Page 1 of 7
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X Quarterly report pursuant to Section 13 or 15(d)
of the
Securitie
s
Exchange
Act of
1934
For the quarterly period ended September 30, 1997 or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act 1934
For the transition period from
to .
Commission File Number 0-16106
APA Optics, Inc.
(exact name of small business issuer as specified in its
charter)
Minnesota
41-1347235
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
2950 N.E. 84th Lane, Blaine, Minnesota 55449
(Address of principal executive offices and zip code)
Issuer's telephone number, including area code: (612)
784-4995
Indicate whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to
the filing requirement for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date:
Class:
Outstanding at September 30, 1997
Common stock, par value $.01
8,308,124
Page 2 of 7
PART 1, FINANCIAL INFORMATION
ITEM 1, FINANCIAL STATEMENTS
APA OPTICS, INC.
CONDENSED BALANCE SHEETS
ASSETS September 30 March 31
1997 1997
CURRENT ASSETS: (Unaudited) (Audited)
Cash and short-term investments
$3,167,286 $3,875,205
Accounts receivable
344,838 355,981
Inventories:
Raw materials
19,037 15,666
Work-in-process & finished
goods 121,740 132,697
Prepaid expenses
13,403 27,408
Bond reserve funds
42,917 70,000
TOTAL CURRENT ASSETS
3,709,221 4,476,957
PROPERTY AND EQUIPMENT, NET
2,577,828 2,107,755
OTHER ASSETS
2,798,728 2,834,686
$ $
9,085,777 9,419,398
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILTIES:
Current portion of long-term debt $ $
223,021 158,021
Accounts payable
92,277 59,210
Accrued expenses
117,167 118,216
TOTAL CURRENT LIABILITIES
432,465 335,447
LONG-TERM DEBT
3,476,532 3,670,983
SHAREHOLDERS' EQUITY
Undesignated shares; 5,000,000
shares
authorized; none issued
--- ---
Common stock, $.01 par value;
15,000,000
shares authorized; 8,308,124 &
8,306,624
issued
83,081 83,066
Paid-in-capital
8,215,970 8,244,423
Retained earnings (deficit)
(3,122,271) (2,914,521)
5,176,780 5,412,968
$ $
9,085,777 9,419,398
* Derived from audited financial statements
Page 3 of 7
APA OPTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
September 30 September 30
1997 1996 1997
1996
REVENUES $ $ $ $1,211,
653,385 672,66 1,315,0 054
6 25
COSTS AND EXPENSES:
Cost of sales and
services
675,651 442,32 1,209,7 799,068
8 10
Selling, general &
administrative
118,339 157,26 240,398 306,489
3
Research & development
76,625 117,65 135,054 226,006
0
870,615 717,24 1,585,1 1,331,5
1 62 63
Gain/loss from operations:
(217,23 (44,57 (270,13 (120,50
0) 5) 7) 9)
INTEREST INCOME & EXPENSE:
Interest income
86,020 94,355 156,148 115,543
Interest expense
(47,306 (56,29 (93,162 (64,814
) 3) ) )
38,714 38,062 62,986 50,729
INCOME (LOSS)
BEFORE INCOME TAXES
(178,51 (6,513 (207,15 (69,780
6) ) 1) )
(BENEFIT)
300 250 600 500
NET INCOME (LOSS) $ $ $
(178,81 (6,763 $(207,7 (70,280
6) ) 51) )
EARNINGS (LOSS) PER
COMMON & COMMON EQUIVALENT
SHARE (EXHIBIT 11) $ $ $ $
(.02) (.00) (.03) (.01)
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,307,8 8,160, 8,307,3 8,081,1
31 736 84 97
Page 4 of 7
APA OPTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
September 30
1997 1996
OPERATING ACTIVITIES
Net income (loss) $ $
(207,751 (70,280)
)
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization
213,541 219,768
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 11,143 (418,109)
Decrease in inventories and
prepaid expenses
48,674 32,897
Costs in excess of billings on
research contracts --- 210,658
Increase in accounts payable and
accrued expenses
97,018 16,004
Other
(1,695) 19,682
Net cash provided by operating
activities
160,930 10,620
INVESTING ACTIVITIES
Purchases of property and equipment
(635,614 (272,505)
)
Net cash (used in) investing activities
(635,614 (272,505)
)
FINANCING ACTIVITIES
Proceeds from the sale of common stock
3,438 1,281,263
Long-term debt proceeds
--- 3,722,483
