1996 and 1995, are $2,317,430 and $1,524,549, respectively. Revenues from
continuing operation for the nine months ended March 31, 1996 and 1995, are
$6,469,703 and $4,702,603, respectively. The increase in revenues is an
indication of management's assessment that the acoustics and vibration market is
beginning to return to its pre-1992 levels. The Registrant experienced a
decline in sales in fiscal years 1993 and 1994. This was related in part to a
general global recession. The Registrant was able to maintain its established
market share in the then shrinking market. In the fiscal year ended June 30,
1995, instrumentation sales increased by 27%. For the nine months ended March
31, 1996, sales have increased by 50% over the same period in 1995. Management
expects the strengthening of its established instrumentation market to continue.
Costs of Sales and Operating Expenses
The Registrant's costs of sales and operating expenses as a percentage of
total revenue for the nine month periods ended March 31, 1996 and 1994, are 42%
and 40%, respectively.
Fluctuations in costs of sales and operating expenses are caused in part by
variances in product sales mix from period to period and normal production
cycles. The Registrant anticipates that costs of sales and operating expenses
will continue to be approximately 40% to 45% over time. The Registrant does not
expect a significant change in the costs of sales and operating expenses as a
percentage of revenue as a result of the recent acquisition of Sensar
Corporation. (See the Registrant's report on form 8-K dated October 27, 1995,
for additional information concerning this acquisition.)
Research and Development
As a percentage of total revenues the Registrant's research and development
costs for the nine month periods ended March 31, 1996 and 1995, are 22% and 11%,
respectively. The increase is a result of new product development and research
and development costs related to the Registrant's CrossCheck and Sensar
technologies.
. Selling, General and Administrative
For the nine month periods ended March 31, 1996 and 1995, the percentage of
selling, general, and administrative expenses to total revenues is 34% and 37%,
respectively. This is consistent with historic levels experienced by the
Registrant for previous fiscal year ends.
SIGNIFICANT FINANCIAL CHANGES - BALANCE SHEETS
As of March 31, 1996 and June 30, 1995, total assets are $15,994,664 and
$11,539,667, respectively. On October 27, 1995, the Registrant acquired 100% of
the outstanding stock of a private Utah corporation; Sensar Corporation
("Sensar"). The consolidated financial statements presented herein are affected
by the assets and liabilities assumed by the Registrant. Significant changes
can be seen in inventories; property, plant and equipment; product technology
and license costs; long-term debt; common stock; and additional paid-in capital.
Trade Accounts Receivable
At March 31, 1996 and June 30, 1995 trade accounts receivable are
$2,877,376 and $2,130,835, respectively. The Registrant is maintaining adequate
collections of its trade accounts receivable. Management feels the level of
accounts receivable is within reason and represents an acceptable collection
cycle of its trade invoices.
Inventories
The approximate $973,000 increase in inventories at March 31, 1996 as
compared to June 30, 1995 is in part attributed to the addition of Sensar's
purchase part inventory. Also, the Registrant's level of finished goods at
March 31, 1996 was high due to timing differences between product completion and
final shipment. The Registrant utilizes computerized inventory and
manufacturing systems to manage its inventory levels. These systems are being
implemented at Sensar to insure adequate controls. The Registrant believes
current inventory levels are adequate to meet manufacturing demands.
Product technology and license costs
Under the purchase method of accounting for business combinations, the
Registrant recorded more than $2,100,000 in acquired technology as a result of
the Sensar transaction. This added technology is related, in part, to patented
technology associated to Sensar's TOF (time-of-flight) mass spectrometer
instrumentation and related accessories
Short-term Notes Payable
There was a decrease of appropriately $300,000 in the Registrant's short-
term notes payable from June 30, 1995, to March 31, 1996. Proceeds from the
sale of common stock have been applied in part to reducing short-term debt.
Long-term debt
The Registrant assumed the responsibility for a loan with a commercial bank
in the amount of $535,000 in conjunction with the Sensar transaction. This
accounts for the increase in long-term debt (netted with reductions made as part
of the Registrant's normal business operations).
Common stock & Additional paid-in capital
As part of the purchase, shareholders of Sensar were issued approximately
618,000 shares of common stock in exchange for outstanding Sensar stock. Also,
the Registrant has issued common stock as a result of private placements of
approximately 1,000,000 shares.
CAPITAL AND LIQUIDITY
At March 31, 1996, the Registrant's working capital ratio was 1.7:1
($6,366,648 in current assets as compared to $3,771,722 in current liabilities).
Approximately $1,600,000 of the current liabilities is represented by the
Registrant's revolving line of credit. The limit on this line is $2,100,000 and
is adjusted from time to time based on ratios of inventories and accounts
receivable levels. The commercial bank which currently extends this line of
credit has indicated that recent changes have been implemented in its overall
banking policy regarding financing foreign accounts receivable. This will
require the Registrant to establish a new relationship for its asset-based line
of credit. The commercial bank is assisting Registrant in finding alternative
lenders, and the Registrant is currently seeking and reviewing proposals. It is
anticipated that a satisfactory lender will be found and a line of credit will
continue to be available to Registrant.
The Registrant entered into an agreement with a third party to license its
proprietary Airport Noise and Operations Monitoring Software ("ANOMS") and
transfer management and implementation of substantially all of its airport
monitoring contract business. (See the Registrant's report on form 8-K dated
June 30, 1995, as amended, for additional information concerning this
transaction.) Cash payments received from this agreement have little or no
corresponding cash expenditures. As a result, the royalty payments improve the
Registrant's cash flow situation. Because a portion of the payment is based on
a royalty from revenues, the Registrant has elected to use the "Cost Recovery"
method to recognize revenues and amortize costs. For the nine months periods
ended March 31, 1996 the Registrant has posted approximately $317,000 in royalty
revenues.
The Registrant received net proceeds of approximately $3,100,000 from the
sale of common stock during the nine months ended March 31, 1996. The
Registrant has relied in the past on capital infusion to sustain its operations.
Subsequent to March 31, 1996, the Registrant has received an additional
approximate $2,700,000 from the sale of common stock. It is anticipated that
there will be further sales of common stock during this fiscal year to provide
capital and liquidity. Proceeds from these anticipated sales will be used to
supplement operating cash, fund research and development efforts, and to acquire
companies with technologies and/or product lines compatible with the
Registrant's growth plan.
The Registrant considers its current liquidity position to be favorable and
anticipates sufficient cash from operations, available short-term borrowing
capabilities, and projected capital funding to sustain normal operations.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The following exhibits are included as part of this report:
SEC
Exhibit Ref.
Number Number Title of Document
------ ------ -----------------
1 10 Executive Employment Agreement between Registrant
and Brian G. Larson., dated January 3, 1996
2 10 Executive Employment Agreement between Registrant
and Larry J. Davis., dated January 3, 1996
3 10 Executive Employment Agreement between Registrant
and Dan J. Johnson., dated January 3, 1996
Reports on Form 8-K
The Registrant filed a report on form 8-K dated January 23, 1996 announcing
the appointment of its new auditors for the current fiscal year, Grant Thornton
LLP, and a report on form 8-K dated March 13, 1996 announcing the addition of
William E. Hosker to its board of directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LarsonoDavis Incorporated
Dated: May 16, 1996 By /s/ Dan J. Johnson
(Duly Authorized Officer and Principal
Accounting Officer)
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is made and entered
into this 3rd day of January, 1996, by and between BRIAN G. LARSON ("Executive")
and LARSON-DAVIS INCORPORATED, a Nevada corporation ("Larson-Davis"), based on
the following:
PREMISES
Executive is presently employed as an executive officer of Larson-Davis.
Executive wishes to continue to be employed by Larson-Davis, and Larson-Davis
desires to continue to employ Executive, all on the terms and conditions
contained herein.
AGREEMENT
NOW, THEREFORE, based on the foregoing premises, which are incorporated
herein by reference, and for and in consideration of the mutual covenants and
agreements hereinafter set forth and the mutual benefit to the parties to be
derived herefrom, it is hereby agreed as follows:
1. Employment and Term.
(a) Larson-Davis hereby employs Executive and Executive hereby
accepts employment upon the terms and conditions set forth herein. The
term of Executive's employment shall begin on the date hereof. The term of
this Agreement, hereinafter referred to as the "Employment Period," shall
be five (5) years, unless terminated earlier pursuant to the other
provisions of this Agreement.
(b) During the Employment Period, Executive will serve as Larson-
Davis' vice-president and chief financial officer and as a member of the
board of directors of Larson-Davis. Executive agrees to serve in such
offices or positions with Larson-Davis or any of its subsidiaries and such
substitute or further offices or positions of substantially consistent rank
and authority as shall, from time to time, be determined by Larson-Davis'
board of directors. Executive agrees to perform such duties appropriate
for an executive officer of Larson-Davis as may be assigned to him from
time to time by Larson-Davis and as described in the bylaws of Larson-
Davis. Larson-Davis shall direct, control, and supervise the duties and
work of Executive.
2. Performance of Services.
(a) During the Employment Period, Executive agrees to perform
faithfully the duties assigned to him by the board of directors or
management of Larson-Davis to the best of his ability, to devote his full
and undivided business time, attention, and services to the business of
Larson-Davis and not to engage in any other substantial business activities
other than at the direction or with the approval of the board of directors
of Larson-Davis; provided, however, that nothing herein shall restrict
Executive from conducting incidental personal business that does not
conflict with his obligations under the terms of this Agreement.
(b) All duties hereunder shall be rendered in Utah County, Utah, and,
on a temporary basis, at such other places as the interests, needs,
business, and opportunities of Larson-Davis shall require; provided,
however, that Executive shall not be required to relocate his residence
without the mutual consent of Larson-Davis and Executive.
(c) Executive shall observe and comply with the commercially
reasonable rules and regulations of Larson-Davis respecting its business
and shall carry out and perform such commercially reasonable orders,
directions, and policies of Larson-Davis as they may be from time to time
communicated to Executive either orally or in writing. Executive shall
further observe and comply with all applicable rules, regulations, and laws
governing the business of Larson-Davis known to Executive.
3. Exclusivity of Services and Nondisclosure of Confidential Information.
(a) Executive agrees that for a period ending on the first
anniversary of the termination of the Employment Period:
(i) he will not engage in any activity competitive with the
business of Larson-Davis or any of its affiliates (the "Larson-Davis
Group"), directly or indirectly, in the market defined in subsection
3(c), whether as employer, proprietary owner, partner, stockholder
(other than the holder of less than five percent (5%) of the stock of
an entity, the securities of which are traded on a national securities
exchange or in the over-the-counter market), director, officer,
employee, consultant, or agent;
(ii) he will not solicit, in competition with the Larson-Davis
Group, any person who is a customer of the business conducted by the
Larson-Davis Group at the date hereof or a customer of the business
conducted by the Larson-Davis Group at any time during the Employment
Period; and
(iii) he will not induce or attempt to persuade any employee
of the Larson-Davis Group to terminate his or her employment
relationship in order to enter into employment with any party in
competition with the Larson-Davis Group.
(b) Executive further agrees that he will not, at any time during the
Employment Period or at any time after the termination of this Agreement,
irrespective of the time, manner, or cause of termination, use, disclose,
copy, or assist any other person or firm in the use, disclosure, or copying
of any trade secrets or other confidential information of the Larson-Davis
Group, except to the extent authorized in writing by Larson-Davis. Upon
termination of his employment hereunder, Executive will surrender to
Larson-Davis all records and other documents obtained by him or entrusted
to him during the course of his employment by Larson-Davis (together with
all copies thereof); provided, however, that Executive may retain copies of
such documents as are necessary for Executive's personal records for income
tax purposes. For purposes of this section 3, proprietary information
about the business of the Larson-Davis Group shall be treated as
confidential until it has been published or is generally or publicly known
outside the Larson-Davis Group or until it has been recognized as standard
practice outside the Larson-Davis Group. The provisions of this paragraph
3(b) shall remain in effect for a period of three (3) years subsequent to
the termination of the Employment Period.
(c) The following provisions shall apply to the covenants of
Executive contained in this section 3:
(i) The covenants contained in clauses (i) and (ii) of
subsection 3(a) shall apply to those markets in which the Larson-Davis
Group is doing business at the termination of the Employment Period
and those markets in which the Larson-Davis Group has publicly or
internally issued written plans to enter prior to the termination of
the Employment Period.
(ii) Executive agrees that a breach or threatened breach on his
part of any covenant contained in this section 3 will cause such
damage to Larson-Davis as will be irreparable. Therefore, without
limiting the right of Larson-Davis to pursue all other legal and
equitable remedies available for violation by Executive of the
covenants contained in this section 3, it is expressly agreed that
remedies other than injunctive relief cannot fully compensate the
Larson-Davis Group for such a violation and that Larson-Davis and the
Larson-Davis Group shall be entitled to injunctive relief to prevent
any such violation or continuing violation thereof.
(iii) It is the intent and understanding of each party hereto
that if, in any action before any court or agency legally empowered to
enforce the covenants contained in this section 3, any term,
restriction, covenant, or promise contained therein is found to be
unreasonable and for that reason unenforceable, then such term,
restriction, covenant, or promise shall be deemed modified to the
extent necessary to make it enforceable by such court or agency.
4. Business Ideas.
(a) Executive acknowledges that Larson-Davis will own all rights in
all "Business Ideas" (as hereinafter defined) which are originated or
developed by Executive, either alone or with employees or consultants of
Larson-Davis, during the Employment Period.
(b) Executive agrees that, during the Employment Period, he will:
(i) assign to Larson-Davis all Business Ideas and promptly
execute all documents which Larson-Davis may reasonably require to
protect its patent, copyright, and other rights to such Business Ideas
throughout the world; and
(ii) promptly disclose to Larson-Davis all information concerning
all material Business Ideas "originated" by Executive or any employee
of Larson-Davis, which come to his attention and which concern the
business of Larson-Davis.
(c) For purposes of this section 4, "Business Ideas" shall mean all
ideas, whether or not patentable, which are originated or developed by
Executive in connection with his employment by Larson-Davis and which
relate to the business of Larson-Davis and/or the Larson-Davis Group.
5. Compensation and Benefits. For all services rendered by Executive
pursuant to this Agreement, Larson-Davis shall compensate Executive as follows:
(a) As annual compensation for Executive's services hereunder, in
accordance with its normal payroll practices, Larson-Davis agrees to pay
Executive during the Employment Period a base salary of $200,000 per annum,
with an annual increase, as shall be determined in the sole discretion of
the board of directors of Larson-Davis or the designated compensation
committee thereof, taking into consideration the performance of Larson-
Davis and its subsidiaries, and the contribution of Executive to such
performance, and such other factors as the board of directors or the
designated compensation committee thereof may deem appropriate; provided
that, such increase shall not be less than the percentage equal to the sum
of the Consumer Price Index as published by the Department of Labor for the
year ended December 31, immediately prior to such increase plus six percent
(6%). In addition, the rate of salary may be further or otherwise
increased at any time and in such amount as the board of directors or the
designated compensation committee thereof may determine appropriate.
(b) Larson-Davis shall provide to Executive such bonuses as shall be
determined appropriate in the sole discretion of the board of directors of
Larson-Davis or the designated compensation committee thereof, taking into
consideration the performance of Larson-Davis and its subsidiaries, and the
contribution of Executive to such performance, or such other factors as the
board of directors or the designated compensation committee thereof may
deem appropriate.
(c) A grant of an option to acquire 300,000 shares of common stock of
Larson-Davis at any time prior to January 3, 2006, such option to have an
exercise price of $4.25 per share and such additional terms and conditions
as are set forth on Exhibit "A" attached hereto and incorporated herein by
this reference. Executive shall have the right to exercise twenty percent
(20%) of such option as of the date of grant and an additional twenty
percent (20%) of such option on each following anniversary of the date of
grant. All shares of common stock issuable on the option shall be covered
by an effective registration statement on form S-8 kept current by Larson-
Davis until January 3, 2006, or such later date to which the option
exercise period may be extended.
(d) Maintain a key-man life insurance policy on the life of Executive
with death benefits of up to $2,000,000; provided that, Larson-Davis shall
not be obligated to do so if medical problems prohibit Larson-Davis from
obtaining or maintaining such insurance or if the annual premiums on such
policy exceed eight percent (8%) of Executive's base salary.
(e) Larson-Davis shall provide to Executive, at the principal
executive offices of Larson-Davis, suitable executive offices and
facilities appropriate for Executive's position and suitable for the
performance of Executive's responsibilities.
(f) Executive shall be entitled to vacation and sick leave in
accordance with the general policy of the Larson-Davis Group for employees
of like level. Vacations shall be taken by Executive at a time and with
starting and ending dates mutually convenient to Larson-Davis and
Executive. Vacations or portions of vacations not used in one employment
year shall carry over to the succeeding employment year, but shall
thereafter expire if not used within such succeeding year.
(g) Larson-Davis shall reimburse Executive for all proper expenses
incurred by him in the performance of his duties hereunder in accordance
with the policies and procedures established by Larson-Davis.
(h) Larson-Davis shall provide Executive, at Larson-Davis' expense,
with health, medical, and disability insurance policies at least as
favorable as those currently in force. Larson-Davis shall additionally
provide to Executive incentive, retirement, pension, profit sharing, stock
option, or other employee benefit plans which are consistent with and
similar to such plans provided by the Larson-Davis Group to its executive
employees generally. All costs of such plans shall be an expense of
Larson-Davis and shall be paid by Larson-Davis. Executive shall also have
the right to participate in any other employee benefit programs provided by
the Larson-Davis Group.
(i) Larson-Davis shall assume and pay reasonable dues of Executive in
local, state, and national societies and associations, and in such other
clubs and organizations, as shall be approved and authorized by the board
of directors of Larson-Davis.
(j) Larson-Davis shall furnish Executive with a suitable automobile
for the purpose of carrying out the duties under this Agreement.
(k) Larson-Davis shall withhold from Executive's compensation
hereunder all proper federal and state payroll taxes and income taxes on
compensation paid to Executive and shall provide an accounting to Executive
for such amounts withheld.
6. Continuation of Compensation During Disability. If Executive is
unable to perform his services by reason of disability due to illness or
incapacity, Executive shall be entitled to the better of (i) the benefits under
any disability policy maintained by Larson-Davis on behalf of Executive; or (ii)
his fifty percent of his base salary for unexpired Employment Term; or (iii) the
initial six months, one-half of his base salary during the next succeeding
consecutive three-month period, and one-fourth of his base salary during the
following consecutive three-month period. During such initial six consecutive
month period of disability, Executive shall also be entitled to receive
incentive compensation at the same annual rate as incentive compensation, if
any, earned with respect to Larson-Davis' fiscal year last preceding the date
such illness or incapacity commenced. Notwithstanding the foregoing, if such
illness or incapacity does not cease to exist within the 12 consecutive month
period provided herein, Executive shall not be entitled to receive any further
compensation from Larson-Davis and Larson-Davis may thereupon terminate this
Agreement. For purposes of this Agreement, Executive is "disabled" when he is
unable to continue his normal duties of employment, by reason of a medically
determined physical or mental impairment. In determining whether or not
Executive is disabled, Larson-Davis may rely upon the opinion of any doctor or
practitioner of any recognized field of medicine or psychiatric practice
selected jointly by Larson-Davis and Executive and such other evidence as
Larson-Davis deems necessary.