Earnest money deposit on bond financing
--- (315,000)
Debt placement costs
--- (286,869)
Bond reserve funds (1,780,26
(42,222) 9)
Repayment of long-term debt
(194,451 (116,909)
)
Net cash provided by (used in) financing
activities (233,235 2,504,699
)
Increase (decrease) in cash
(707,919 2,242,814
)
Cash at Beginning of Period
3,875,20 2,256,309
5
Cash at end of Period $3,167,2 $4,499,12
86 3
Supplemental schedule of non-cash
transactions:
Land and corresponding deferred revenue $ $
250,000 250,000
NOTE TO CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the information furnished
reflects all adjustments which are necessary to a fair
statement of the results of the interim periods presented.
All adjustments were of a normal
recurring nature. The result of any interim period are not
necessarily indicative of results for the full year.
Page 5 of 6
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
Revenues for the second quarter of fiscal 1998 ended
September 30, 1997 were $653,385, a decrease of three percent
from the second quarter of fiscal 1997 ended September 30,
1996. The second quarter revenues of fiscal 1998 are also
down one percent as compared to the first quarter of fiscal
1998. Revenues for the first two quarters of fiscal 1998 are
up nine percent as compared to the first two quarters of
fiscal 1997. The slight change in revenues can be attributed
to work shifted from government contracts to internal
research and development. The Company continues to devote
personnel toward product development associated with the
Aberdeen facility.
For the second quarter of fiscal 1998, the Company is
reporting a loss of $178,816 as compared to a loss of $6,763
in the second quarter of fiscal 1997. For the first six
months of fiscal 1998, the Company is reporting a loss of
$207,751 as compared to a loss of $70,280 for the first six
months of fiscal 1997.The Company's increased loss for the
first six months of fiscal 1998, as compared to the first six
months of fiscal 1997 is mainly due to the decreased gross
profit margin, from thirty-four percent for the first six
months of fiscal 1997 to eight percent for the first six
months of 1998. The decreased gross profit margin is a result
of the hiring of 11 employees in our Aberdeen facility. As
yet there has been no production and no sales generated from
Aberdeen. The Company expects the losses to continue in the
next quarters, until the Aberdeen sales develop. The
Company's backlog of uncompleted contracts is down to
$2,000,000, at September 30, 1997 as compared to $3,200,000
at March 31, 1997.
Liquidity and Capital Resources:
The Company's cash balance at September 30, 1997 is
$3,167,286 compared to $3,875,205 at March 31, 1997. The
primary use of cash during the first six months ended
September 30, 1997 was for payments on the building in
Aberdeen, S.D. and purchases of equipment for that facility.
The Company's cash balance will increase during the next two
quarters, following a draw on the South Dakota Bond funds
which was projected to be drawn in the second quarter but was
delayed.
Forward-looking statements contained herein are made pursuant
to the safe harbor provisions of the Private Litigation
Reform Act of 1995. These statements are based upon the
Company's current expectations and judgments about future
developments in the Company's business. Certain important
factors could have a material impact on the Company's
performance, including, without limitation, delays in or
increased costs of production, delays in or increased costs
of production, delays in or lower than anticipated sales of
the Company's new products, and other factors discussed from
time to time in the Company's filings with the Securities and
Exchange Commission. Readers are cautioned not to place undue
reliance on forward-looking statements. The Company
undertakes no obligation to update such statements to reflect
actual events.