7. Termination of Agreement.
(a) Termination by Larson-Davis for Cause. Larson-Davis shall have
the right, without further obligation to Executive other than for
compensation previously accrued, to terminate this Agreement for cause
("Cause") by showing that (i) Executive has materially breached the terms
hereof; (ii) Executive, in the reasonable determination of the board of
directors of Larson-Davis, has been grossly negligent or engaged in
material willful or gross misconduct in the performance of his duties; or
(iii) Executive has committed or been convicted of fraud, embezzlement,
theft, or dishonesty or other criminal conduct against Larson-Davis.
(b) Termination Upon Death or Disability of Executive. This
Agreement shall terminate immediately upon Executive's death, subject to
the provisions for payments set forth in subsection 7(e)(ii) or upon the
disability of Executive subject to the provisions for payment set forth in
section 6 of this Agreement.
(c) Termination Upon Change of Control. Notwithstanding any
provision of this Agreement to the contrary, Executive may terminate this
Agreement by providing written notice of such termination to Larson-Davis
within one hundred and twenty days (120) days of the occurrence of any of
the following events:
(i) The sale, lease, exchange or other transfer in one
transaction or a series of transactions of all or substantially all of
the assets of Larson-Davis to a single purchaser that is not a wholly
owned subsidiary of Larson-Davis or to a group of associated
purchasers;
(ii) The sale, lease, exchange, or other disposition to a single
person or group of persons under common control in one transaction or
a series of related transactions resulting in such person or persons
owning, directly or indirectly, greater than twenty-five percent (25%)
of the combined voting power of the outstanding shares of Larson-
Davis' common stock;
(iii) As a result of a merger, consolidation, sale of all or
substantially all of the assets of Larson-Davis, a contested election,
or any combination of the foregoing, the persons who were directors of
Larson-Davis immediately prior thereto shall cease to constitute a
majority of the board of directors of Larson-Davis or any successor to
Larson-Davis;
(iv) The decision by Larson-Davis to terminate its business and
liquidate its assets;
(v) The merger or consolidation of Larson-Davis in a transaction
in which the shareholders of Larson-Davis immediately prior to such
merger or consolidation receive less than fifty percent (50%) of the
outstanding voting securities of the new or continuing corporation; or
(vi) A person (within the meaning of Section 3(a)(9) or Section
13(d)(3), as in effect on the date hereof, of the Securities Exchange
Act of 1934 (the "Exchange Act")) shall become the beneficial owner
(within the meaning of rule 13d-3 of the Exchange Act as in effect on
the date hereof) of fifty percent (50%) or more of the outstanding
voting securities of Larson-Davis.
If, as a result of one of the foregoing events, Larson-Davis is not
the surviving entity, and subject to the rights of Executive to terminate
the Agreement as set forth above, the provisions of this Agreement shall
inure to the benefit of and be binding upon the surviving or resulting
entity. If as a result of the merger, consolidation, transfer of assets,
or other event listed above, the duties of Executive are increased, then
the compensation of Executive provided for by this Agreement shall be
reasonably adjusted upward to compensate for the additional duties and
responsibilities assumed.
(d) Termination by Executive for Cause. Executive shall have the
right to terminate this Agreement in the event of (i) Larson-Davis'
intentional breach of any covenant or term of this Agreement, but only if
Larson-Davis fails to cure such breach within twenty (20) days following
the receipt of notice by Executive setting forth the conditions giving rise
to such breach; (ii) an assignment to Executive of any duties inconsistent
with, or a significant change in the nature or scope of, Executive's
authority or duties from the authority and duties held by Executive as of
the date hereof and as increased from time to time, including the removal,
replacement, or non-election of Executive as a member of the board of
directors of Larson-Davis; (iii) the failure by Larson-Davis to obtain the
assumption of the commitment to perform this Agreement by any successor
corporation; or (iv) the exercise of Executive's rights under subsection
7(c).
(e) Termination Payments.
(i) Termination Other than for Cause. In the event that
Executive's employment is terminated by Larson-Davis during the term
hereof for reasons other than Cause as defined in subsection 7(a) or
Executive terminates this Agreement in accordance with subsections
7(c) or 7(d), Larson-Davis shall:
(1) Pay to Executive all amounts accrued through the date
of termination, any unreimbursed expenses incurred pursuant to
this Agreement, and any other benefits specifically provided to
Executive under any benefit plan.
(2) Pay to Executive an amount equal to the greater of (i)
two times Executive's then current annual salary or (ii) the
amount of salary that would otherwise accrue to Executive during
the remaining Employment Period.
(3) Immediately vest the right to exercise all options
granted to Executive pursuant to paragraph 5(c) of this Agreement
so that all such options are then exercisable and shall continue
to be exercisable for the full term of such options.
(4) All forfeiture restrictions governing stock or options
held by Executive shall immediately terminate and such options
and common stock shall be fully vested and held free from
forfeiture by Executive.
(5) Maintain in full force and effect, for the continued
benefit of Executive and his family, for a period equal to the
greater of two (2) years or the remaining Employment Period under
this Agreement, all employee benefit plans and programs in which
Executive was entitled to participate immediately prior to the
date of termination, provided that Executive's continued
participation is possible under the general terms and provisions
of such plans and programs. In the event that the participation
of Executive and his family in group health plans and/or life
insurance programs of Larson-Davis is barred, Larson-Davis shall
provide Executive and his family with benefits substantially
similar to those which Executive would otherwise have been
entitled to receive under such plan and program from which his
continued participation is barred.
(ii) Termination Upon Death of Executive. If Executive dies
during the term of this Agreement, Larson-Davis shall:
(1) immediately pay all amounts accrued through the date of
termination, any unreimbursed expenses incurred pursuant to this
Agreement, and any other benefits specifically provided to
Executive under any benefit plan to the estate of Executive;
(2) immediately vest the right to exercise all options
granted to Executive pursuant to paragraph 5(c) of this Agreement
so that all such options are then exercisable and shall continue
to be exercisable for the full term of such options;
(3) immediately terminate all forfeiture restrictions
governing stock or options held by Executive and such options and
common stock shall be fully vested and held free from forfeiture;
(4) maintain in full force and effect, for the continued
benefit of Executive's family covered by such benefits, for a
period equal to the greater of two (2) years or the remaining
Employment Period under this Agreement, all group health plans
and/or life insurance programs of Larson-Davis. In the event
that the participation of Executive's family in group plans
immediately prior to his death is barred, Larson-Davis shall
provide Executive's family with benefits substantially similar to
those which they would otherwise have been entitled to receive
under such plan and program from which their continued
participation is barred;
(5) pay ninety percent 90% of the proceeds of any life
insurance policy maintained on the life of Executive by Larson-
Davis to the estate of Executive; or
(6) if no life insurance policy maintained by Larson-Davis
is then in effect, pay an amount equal to one year's then current
salary provided for by this Agreement, payable in six (6) equal
monthly installments commencing on the first day of the month
following the month in which Executive dies, and payment of the
pro rata portion of the incentive compensation which would have
been payable pursuant to this Agreement, based upon the number of
full months of his employment during the year of his death.
(iii) Termination for Cause or Voluntary Termination by
Executive. If Executive terminates this Agreement for any reason
other than in accordance with the provisions of subsections 7(c) or
7(d), or if Larson-Davis terminates this Agreement for Cause in
accordance with subsection 7(a), Larson-Davis shall deliver to
Executive, within ten (10) days following the effective date of such
termination, all amounts accrued through the date of termination, any
unreimbursed expenses incurred pursuant to this Agreement, and any
other benefits specifically provided to Executive under any benefit
plan. Larson-Davis shall have no further obligation to Executive.
(f) Exit Interview. To insure a clear understanding of this
Agreement, including but not limited to the protection of the business
interests of Larson-Davis, Executive agrees, upon termination of this
Agreement for any reason or the expiration of the Employment Period, at no
additional expense to Executive, to engage in an exit interview with
Larson-Davis at a time and place designated by Larson-Davis.
8. Indemnification. Larson-Davis shall indemnify Executive and hold
Executive harmless from liability for acts or decisions made by Executive while
performing services for Larson-Davis to the greatest extent permitted by
applicable law. Larson-Davis shall use its best efforts to obtain coverage for
Executive under any insurance policy now in force or hereafter obtained during
the term of this Agreement insuring officers and directors of Larson-Davis
against such liability. Executive agrees to indemnify and to hold Larson-Davis
harmless from any and all damages, losses, claims, liabilities, costs, or
expenses arising from Executive's acts or omissions in violation of his duties
under this Agreement which constitute fraud, gross negligence, or willful and
knowing violations of the terms of this Agreement.
9. Notice. Any notice or request required or permitted to be given
hereunder shall be sufficient if in writing and delivered personally, sent by
facsimile transmission, or sent by registered mail, return receipt requested, to
the addresses hereinabove set forth or to any other address designated by either
of the parties hereto by notice similarly given. Such notice shall be deemed to
have been given upon such personal delivery, facsimile transmission, or mailing,
as the case may be, to the addresses set forth below:
If to Executive, to: Brian G. Larson
976 East 1000 North
Pleasant Grove, Utah 84062
Confirmation: (801) 785-1361
If to LarsonoDavis, to: LarsonoDavis Incorporated
Attn: Brian G. Larson, President
1681 West 820 North
Provo, Utah 84601
Fax: (801) 375-0182
Confirmation: (801) 375-0177
With a copy to: Keith L. Pope, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Fax: (801) 359-3954
Confirmation: (801) 531-7090
10. Assignment. Except to any successor or assignee of Larson-Davis as
provided in subsection 7(c), neither this Agreement nor any rights or benefits
hereunder may be assigned by either party hereto without the prior written
consent of the other party.
11. Attorneys' Fees. In the event that any action, suit, arbitration, or
other proceeding is instituted concerning or arising out of this Agreement, the
prevailing party shall be entitled to recover all of such party's costs,
including reasonable attorneys' fees, incurred in each and every such action,
suit, arbitration, or other proceeding, including any and all appeals or
petitions therefrom.
12. Validity of Provisions and Severability. If any provision of this
Agreement is, or becomes, or is deemed invalid, illegal, or unenforceable in any
jurisdiction, such provision shall be deemed amended to conform to the
applicable jurisdiction, or if it cannot be so amended without materially
altering the intention of the parties, it will be stricken. However, the
validity, legality, and enforceability of any such provisions shall not in any
way be effected or impaired thereby in any other jurisdiction and the remainder
of this Agreement shall remain in full force and effect.
13 Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties pertaining to the subject matter of this
Agreement. This Agreement supersedes all prior agreements, if any, any
understandings, negotiations, and discussions, whether oral or written. No
supplement, modification, waiver, or termination of this Agreement shall be
binding unless executed in writing by the party to be bound thereby.
14. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the state of Utah.
IN WITNESS WHEREOF, Larson-Davis has caused this Agreement to be signed by
its duly authorized officer and Executive has signed this Agreement as of the
date first above written.
Larson-Davis:
LARSON-DAVIS INCORPORATED
By-----------------------------
/s/ Duly Authorized Officer
Executive:
/s/ Brian G. Larson
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is made and entered
into this 3rd day of January, 1996, by and between DAN J. JOHNSON ("Executive")
and LARSON-DAVIS INCORPORATED, a Nevada corporation ("Larson-Davis"), based on
the following:
PREMISES
Executive is presently employed as an executive officer of Larson-Davis.
Executive wishes to continue to be employed by Larson-Davis, and Larson-Davis
desires to continue to employ Executive, all on the terms and conditions
contained herein.
AGREEMENT
NOW, THEREFORE, based on the foregoing premises, which are incorporated
herein by reference, and for and in consideration of the mutual covenants and
agreements hereinafter set forth and the mutual benefit to the parties to be
derived herefrom, it is hereby agreed as follows:
1. Employment and Term.
(a) Larson-Davis hereby employs Executive and Executive hereby
accepts employment upon the terms and conditions set forth herein. The
term of Executive's employment shall begin on the date hereof. The term of
this Agreement, hereinafter referred to as the "Employment Period," shall
be five (5) years, unless terminated earlier pursuant to the other
provisions of this Agreement.
(b) During the Employment Period, Executive will serve as Larson-
Davis' vice-president and chief financial officer and as a member of the
board of directors of Larson-Davis. Executive agrees to serve in such
offices or positions with Larson-Davis or any of its subsidiaries and such
substitute or further offices or positions of substantially consistent rank
and authority as shall, from time to time, be determined by Larson-Davis'
board of directors. Executive agrees to perform such duties appropriate
for an executive officer of Larson-Davis as may be assigned to him from
time to time by Larson-Davis and as described in the bylaws of Larson-
Davis. Larson-Davis shall direct, control, and supervise the duties and
work of Executive.
2. Performance of Services.
(a) During the Employment Period, Executive agrees to perform
faithfully the duties assigned to him by the board of directors or
management of Larson-Davis to the best of his ability, to devote his full
and undivided business time, attention, and services to the business of
Larson-Davis and not to engage in any other substantial business activities
other than at the direction or with the approval of the board of directors
of Larson-Davis; provided, however, that nothing herein shall restrict
Executive from conducting incidental personal business that does not
conflict with his obligations under the terms of this Agreement.
(b) All duties hereunder shall be rendered in Utah County, Utah, and,
on a temporary basis, at such other places as the interests, needs,
business, and opportunities of Larson-Davis shall require; provided,
however, that Executive shall not be required to relocate his residence
without the mutual consent of Larson-Davis and Executive.
(c) Executive shall observe and comply with the commercially
reasonable rules and regulations of Larson-Davis respecting its business
and shall carry out and perform such commercially reasonable orders,
directions, and policies of Larson-Davis as they may be from time to time
communicated to Executive either orally or in writing. Executive shall
further observe and comply with all applicable rules, regulations, and laws
governing the business of Larson-Davis known to Executive.
3. Exclusivity of Services and Nondisclosure of Confidential Information.
(a) Executive agrees that for a period ending on the first
anniversary of the termination of the Employment Period:
(i) he will not engage in any activity competitive with the
business of Larson-Davis or any of its affiliates (the "Larson-Davis
Group"), directly or indirectly, in the market defined in subsection
3(c), whether as employer, proprietary owner, partner, stockholder
(other than the holder of less than five percent (5%) of the stock of
an entity, the securities of which are traded on a national securities
exchange or in the over-the-counter market), director, officer,
employee, consultant, or agent;
(ii) he will not solicit, in competition with the Larson-Davis
Group, any person who is a customer of the business conducted by the
Larson-Davis Group at the date hereof or a customer of the business
conducted by the Larson-Davis Group at any time during the Employment
Period; and
(iii) he will not induce or attempt to persuade any employee
of the Larson-Davis Group to terminate his or her employment
relationship in order to enter into employment with any party in
competition with the Larson-Davis Group.
(b) Executive further agrees that he will not, at any time during the
Employment Period or at any time after the termination of this Agreement,
irrespective of the time, manner, or cause of termination, use, disclose,
copy, or assist any other person or firm in the use, disclosure, or copying
of any trade secrets or other confidential information of the Larson-Davis
Group, except to the extent authorized in writing by Larson-Davis. Upon
termination of his employment hereunder, Executive will surrender to
Larson-Davis all records and other documents obtained by him or entrusted
to him during the course of his employment by Larson-Davis (together with
all copies thereof); provided, however, that Executive may retain copies of
such documents as are necessary for Executive's personal records for income
tax purposes. For purposes of this section 3, proprietary information
about the business of the Larson-Davis Group shall be treated as
confidential until it has been published or is generally or publicly known
outside the Larson-Davis Group or until it has been recognized as standard
practice outside the Larson-Davis Group. The provisions of this paragraph
3(b) shall remain in effect for a period of three (3) years subsequent to
the termination of the Employment Period.
(c) The following provisions shall apply to the covenants of
Executive contained in this section 3:
(i) The covenants contained in clauses (i) and (ii) of
subsection 3(a) shall apply to those markets in which the Larson-Davis
Group is doing business at the termination of the Employment Period
and those markets in which the Larson-Davis Group has publicly or
internally issued written plans to enter prior to the termination of
the Employment Period.
(ii) Executive agrees that a breach or threatened breach on his
part of any covenant contained in this section 3 will cause such
damage to Larson-Davis as will be irreparable. Therefore, without
limiting the right of Larson-Davis to pursue all other legal and
equitable remedies available for violation by Executive of the
covenants contained in this section 3, it is expressly agreed that
remedies other than injunctive relief cannot fully compensate the
Larson-Davis Group for such a violation and that Larson-Davis and the
Larson-Davis Group shall be entitled to injunctive relief to prevent
any such violation or continuing violation thereof.
(iii) It is the intent and understanding of each party hereto
that if, in any action before any court or agency legally empowered to
enforce the covenants contained in this section 3, any term,
restriction, covenant, or promise contained therein is found to be
unreasonable and for that reason unenforceable, then such term,
restriction, covenant, or promise shall be deemed modified to the
extent necessary to make it enforceable by such court or agency.
4. Business Ideas.
(a) Executive acknowledges that Larson-Davis will own all rights in
all "Business Ideas" (as hereinafter defined) which are originated or
developed by Executive, either alone or with employees or consultants of
Larson-Davis, during the Employment Period.
(b) Executive agrees that, during the Employment Period, he will:
(i) assign to Larson-Davis all Business Ideas and promptly
execute all documents which Larson-Davis may reasonably require to
protect its patent, copyright, and other rights to such Business Ideas
throughout the world; and
(ii) promptly disclose to Larson-Davis all information concerning
all material Business Ideas "originated" by Executive or any employee
of Larson-Davis, which come to his attention and which concern the
business of Larson-Davis.
(c) For purposes of this section 4, "Business Ideas" shall mean all
ideas, whether or not patentable, which are originated or developed by
Executive in connection with his employment by Larson-Davis and which
relate to the business of Larson-Davis and/or the Larson-Davis Group.
5. Compensation and Benefits. For all services rendered by Executive
pursuant to this Agreement, Larson-Davis shall compensate Executive as follows:
(a) As annual compensation for Executive's services hereunder, in
accordance with its normal payroll practices, Larson-Davis agrees to pay
Executive during the Employment Period a base salary of $150,000 per annum,
with an annual increase, as shall be determined in the sole discretion of
the board of directors of Larson-Davis or the designated compensation
committee thereof, taking into consideration the performance of Larson-
Davis and its subsidiaries, and the contribution of Executive to such
performance, and such other factors as the board of directors or the
designated compensation committee thereof may deem appropriate; provided
that, such increase shall not be less than the percentage equal to the sum
of the Consumer Price Index as published by the Department of Labor for the
year ended December 31, immediately prior to such increase plus six percent
(6%). In addition, the rate of salary may be further or otherwise
increased at any time and in such amount as the board of directors or the
designated compensation committee thereof may determine appropriate.
(b) Larson-Davis shall provide to Executive such bonuses as shall be
determined appropriate in the sole discretion of the board of directors of
Larson-Davis or the designated compensation committee thereof, taking into
consideration the performance of Larson-Davis and its subsidiaries, and the
contribution of Executive to such performance, or such other factors as the
board of directors or the designated compensation committee thereof may
deem appropriate.