Page 6 of 7
PART II. OTHER INFORMATION
ITEMS 1 - 3. Not Applicable.
Item 4. Submission of Matters to a Vote of Security-
Shareholders.
(a.) The Company held its Annual Meeting of Shareholders on
August 20, 1997.
c.) 1. The Shareholders voted for four directors, each to
serve a one year term. The vote was as follows for each of
the nominees:
Name
Affirmative Authority Withheld
Anil K. Jain 7,466,506 0
Kennth Olsen 7,466,506 0
Grgory Von Wald 7,466,506 0
Lincoln Hudson 7,214,472 252,034
2. The shareholders also considered adoption of the 1997
Stock Compensation Plan. Voting on approval of the Plan was
as follows: 5,283,567 shares in favor, 94,310 opposed, 46,450
abstentions, and 2,042,179 broker nonvotes.
Item 5. Not Applicable
Page 7 of 7
ITEM 6. Exhibits and Reports on Form 8-K.
(a) 10.1 Form of Agreement Regarding Repurchase of Stock
upon Change in control Event with Anil K. Jain and Kenneth A.
Olsen.
10.2 Form of Agreement Regarding
Employment/Compensation upon Change in Control entered into
with Anil K. Jain and Kenneth A. Olsen.
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three
months ended September 30, 1997.
(c) Exhibit 27: Financial Data Schedules.
Signatures
In accordance with the requirements of the Securities
Exchange Act of 1934, the issuer has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
APA OPTICS, INC.
November 13, 1997
/s/ Anil K. Jain
Date
Anil K. Jain
President
Principal Executive Officer
Treasurer & Principal Financial
Officer
November 13, 1997
/s/ Randal J. Becker
Date
Randal J. Becker
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 3,167,286
<SECURITIES> 0
<RECEIVABLES> 344,838
<ALLOWANCES> 0
<INVENTORY> 140,777
<CURRENT-ASSETS> 3,709,221
<PP&E> 2,577,828
<DEPRECIATION> 213,541
<TOTAL-ASSETS> 9,085,777
<CURRENT-LIABILITIES> 432,465
<BONDS> 0
0
0
<COMMON> 83,081
<OTHER-SE> 5,093,699
<TOTAL-LIABILITY-AND-EQUITY> 9,085,777
<SALES> 1,315,025
<TOTAL-REVENUES> 1,315,025
<CGS> 1,209,710
<TOTAL-COSTS> 1,209,710
<OTHER-EXPENSES> 375,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (62,986)
<INCOME-PRETAX> (207,151)
<INCOME-TAX> 600
<INCOME-CONTINUING> (207,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (207,751)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
142714v1324@01!.DOC 5
FORM OF AGREEMENT
REGARDING REPURCHASE OF STOCK UPON
CHANGE IN CONTROL EVENT
THIS AGREEMENT is entered into as of August 20, 1997,
by and between APA OPTICS, INC., a Minnesota corporation
(herein called the "Company"), and
_______________________________ (herein called the
"Executive").