(c) A grant of an option to acquire 225,000 shares of common stock of
Larson-Davis at any time prior to January 3, 2006, such option to have an
exercise price of $4.25 per share and such additional terms and conditions
as are set forth on Exhibit "A" attached hereto and incorporated herein by
this reference. Executive shall have the right to exercise twenty percent
(20%) of such option as of the date of grant and an additional twenty
percent (20%) of such option on each following anniversary of the date of
grant. All shares of common stock issuable on the option shall be covered
by an effective registration statement on form S-8 kept current by Larson-
Davis until January 3, 2006, or such later date to which the option
exercise period may be extended.
(d) Maintain a key-man life insurance policy on the life of Executive
with death benefits of up to $2,000,000; provided that, Larson-Davis shall
not be obligated to do so if medical problems prohibit Larson-Davis from
obtaining or maintaining such insurance or if the annual premiums on such
policy exceed eight percent (8%) of Executive's base salary.
(e) Larson-Davis shall provide to Executive, at the principal
executive offices of Larson-Davis, suitable executive offices and
facilities appropriate for Executive's position and suitable for the
performance of Executive's responsibilities.
(f) Executive shall be entitled to vacation and sick leave in
accordance with the general policy of the Larson-Davis Group for employees
of like level. Vacations shall be taken by Executive at a time and with
starting and ending dates mutually convenient to Larson-Davis and
Executive. Vacations or portions of vacations not used in one employment
year shall carry over to the succeeding employment year, but shall
thereafter expire if not used within such succeeding year.
(g) Larson-Davis shall reimburse Executive for all proper expenses
incurred by him in the performance of his duties hereunder in accordance
with the policies and procedures established by Larson-Davis.
(h) Larson-Davis shall provide Executive, at Larson-Davis' expense,
with health, medical, and disability insurance policies at least as
favorable as those currently in force. Larson-Davis shall additionally
provide to Executive incentive, retirement, pension, profit sharing, stock
option, or other employee benefit plans which are consistent with and
similar to such plans provided by the Larson-Davis Group to its executive
employees generally. All costs of such plans shall be an expense of
Larson-Davis and shall be paid by Larson-Davis. Executive shall also have
the right to participate in any other employee benefit programs provided by
the Larson-Davis Group.
(i) Larson-Davis shall assume and pay reasonable dues of Executive in
local, state, and national societies and associations, and in such other
clubs and organizations, as shall be approved and authorized by the board
of directors of Larson-Davis.
(j) Larson-Davis shall furnish Executive with a suitable automobile
for the purpose of carrying out the duties under this Agreement.
(k) Larson-Davis shall withhold from Executive's compensation
hereunder all proper federal and state payroll taxes and income taxes on
compensation paid to Executive and shall provide an accounting to Executive
for such amounts withheld.
6. Continuation of Compensation During Disability. If Executive is
unable to perform his services by reason of disability due to illness or
incapacity, Executive shall be entitled to the better of (i) the benefits under
any disability policy maintained by Larson-Davis on behalf of Executive; or (ii)
his fifty percent of his base salary for unexpired Employment Term; or (iii) the
initial six months, one-half of his base salary during the next succeeding
consecutive three-month period, and one-fourth of his base salary during the
following consecutive three-month period. During such initial six consecutive
month period of disability, Executive shall also be entitled to receive
incentive compensation at the same annual rate as incentive compensation, if
any, earned with respect to Larson-Davis' fiscal year last preceding the date
such illness or incapacity commenced. Notwithstanding the foregoing, if such
illness or incapacity does not cease to exist within the 12 consecutive month
period provided herein, Executive shall not be entitled to receive any further
compensation from Larson-Davis and Larson-Davis may thereupon terminate this
Agreement. For purposes of this Agreement, Executive is "disabled" when he is
unable to continue his normal duties of employment, by reason of a medically
determined physical or mental impairment. In determining whether or not
Executive is disabled, Larson-Davis may rely upon the opinion of any doctor or
practitioner of any recognized field of medicine or psychiatric practice
selected jointly by Larson-Davis and Executive and such other evidence as
Larson-Davis deems necessary.
7. Termination of Agreement.
(a) Termination by Larson-Davis for Cause. Larson-Davis shall have
the right, without further obligation to Executive other than for
compensation previously accrued, to terminate this Agreement for cause
("Cause") by showing that (i) Executive has materially breached the terms
hereof; (ii) Executive, in the reasonable determination of the board of
directors of Larson-Davis, has been grossly negligent or engaged in
material willful or gross misconduct in the performance of his duties; or
(iii) Executive has committed or been convicted of fraud, embezzlement,
theft, or dishonesty or other criminal conduct against Larson-Davis.
(b) Termination Upon Death or Disability of Executive. This
Agreement shall terminate immediately upon Executive's death, subject to
the provisions for payments set forth in subsection 7(e)(ii) or upon the
disability of Executive subject to the provisions for payment set forth in
section 6 of this Agreement.
(c) Termination Upon Change of Control. Notwithstanding any
provision of this Agreement to the contrary, Executive may terminate this
Agreement by providing written notice of such termination to Larson-Davis
within one hundred and twenty days (120) days of the occurrence of any of
the following events:
(i) The sale, lease, exchange or other transfer in one
transaction or a series of transactions of all or substantially all of
the assets of Larson-Davis to a single purchaser that is not a wholly
owned subsidiary of Larson-Davis or to a group of associated
purchasers;
(ii) The sale, lease, exchange, or other disposition to a single
person or group of persons under common control in one transaction or
a series of related transactions resulting in such person or persons
owning, directly or indirectly, greater than twenty-five percent (25%)
of the combined voting power of the outstanding shares of Larson-
Davis' common stock;
(iii) As a result of a merger, consolidation, sale of all or
substantially all of the assets of Larson-Davis, a contested election,
or any combination of the foregoing, the persons who were directors of
Larson-Davis immediately prior thereto shall cease to constitute a
majority of the board of directors of Larson-Davis or any successor to
Larson-Davis;
(iv) The decision by Larson-Davis to terminate its business and
liquidate its assets;
(v) The merger or consolidation of Larson-Davis in a transaction
in which the shareholders of Larson-Davis immediately prior to such
merger or consolidation receive less than fifty percent (50%) of the
outstanding voting securities of the new or continuing corporation; or
(vi) A person (within the meaning of Section 3(a)(9) or Section
13(d)(3), as in effect on the date hereof, of the Securities Exchange
Act of 1934 (the "Exchange Act")) shall become the beneficial owner
(within the meaning of rule 13d-3 of the Exchange Act as in effect on
the date hereof) of fifty percent (50%) or more of the outstanding
voting securities of Larson-Davis.
If, as a result of one of the foregoing events, Larson-Davis is not
the surviving entity, and subject to the rights of Executive to terminate
the Agreement as set forth above, the provisions of this Agreement shall
inure to the benefit of and be binding upon the surviving or resulting
entity. If as a result of the merger, consolidation, transfer of assets,
or other event listed above, the duties of Executive are increased, then
the compensation of Executive provided for by this Agreement shall be
reasonably adjusted upward to compensate for the additional duties and
responsibilities assumed.
(d) Termination by Executive for Cause. Executive shall have the
right to terminate this Agreement in the event of (i) Larson-Davis'
intentional breach of any covenant or term of this Agreement, but only if
Larson-Davis fails to cure such breach within twenty (20) days following
the receipt of notice by Executive setting forth the conditions giving rise
to such breach; (ii) an assignment to Executive of any duties inconsistent
with, or a significant change in the nature or scope of, Executive's
authority or duties from the authority and duties held by Executive as of
the date hereof and as increased from time to time, including the removal,
replacement, or non-election of Executive as a member of the board of
directors of Larson-Davis; (iii) the failure by Larson-Davis to obtain the
assumption of the commitment to perform this Agreement by any successor
corporation; or (iv) the exercise of Executive's rights under subsection
7(c).
(e) Termination Payments.
(i) Termination Other than for Cause. In the event that
Executive's employment is terminated by Larson-Davis during the term
hereof for reasons other than Cause as defined in subsection 7(a) or
Executive terminates this Agreement in accordance with subsections
7(c) or 7(d), Larson-Davis shall:
(1) Pay to Executive all amounts accrued through the date
of termination, any unreimbursed expenses incurred pursuant to
this Agreement, and any other benefits specifically provided to
Executive under any benefit plan.
(2) Pay to Executive an amount equal to the greater of (i)
two times Executive's then current annual salary or (ii) the
amount of salary that would otherwise accrue to Executive during
the remaining Employment Period.
(3) Immediately vest the right to exercise all options
granted to Executive pursuant to paragraph 5(c) of this Agreement
so that all such options are then exercisable and shall continue
to be exercisable for the full term of such options.
(4) All forfeiture restrictions governing stock or options
held by Executive shall immediately terminate and such options
and common stock shall be fully vested and held free from
forfeiture by Executive.
(5) Maintain in full force and effect, for the continued
benefit of Executive and his family, for a period equal to the
greater of two (2) years or the remaining Employment Period under
this Agreement, all employee benefit plans and programs in which
Executive was entitled to participate immediately prior to the
date of termination, provided that Executive's continued
participation is possible under the general terms and provisions
of such plans and programs. In the event that the participation
of Executive and his family in group health plans and/or life
insurance programs of Larson-Davis is barred, Larson-Davis shall
provide Executive and his family with benefits substantially
similar to those which Executive would otherwise have been
entitled to receive under such plan and program from which his
continued participation is barred.
(ii) Termination Upon Death of Executive. If Executive dies
during the term of this Agreement, Larson-Davis shall:
(1) immediately pay all amounts accrued through the date of
termination, any unreimbursed expenses incurred pursuant to this
Agreement, and any other benefits specifically provided to
Executive under any benefit plan to the estate of Executive;
(2) immediately vest the right to exercise all options
granted to Executive pursuant to paragraph 5(c) of this Agreement
so that all such options are then exercisable and shall continue
to be exercisable for the full term of such options;
(3) immediately terminate all forfeiture restrictions
governing stock or options held by Executive and such options and
common stock shall be fully vested and held free from forfeiture;
(4) maintain in full force and effect, for the continued
benefit of Executive's family covered by such benefits, for a
period equal to the greater of two (2) years or the remaining
Employment Period under this Agreement, all group health plans
and/or life insurance programs of Larson-Davis. In the event
that the participation of Executive's family in group plans
immediately prior to his death is barred, Larson-Davis shall
provide Executive's family with benefits substantially similar to
those which they would otherwise have been entitled to receive
under such plan and program from which their continued
participation is barred;
(5) pay ninety percent 90% of the proceeds of any life
insurance policy maintained on the life of Executive by Larson-
Davis to the estate of Executive; or
(6) if no life insurance policy maintained by Larson-Davis
is then in effect, pay an amount equal to one year's then current
salary provided for by this Agreement, payable in six (6) equal
monthly installments commencing on the first day of the month
following the month in which Executive dies, and payment of the
pro rata portion of the incentive compensation which would have
been payable pursuant to this Agreement, based upon the number of
full months of his employment during the year of his death.
(iii) Termination for Cause or Voluntary Termination by
Executive. If Executive terminates this Agreement for any reason
other than in accordance with the provisions of subsections 7(c) or
7(d), or if Larson-Davis terminates this Agreement for Cause in
accordance with subsection 7(a), Larson-Davis shall deliver to
Executive, within ten (10) days following the effective date of such
termination, all amounts accrued through the date of termination, any
unreimbursed expenses incurred pursuant to this Agreement, and any
other benefits specifically provided to Executive under any benefit
plan. Larson-Davis shall have no further obligation to Executive.
(f) Exit Interview. To insure a clear understanding of this
Agreement, including but not limited to the protection of the business
interests of Larson-Davis, Executive agrees, upon termination of this
Agreement for any reason or the expiration of the Employment Period, at no
additional expense to Executive, to engage in an exit interview with
Larson-Davis at a time and place designated by Larson-Davis.
8. Indemnification. Larson-Davis shall indemnify Executive and hold
Executive harmless from liability for acts or decisions made by Executive while
performing services for Larson-Davis to the greatest extent permitted by
applicable law. Larson-Davis shall use its best efforts to obtain coverage for
Executive under any insurance policy now in force or hereafter obtained during
the term of this Agreement insuring officers and directors of Larson-Davis
against such liability. Executive agrees to indemnify and to hold Larson-Davis
harmless from any and all damages, losses, claims, liabilities, costs, or
expenses arising from Executive's acts or omissions in violation of his duties
under this Agreement which constitute fraud, gross negligence, or willful and
knowing violations of the terms of this Agreement.
9. Notice. Any notice or request required or permitted to be given
hereunder shall be sufficient if in writing and delivered personally, sent by
facsimile transmission, or sent by registered mail, return receipt requested, to
the addresses hereinabove set forth or to any other address designated by either
of the parties hereto by notice similarly given. Such notice shall be deemed to
have been given upon such personal delivery, facsimile transmission, or mailing,
as the case may be, to the addresses set forth below:
If to Executive, to: Dan J. Johnson
480 East 1700 North
Mapleton, Utah 84664
Confirmation: (801) 489-8416
If to Larson-Davis, to: Larson-Davis Incorporated
Attn: Brian G. Larson, President
1681 West 820 North
Provo, Utah 84601
Fax: (801) 375-0182
Confirmation: (801) 375-0177
With a copy to: Keith L. Pope, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Fax: (801) 359-3954
Confirmation: (801) 531-7090
10. Assignment. Except to any successor or assignee of Larson-Davis as
provided in subsection 7(c), neither this Agreement nor any rights or benefits
hereunder may be assigned by either party hereto without the prior written
consent of the other party.
11. Attorneys' Fees. In the event that any action, suit, arbitration, or
other proceeding is instituted concerning or arising out of this Agreement, the
prevailing party shall be entitled to recover all of such party's costs,
including reasonable attorneys' fees, incurred in each and every such action,
suit, arbitration, or other proceeding, including any and all appeals or
petitions therefrom.
12. Validity of Provisions and Severability. If any provision of this
Agreement is, or becomes, or is deemed invalid, illegal, or unenforceable in any
jurisdiction, such provision shall be deemed amended to conform to the
applicable jurisdiction, or if it cannot be so amended without materially
altering the intention of the parties, it will be stricken. However, the
validity, legality, and enforceability of any such provisions shall not in any
way be effected or impaired thereby in any other jurisdiction and the remainder
of this Agreement shall remain in full force and effect.
13 Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties pertaining to the subject matter of this
Agreement. This Agreement supersedes all prior agreements, if any, any
understandings, negotiations, and discussions, whether oral or written. No
supplement, modification, waiver, or termination of this Agreement shall be
binding unless executed in writing by the party to be bound thereby.
14. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the state of Utah.
IN WITNESS WHEREOF, Larson-Davis has caused this Agreement to be signed by
its duly authorized officer and Executive has signed this Agreement as of the
date first above written.
Larson-Davis:
LARSON-DAVIS INCORPORATED
By
/s/ Duly Authorized Officer
Executive:
/s/ Dan J. Johnson
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is made and entered
into this 3rd day of January, 1996, by and between LARRY J. DAVIS ("Executive")
and LARSON-DAVIS INCORPORATED, a Nevada corporation ("Larson-Davis"), based on
the following:
PREMISES
Executive is presently employed as an executive officer of Larson-Davis.
Executive wishes to continue to be employed by Larson-Davis, and Larson-Davis
desires to continue to employ Executive, all on the terms and conditions
contained herein.
AGREEMENT
NOW, THEREFORE, based on the foregoing premises, which are incorporated
herein by reference, and for and in consideration of the mutual covenants and
agreements hereinafter set forth and the mutual benefit to the parties to be
derived herefrom, it is hereby agreed as follows:
1. Employment and Term.
(a) Larson-Davis hereby employs Executive and Executive hereby
accepts employment upon the terms and conditions set forth herein. The
term of Executive's employment shall begin on the date hereof. The term of
this Agreement, hereinafter referred to as the "Employment Period," shall
be five (5) years, unless terminated earlier pursuant to the other
provisions of this Agreement.
(b) During the Employment Period, Executive will serve as Larson-
Davis' vice-president and chief financial officer and as a member of the
board of directors of Larson-Davis. Executive agrees to serve in such
offices or positions with Larson-Davis or any of its subsidiaries and such
substitute or further offices or positions of substantially consistent rank
and authority as shall, from time to time, be determined by Larson-Davis'
board of directors. Executive agrees to perform such duties appropriate
for an executive officer of Larson-Davis as may be assigned to him from
time to time by Larson-Davis and as described in the bylaws of Larson-
Davis. Larson-Davis shall direct, control, and supervise the duties and
work of Executive.
2. Performance of Services.
(a) During the Employment Period, Executive agrees to perform
faithfully the duties assigned to him by the board of directors or
management of Larson-Davis to the best of his ability, to devote his full
and undivided business time, attention, and services to the business of
Larson-Davis and not to engage in any other substantial business activities
other than at the direction or with the approval of the board of directors
of Larson-Davis; provided, however, that nothing herein shall restrict
Executive from conducting incidental personal business that does not
conflict with his obligations under the terms of this Agreement.
(b) All duties hereunder shall be rendered in Utah County, Utah, and,
on a temporary basis, at such other places as the interests, needs,
business, and opportunities of Larson-Davis shall require; provided,
however, that Executive shall not be required to relocate his residence
without the mutual consent of Larson-Davis and Executive.
(c) Executive shall observe and comply with the commercially
reasonable rules and regulations of Larson-Davis respecting its business
and shall carry out and perform such commercially reasonable orders,
directions, and policies of Larson-Davis as they may be from time to time
communicated to Executive either orally or in writing. Executive shall
further observe and comply with all applicable rules, regulations, and laws
governing the business of Larson-Davis known to Executive.
3. Exclusivity of Services and Nondisclosure of Confidential Information.
(a) Executive agrees that for a period ending on the first
anniversary of the termination of the Employment Period:
(i) he will not engage in any activity competitive with the
business of Larson-Davis or any of its affiliates (the "Larson-Davis
Group"), directly or indirectly, in the market defined in subsection
3(c), whether as employer, proprietary owner, partner, stockholder
(other than the holder of less than five percent (5%) of the stock of
an entity, the securities of which are traded on a national securities
exchange or in the over-the-counter market), director, officer,
employee, consultant, or agent;
(ii) he will not solicit, in competition with the Larson-Davis
Group, any person who is a customer of the business conducted by the
Larson-Davis Group at the date hereof or a customer of the business
conducted by the Larson-Davis Group at any time during the Employment
Period; and
(iii) he will not induce or attempt to persuade any employee
of the Larson-Davis Group to terminate his or her employment
relationship in order to enter into employment with any party in
competition with the Larson-Davis Group.
(b) Executive further agrees that he will not, at any time during the
Employment Period or at any time after the termination of this Agreement,
irrespective of the time, manner, or cause of termination, use, disclose,
copy, or assist any other person or firm in the use, disclosure, or copying
of any trade secrets or other confidential information of the Larson-Davis
Group, except to the extent authorized in writing by Larson-Davis. Upon
termination of his employment hereunder, Executive will surrender to
Larson-Davis all records and other documents obtained by him or entrusted
to him during the course of his employment by Larson-Davis (together with
all copies thereof); provided, however, that Executive may retain copies of
such documents as are necessary for Executive's personal records for income
tax purposes. For purposes of this section 3, proprietary information
about the business of the Larson-Davis Group shall be treated as
confidential until it has been published or is generally or publicly known
outside the Larson-Davis Group or until it has been recognized as standard
practice outside the Larson-Davis Group. The provisions of this paragraph
3(b) shall remain in effect for a period of three (3) years subsequent to
the termination of the Employment Period.