WHEREAS, Executive has been employed by the Company for
several years and is currently its
___________________________________________; and
WHEREAS, Executive owns __________________________
shares (the "Shares") of the Company's Common Stock, par
value $.01 per share (the "Common Stock"), which represents
_____% of the Common Stock outstanding as of the date
hereof; and
WHEREAS, Executive has refrained from selling Shares
for his own account, having been advised that such sales
might have an adverse impact on the public market for the
Common Stock; and
WHEREAS, the Company desires to provide Executive an
opportunity to dispose of a reasonable number of his Shares
of Common Stock in the event of a "Change in Control Event"
as defined herein;
NOW, THEREFORE, in consideration of the premises and
the mutual covenants contained herein, the parties hereto
agree as follows:
l. Change in Control Event. For the purposes of this
Agreement, "Change in Control Event" shall mean:
(a) the consummation of any consolidation or
merger of the Company in which the Company is the
continuing or surviving corporation, other than a
merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger
have the same proportionate ownership immediately after
the merger, or
(b) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) shall become the
beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 30% or more of the Company's
outstanding stock; or
(c) during any period of two consecutive years,
individuals who at the beginning of such period
constitute the entire Board of Directors shall cease
for any reason to constitute a majority thereof unless
the election, or the nomination for election by the
Company's shareholders, of each new director was
approved by a vote of at least two-thirds of the
directors then still in office who were directors at
the beginning of the two-year period; or
(d) an event described in Paragraph 1(a), (b) or
(c) has occurred and an individual other than the
Executive holds the position held by Executive as of
the date hereof or as of the date of the Change in
Control Event or other changes have been made to the
terms and conditions of Executive's employment without
Executive's consent; provided, however, that a Change
in Control shall not be deemed to have occurred if
Executive has voluntarily resigned from or changed his
position with the Company prior to or following a
Change in Control.
2. Effective Date of Change in Control. A Change in
Control Event shall be deemed to have occurred,
(a) in the case of a transaction requiring Board
or shareholder approval, on the date of such approval;
(b) in the case of acquisition of shares, on the
date of the acquisition of the shares resulting in the
acquirer's becoming the holder of the stated amount;
(c) in the case of board membership, on the date
of election of the director(s) that results in a Change
in Control Event as defined in Section 1(c) hereof; and
(d) in the case of a change in the terms of
Executive's employment, on the date the notice of such
change is given to Executive.
3. Purchase of Stock. In the event of a Change in
Control Event, and at the option of Executive, the Company
shall purchase from Executive a number of Shares equal to up
to 4% of the shares of Common Stock outstanding immediately
prior to the Change in Control Event (or, if greater, 4% of
the shares of Common Stock outstanding at the time this
option is exercised) at a price per share equal to the
highest per share price paid in connection with the Change
in Control Event or the highest price paid in the public
market within the twelve months preceding the exercise of
this option (as adjusted to reflect any stock split, reverse
stock split, stock dividend or similar event occurring
during such period). This option shall be exercised by
Executive by delivery of written notice of the intent to
exercise, indicating the number of Shares to be purchased
(if less than the full amount permitted hereunder) and the
purchase price (as determined by Executive). The Company
shall complete such purchase within 30 days of receipt of
such notice, at which time the purchase price shall be paid
in full, in cash.
4. Term of Option. The option granted herein to
Executive shall be exercisable for a period of twelve months
from the Effective Date of the Change in Control.
5. Aggregate Shares to be Sold. This option may be
exercised more than one time during its term, but the total
number of Shares purchased by the Company shall not exceed
the maximum stated in Paragraph 3 hereof. If the Executive
has sold Shares within the twelve months preceding the
Effective Date of the Change in Control, the number of
Shares subject to this option shall be reduced by 150% of
the number of Shares sold. To the extent the full number of
Shares subject to this option is not tendered to the Company
pursuant hereto during the twelve months during which this
option is effective, Executive may sell such number of
Shares in the open market.
6. Determination of Price. The price per Share to be
paid hereunder shall be the highest of the following (in
each case, as adjusted to reflect any stock split, reverse
stock split, stock dividend, or similar event occurring
during the twelve-month period):
(a) (i) If the Company's Common Stock is
traded on an exchange or is quoted on The
Nasdaq Stock Market ("Nasdaq"), the highest
sale price reported during the twelve months
immediately preceding the date of exercise of
the option, or
(ii) If the Company's Common Stock is
not traded on an exchange or on Nasdaq, but
is traded in the over-the-counter market,
then the highest asked price reported during
the twelve months immediately preceding the
date of exercise of the option; or
(b) The highest price per share paid or
offered in any bona fide transaction related to
the Change in Control Event at any time during the
twelve-month period immediately preceding the
Effective Date of the Change in Control.
7. Resolution of Disputes. Any dispute or claim
arising out of this Agreement, or breach thereof, shall be
decided by arbitration, under the commercial arbitration
rules of the American Arbitration Association (the "AAA"),
and shall be conducted in the Minneapolis, Minnesota
metropolitan area. Demand for arbitration hereunder may be
made by either party hereto upon written notification to the
other party. The arbitration shall be by a single
arbitrator mutually selected by Executive and the Company.
If the parties do not agree upon an arbitrator within 20
days after the date of a demand for arbitration, the
selection of the single arbitrator shall be made in
accordance with the rules of the AAA. This agreement to
arbitrate shall be specifically enforceable. Any decision
rendered by the arbitrator shall be final and binding, and
judgment may be entered upon it by any court having
jurisdiction. The arbitrator shall assess arbitration fees,
expenses, attorneys' fees, and compensation in accordance
with the applicable AAA rules. Nothing herein contained
shall bar either party from seeking equitable remedies in a
court of appropriate jurisdiction.
8. Entire Agreement; Headings. This Agreement is the
entire agreement between the parties on its subject matter
and shall be deemed to supersede any other agreements
allegedly made between the parties regarding the subject
matter. The parties represent that no other such agreements
or understandings exist. Headings shall not be utilized in
any interpretation of this Agreement.
9. Notices. Any notice or other communication
provided for herein or given hereunder shall be in writing
and shall be delivered in person or, in the case of the
Company, to its Chairman, or mailed by first class
registered or certified mail, postage prepaid, addressed to
the Company at its registered office in the State of
Minnesota and addressed to the Executive or any other person
at the last known address of such person appearing on the
books of the Company.
10. Amendment. This Agreement may not be changed,
modified or amended except in writing signed by both
parties.
11. Invalidity of Any Provision. The provisions of
this Agreement are severable, it being the intention of the
parties hereto that should any provisions hereof be invalid
or unenforceable, such invalidity or unenforceability of any
provision shall not affect the remaining provisions hereof,
but the same shall remain in full force and effect as if
such invalid or unenforceable provision or provisions were
omitted.
12. Successors and Assigns. This Agreement shall be
binding upon, and inure to the benefit of, the Company, its
successors and assigns, and Executive, his heirs, legal
representatives and assigns.
13. Governing Law. This Agreement is being delivered
and is intended to be performed in the State of Minnesota
and shall be construed and enforced in accordance with the
laws of such state.
14. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
APA Optics, Inc.
By
_________________________________
Its________________________________
EXECUTIVE
____________________________________
____________________________________
142703v1323Z01!.DOC 9
FORM OF AGREEMENT
REGARDING EMPLOYMENT/COMPENSATION UPON
CHANGE IN CONTROL
THIS AGREEMENT is entered into as of August 20, 1997,
by and between APA OPTICS, INC., a Minnesota corporation
(herein called the "Company"), and _____________________
(herein called the "Executive").