(c) The following provisions shall apply to the covenants of
Executive contained in this section 3:
(i) The covenants contained in clauses (i) and (ii) of
subsection 3(a) shall apply to those markets in which the Larson-Davis
Group is doing business at the termination of the Employment Period
and those markets in which the Larson-Davis Group has publicly or
internally issued written plans to enter prior to the termination of
the Employment Period.
(ii) Executive agrees that a breach or threatened breach on his
part of any covenant contained in this section 3 will cause such
damage to Larson-Davis as will be irreparable. Therefore, without
limiting the right of Larson-Davis to pursue all other legal and
equitable remedies available for violation by Executive of the
covenants contained in this section 3, it is expressly agreed that
remedies other than injunctive relief cannot fully compensate the
Larson-Davis Group for such a violation and that Larson-Davis and the
Larson-Davis Group shall be entitled to injunctive relief to prevent
any such violation or continuing violation thereof.
(iii) It is the intent and understanding of each party hereto
that if, in any action before any court or agency legally empowered to
enforce the covenants contained in this section 3, any term,
restriction, covenant, or promise contained therein is found to be
unreasonable and for that reason unenforceable, then such term,
restriction, covenant, or promise shall be deemed modified to the
extent necessary to make it enforceable by such court or agency.
4. Business Ideas.
(a) Executive acknowledges that Larson-Davis will own all rights in
all "Business Ideas" (as hereinafter defined) which are originated or
developed by Executive, either alone or with employees or consultants of
Larson-Davis, during the Employment Period.
(b) Executive agrees that, during the Employment Period, he will:
(i) assign to Larson-Davis all Business Ideas and promptly
execute all documents which Larson-Davis may reasonably require to
protect its patent, copyright, and other rights to such Business Ideas
throughout the world; and
(ii) promptly disclose to Larson-Davis all information concerning
all material Business Ideas "originated" by Executive or any employee
of Larson-Davis, which come to his attention and which concern the
business of Larson-Davis.
(c) For purposes of this section 4, "Business Ideas" shall mean all
ideas, whether or not patentable, which are originated or developed by
Executive in connection with his employment by Larson-Davis and which
relate to the business of Larson-Davis and/or the Larson-Davis Group.
5. Compensation and Benefits. For all services rendered by Executive
pursuant to this Agreement, Larson-Davis shall compensate Executive as follows:
(a) As annual compensation for Executive's services hereunder, in
accordance with its normal payroll practices, Larson-Davis agrees to pay
Executive during the Employment Period a base salary of $200,000 per annum,
with an annual increase, as shall be determined in the sole discretion of
the board of directors of Larson-Davis or the designated compensation
committee thereof, taking into consideration the performance of Larson-
Davis and its subsidiaries, and the contribution of Executive to such
performance, and such other factors as the board of directors or the
designated compensation committee thereof may deem appropriate; provided
that, such increase shall not be less than the percentage equal to the sum
of the Consumer Price Index as published by the Department of Labor for the
year ended December 31, immediately prior to such increase plus six percent
(6%). In addition, the rate of salary may be further or otherwise
increased at any time and in such amount as the board of directors or the
designated compensation committee thereof may determine appropriate.
(b) Larson-Davis shall provide to Executive such bonuses as shall be
determined appropriate in the sole discretion of the board of directors of
Larson-Davis or the designated compensation committee thereof, taking into
consideration the performance of Larson-Davis and its subsidiaries, and the
contribution of Executive to such performance, or such other factors as the
board of directors or the designated compensation committee thereof may
deem appropriate.
(c) A grant of an option to acquire 300,000 shares of common stock of
Larson-Davis at any time prior to January 3, 2006, such option to have an
exercise price of $4.25 per share and such additional terms and conditions
as are set forth on Exhibit "A" attached hereto and incorporated herein by
this reference. Executive shall have the right to exercise twenty percent
(20%) of such option as of the date of grant and an additional twenty
percent (20%) of such option on each following anniversary of the date of
grant. All shares of common stock issuable on the option shall be covered
by an effective registration statement on form S-8 kept current by Larson-
Davis until January 3, 2006, or such later date to which the option
exercise period may be extended.
(d) Maintain a key-man life insurance policy on the life of Executive
with death benefits of up to $2,000,000; provided that, Larson-Davis shall
not be obligated to do so if medical problems prohibit Larson-Davis from
obtaining or maintaining such insurance or if the annual premiums on such
policy exceed eight percent (8%) of Executive's base salary.
(e) Larson-Davis shall provide to Executive, at the principal
executive offices of Larson-Davis, suitable executive offices and
facilities appropriate for Executive's position and suitable for the
performance of Executive's responsibilities.
(f) Executive shall be entitled to vacation and sick leave in
accordance with the general policy of the Larson-Davis Group for employees
of like level. Vacations shall be taken by Executive at a time and with
starting and ending dates mutually convenient to Larson-Davis and
Executive. Vacations or portions of vacations not used in one employment
year shall carry over to the succeeding employment year, but shall
thereafter expire if not used within such succeeding year.
(g) Larson-Davis shall reimburse Executive for all proper expenses
incurred by him in the performance of his duties hereunder in accordance
with the policies and procedures established by Larson-Davis.
(h) Larson-Davis shall provide Executive, at Larson-Davis' expense,
with health, medical, and disability insurance policies at least as
favorable as those currently in force. Larson-Davis shall additionally
provide to Executive incentive, retirement, pension, profit sharing, stock
option, or other employee benefit plans which are consistent with and
similar to such plans provided by the Larson-Davis Group to its executive
employees generally. All costs of such plans shall be an expense of
Larson-Davis and shall be paid by Larson-Davis. Executive shall also have
the right to participate in any other employee benefit programs provided by
the Larson-Davis Group.
(i) Larson-Davis shall assume and pay reasonable dues of Executive in
local, state, and national societies and associations, and in such other
clubs and organizations, as shall be approved and authorized by the board
of directors of Larson-Davis.
(j) Larson-Davis shall furnish Executive with a suitable automobile
for the purpose of carrying out the duties under this Agreement.
(k) Larson-Davis shall withhold from Executive's compensation
hereunder all proper federal and state payroll taxes and income taxes on
compensation paid to Executive and shall provide an accounting to Executive
for such amounts withheld.
6. Continuation of Compensation During Disability. If Executive is
unable to perform his services by reason of disability due to illness or
incapacity, Executive shall be entitled to the better of (i) the benefits under
any disability policy maintained by Larson-Davis on behalf of Executive; or (ii)
his fifty percent of his base salary for unexpired Employment Term; or (iii) the
initial six months, one-half of his base salary during the next succeeding
consecutive three-month period, and one-fourth of his base salary during the
following consecutive three-month period. During such initial six consecutive
month period of disability, Executive shall also be entitled to receive
incentive compensation at the same annual rate as incentive compensation, if
any, earned with respect to Larson-Davis' fiscal year last preceding the date
such illness or incapacity commenced. Notwithstanding the foregoing, if such
illness or incapacity does not cease to exist within the 12 consecutive month
period provided herein, Executive shall not be entitled to receive any further
compensation from Larson-Davis and Larson-Davis may thereupon terminate this
Agreement. For purposes of this Agreement, Executive is "disabled" when he is
unable to continue his normal duties of employment, by reason of a medically
determined physical or mental impairment. In determining whether or not
Executive is disabled, Larson-Davis may rely upon the opinion of any doctor or
practitioner of any recognized field of medicine or psychiatric practice
selected jointly by Larson-Davis and Executive and such other evidence as
Larson-Davis deems necessary.
7. Termination of Agreement.
(a) Termination by Larson-Davis for Cause. Larson-Davis shall have
the right, without further obligation to Executive other than for
compensation previously accrued, to terminate this Agreement for cause
("Cause") by showing that (i) Executive has materially breached the terms
hereof; (ii) Executive, in the reasonable determination of the board of
directors of Larson-Davis, has been grossly negligent or engaged in
material willful or gross misconduct in the performance of his duties; or
(iii) Executive has committed or been convicted of fraud, embezzlement,
theft, or dishonesty or other criminal conduct against Larson-Davis.
(b) Termination Upon Death or Disability of Executive. This
Agreement shall terminate immediately upon Executive's death, subject to
the provisions for payments set forth in subsection 7(e)(ii) or upon the
disability of Executive subject to the provisions for payment set forth in
section 6 of this Agreement.
(c) Termination Upon Change of Control. Notwithstanding any
provision of this Agreement to the contrary, Executive may terminate this
Agreement by providing written notice of such termination to Larson-Davis
within one hundred and twenty days (120) days of the occurrence of any of
the following events:
(i) The sale, lease, exchange or other transfer in one
transaction or a series of transactions of all or substantially all of
the assets of Larson-Davis to a single purchaser that is not a wholly
owned subsidiary of Larson-Davis or to a group of associated
purchasers;
(ii) The sale, lease, exchange, or other disposition to a single
person or group of persons under common control in one transaction or
a series of related transactions resulting in such person or persons
owning, directly or indirectly, greater than twenty-five percent (25%)
of the combined voting power of the outstanding shares of Larson-
Davis' common stock;
(iii) As a result of a merger, consolidation, sale of all or
substantially all of the assets of Larson-Davis, a contested election,
or any combination of the foregoing, the persons who were directors of
Larson-Davis immediately prior thereto shall cease to constitute a
majority of the board of directors of Larson-Davis or any successor to
Larson-Davis;
(iv) The decision by Larson-Davis to terminate its business and
liquidate its assets;
(v) The merger or consolidation of Larson-Davis in a transaction
in which the shareholders of Larson-Davis immediately prior to such
merger or consolidation receive less than fifty percent (50%) of the
outstanding voting securities of the new or continuing corporation; or
(vi) A person (within the meaning of Section 3(a)(9) or Section
13(d)(3), as in effect on the date hereof, of the Securities Exchange
Act of 1934 (the "Exchange Act")) shall become the beneficial owner
(within the meaning of rule 13d-3 of the Exchange Act as in effect on
the date hereof) of fifty percent (50%) or more of the outstanding
voting securities of Larson-Davis.
If, as a result of one of the foregoing events, Larson-Davis is not
the surviving entity, and subject to the rights of Executive to terminate
the Agreement as set forth above, the provisions of this Agreement shall
inure to the benefit of and be binding upon the surviving or resulting
entity. If as a result of the merger, consolidation, transfer of assets,
or other event listed above, the duties of Executive are increased, then
the compensation of Executive provided for by this Agreement shall be
reasonably adjusted upward to compensate for the additional duties and
responsibilities assumed.
(d) Termination by Executive for Cause. Executive shall have the
right to terminate this Agreement in the event of (i) Larson-Davis'
intentional breach of any covenant or term of this Agreement, but only if
Larson-Davis fails to cure such breach within twenty (20) days following
the receipt of notice by Executive setting forth the conditions giving rise
to such breach; (ii) an assignment to Executive of any duties inconsistent
with, or a significant change in the nature or scope of, Executive's
authority or duties from the authority and duties held by Executive as of
the date hereof and as increased from time to time, including the removal,
replacement, or non-election of Executive as a member of the board of
directors of Larson-Davis; (iii) the failure by Larson-Davis to obtain the
assumption of the commitment to perform this Agreement by any successor
corporation; or (iv) the exercise of Executive's rights under subsection
7(c).
(e) Termination Payments.
(i) Termination Other than for Cause. In the event that
Executive's employment is terminated by Larson-Davis during the term
hereof for reasons other than Cause as defined in subsection 7(a) or
Executive terminates this Agreement in accordance with subsections
7(c) or 7(d), Larson-Davis shall:
(1) Pay to Executive all amounts accrued through the date
of termination, any unreimbursed expenses incurred pursuant to
this Agreement, and any other benefits specifically provided to
Executive under any benefit plan.
(2) Pay to Executive an amount equal to the greater of (i)
two times Executive's then current annual salary or (ii) the
amount of salary that would otherwise accrue to Executive during
the remaining Employment Period.
(3) Immediately vest the right to exercise all options
granted to Executive pursuant to paragraph 5(c) of this Agreement
so that all such options are then exercisable and shall continue
to be exercisable for the full term of such options.
(4) All forfeiture restrictions governing stock or options
held by Executive shall immediately terminate and such options
and common stock shall be fully vested and held free from
forfeiture by Executive.
(5) Maintain in full force and effect, for the continued
benefit of Executive and his family, for a period equal to the
greater of two (2) years or the remaining Employment Period under
this Agreement, all employee benefit plans and programs in which
Executive was entitled to participate immediately prior to the
date of termination, provided that Executive's continued
participation is possible under the general terms and provisions
of such plans and programs. In the event that the participation
of Executive and his family in group health plans and/or life
insurance programs of Larson-Davis is barred, Larson-Davis shall
provide Executive and his family with benefits substantially
similar to those which Executive would otherwise have been
entitled to receive under such plan and program from which his
continued participation is barred.
(ii) Termination Upon Death of Executive. If Executive dies
during the term of this Agreement, Larson-Davis shall:
(1) immediately pay all amounts accrued through the date of
termination, any unreimbursed expenses incurred pursuant to this
Agreement, and any other benefits specifically provided to
Executive under any benefit plan to the estate of Executive;
(2) immediately vest the right to exercise all options
granted to Executive pursuant to paragraph 5(c) of this Agreement
so that all such options are then exercisable and shall continue
to be exercisable for the full term of such options;
(3) immediately terminate all forfeiture restrictions
governing stock or options held by Executive and such options and
common stock shall be fully vested and held free from forfeiture;
(4) maintain in full force and effect, for the continued
benefit of Executive's family covered by such benefits, for a
period equal to the greater of two (2) years or the remaining
Employment Period under this Agreement, all group health plans
and/or life insurance programs of Larson-Davis. In the event
that the participation of Executive's family in group plans
immediately prior to his death is barred, Larson-Davis shall
provide Executive's family with benefits substantially similar to
those which they would otherwise have been entitled to receive
under such plan and program from which their continued
participation is barred;
(5) pay ninety percent 90% of the proceeds of any life
insurance policy maintained on the life of Executive by Larson-
Davis to the estate of Executive; or
(6) if no life insurance policy maintained by Larson-Davis
is then in effect, pay an amount equal to one year's then current
salary provided for by this Agreement, payable in six (6) equal
monthly installments commencing on the first day of the month
following the month in which Executive dies, and payment of the
pro rata portion of the incentive compensation which would have
been payable pursuant to this Agreement, based upon the number of
full months of his employment during the year of his death.
(iii) Termination for Cause or Voluntary Termination by
Executive. If Executive terminates this Agreement for any reason
other than in accordance with the provisions of subsections 7(c) or
7(d), or if Larson-Davis terminates this Agreement for Cause in
accordance with subsection 7(a), Larson-Davis shall deliver to
Executive, within ten (10) days following the effective date of such
termination, all amounts accrued through the date of termination, any
unreimbursed expenses incurred pursuant to this Agreement, and any
other benefits specifically provided to Executive under any benefit
plan. Larson-Davis shall have no further obligation to Executive.
(f) Exit Interview. To insure a clear understanding of this
Agreement, including but not limited to the protection of the business
interests of Larson-Davis, Executive agrees, upon termination of this
Agreement for any reason or the expiration of the Employment Period, at no
additional expense to Executive, to engage in an exit interview with
Larson-Davis at a time and place designated by Larson-Davis.
8. Indemnification. Larson-Davis shall indemnify Executive and hold
Executive harmless from liability for acts or decisions made by Executive while
performing services for Larson-Davis to the greatest extent permitted by
applicable law. Larson-Davis shall use its best efforts to obtain coverage for
Executive under any insurance policy now in force or hereafter obtained during
the term of this Agreement insuring officers and directors of Larson-Davis
against such liability. Executive agrees to indemnify and to hold Larson-Davis
harmless from any and all damages, losses, claims, liabilities, costs, or
expenses arising from Executive's acts or omissions in violation of his duties
under this Agreement which constitute fraud, gross negligence, or willful and
knowing violations of the terms of this Agreement.
9. Notice. Any notice or request required or permitted to be given
hereunder shall be sufficient if in writing and delivered personally, sent by
facsimile transmission, or sent by registered mail, return receipt requested, to
the addresses hereinabove set forth or to any other address designated by either
of the parties hereto by notice similarly given. Such notice shall be deemed to
have been given upon such personal delivery, facsimile transmission, or mailing,
as the case may be, to the addresses set forth below:
If to Executive, to: Larry J. Davis
10455 North Edinburgh Drive
Highland, Utah 84003
Confirmation: (801) 756-5128
If to Larson-Davis, to: Larson-Davis Incorporated
Attn: Brian G. Larson, President
1681 West 820 North
Provo, Utah 84601
Fax: (801) 375-0182
Confirmation: (801) 375-0177
With a copy to: Keith L. Pope, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Fax: (801) 359-3954
Confirmation: (801) 531-7090
10. Assignment. Except to any successor or assignee of Larson-Davis as
provided in subsection 7(c), neither this Agreement nor any rights or benefits
hereunder may be assigned by either party hereto without the prior written
consent of the other party.
11. Attorneys' Fees. In the event that any action, suit, arbitration, or
other proceeding is instituted concerning or arising out of this Agreement, the
prevailing party shall be entitled to recover all of such party's costs,
including reasonable attorneys' fees, incurred in each and every such action,
suit, arbitration, or other proceeding, including any and all appeals or
petitions therefrom.
12. Validity of Provisions and Severability. If any provision of this
Agreement is, or becomes, or is deemed invalid, illegal, or unenforceable in any
jurisdiction, such provision shall be deemed amended to conform to the
applicable jurisdiction, or if it cannot be so amended without materially
altering the intention of the parties, it will be stricken. However, the
validity, legality, and enforceability of any such provisions shall not in any
way be effected or impaired thereby in any other jurisdiction and the remainder
of this Agreement shall remain in full force and effect.
13 Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties pertaining to the subject matter of this
Agreement. This Agreement supersedes all prior agreements, if any, any
understandings, negotiations, and discussions, whether oral or written. No
supplement, modification, waiver, or termination of this Agreement shall be
binding unless executed in writing by the party to be bound thereby.
14. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the state of Utah.
IN WITNESS WHEREOF, Larson-Davis has caused this Agreement to be signed by
its duly authorized officer and Executive has signed this Agreement as of the
ate first above written.
Larson-Davis:
LARSON-DAVIS INCORPORATED
By
/s/ Duly Authorized Officer
Executive:
/s/ Larry J. Davis
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AS OF MARCH 31, 1996, AND STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED
MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 71,989
<SECURITIES> 0
<RECEIVABLES> 2,892,376
<ALLOWANCES> 15,000
<INVENTORY> 3,125,407
<CURRENT-ASSETS> 6,366,648
<PP&E> 4,169,369
<DEPRECIATION> 2,356,401
<TOTAL-ASSETS> 15,994,664
<CURRENT-LIABILITIES> 3,771,722
<BONDS> 0
0
200
<COMMON> 8,177
<OTHER-SE> 10,460,696
<TOTAL-LIABILITY-AND-EQUITY> 15,994,664
<SALES> 6,469,703
<TOTAL-REVENUES> 6,469,703
<CGS> 2,726,377
<TOTAL-COSTS> 6,341,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298,867
<INCOME-PRETAX> (390,848)
<INCOME-TAX> 0
<INCOME-CONTINUING> (390,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (390,848)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