WHEREAS, Executive has been employed by the Company for
several years and is currently its
___________________________________; and
WHEREAS, Executive is a very important and valuable
employee and the Company desires to keep Executive in its
service; and
WHEREAS, the Company desires to provide suitable
compensation to the Executive should his employment be
terminated or substantially changed as a result of a "Change
in Control" as defined herein; and
WHEREAS, Executive acknowledges that this is not an
employment agreement, but is solely intended to provide for
employment security and compensation in the event of any
Change in Control of the Company in accordance with the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants contained herein, the parties hereto
agree as follows:
l. Definitions. For the purposes of this Agreement,
the following words and phrases shall have the following
meanings:
(a) "Change in Control" shall mean:
(i) the consummation of any consolidation or
merger of the Company in which the Company is not
the continuing or surviving corporation or
pursuant to which shares of the Company's common
stock would be converted into cash, securities, or
other property, other than a merger of the Company
in which the holders of the Company's common stock
immediately prior to the merger have the same
proportionate ownership of common stock of the
surviving corporation immediately after the
merger; or
(ii) any sale, lease, exchange, or other
transfer (in one transaction or a series of
related transactions) of all, or substantially
all, of the assets of the Company; or
(iii) approval by the shareholders of the
Company of any plan or proposal for the
liquidation or dissolution of the Company; or
(iv) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act")) shall become the beneficial owner (within
the meaning of Rule 13d-3 under the Exchange Act)
of 30% or more of the Company's outstanding stock;
or
(v) during any period of two consecutive
years, individuals who at the beginning of such
period constitute the entire Board of Directors
shall cease for any reason to constitute a
majority thereof unless the election, or the
nomination for election by the Company's
shareholders, of each new director was approved by
at least two-thirds of the directors then still in
office who were directors at the beginning of the
two-year period.
(b) "Cause" shall mean clear and convincing evidence
of:
(i) material dishonesty by Executive
involving the employer;
(ii) willful violation of any law, rule, or
regulation;
(iii) failure or refusal to perform a
material requirement of Executive's duties, or
failure or refusal to comply with a reasonable,
important general policy of the Company or its
Board of Directors, after receipt by Executive of
written notice specifying in detail the failure or
refusal, and a reasonable time in which to
perform;
(iv) breach of fiduciary duty to the
employer, or
(v) Executive's (a) death or (b) disability
(by reason of physical or mental disease, defect,
accident or illness) such that Executive is or, in
the opinion of two independent physicians, one
selected by the Company and one by Executive or
his representative, for purposes of making this
determination, will be unable for an aggregate of
180 or more days during any continuous 12-month
period to render the services required of him in
his then current position with the Company.
(c) "Competitive Activities" shall mean:
(i) directly or indirectly engaging in,
continuing in, or carrying on any business which
substantially competes with the business conducted
by the Company;
(ii) soliciting or accepting orders for
business on behalf of an entity other than the
Company from any persons (whether individuals or
entities) who were customers or bona fide
prospects of the Company during the one-year
period prior to Executive's termination of
employment or inducing or attempting to induce
such persons to terminate or modify their
relationship with the Company for such business;
or
(iii) offering, soliciting or agreeing to
employ an employee of the Company, or inducing or
attempting to induce such an employee to quit his
or her employ with the Company, without the prior
written consent of the Company;
Provided, however, that the term "Competitive
Activities" shall not include the ownership of
securities of corporations, which are listed on a
national securities exchange or quoted on a
national over-the-counter market, by the Executive
in an amount not exceeding 2% of the outstanding
shares of any such corporation.
(d) "Date of Termination" shall mean:
(i) if Executive's employment is terminated
by the Company for disability, 90 days after
Notice of Termination is given to Executive
(provided that Executive shall not have returned
to the performance of Executive's duties on a full-
time basis during such 90 day period); or
(ii) if Executive's employment is terminated
by the Company for any other reason, 90 days after
Notice of Termination is given; provided, however,
that if within 90 days after any Notice of
Termination is given to Executive by the Company
Executive notifies the Company that a dispute
exists concerning the termination, the Date of
Termination shall be the date the dispute is
finally determined, whether by mutual agreement by
the parties or upon final judgment, order, or
decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no
appeal having been perfected).
(e) "Good Reason" shall mean any of the following
(without Executive's express written consent):
(i) Assignment to Executive by the Company
of duties inconsistent with Executive's position,
duties, responsibilities, and status with the
Company immediately prior to a Change in Control
of the Company, or a change in Executive's titles
or offices as in effect immediately prior to a
Change in Control of the Company, or any removal
of Executive from or any failure to reelect or
reappoint Executive to any of such positions,
except in connection with the termination of his
employment for disability, Retirement, or Cause or
as a result of Executive's death or by Executive
other than for Good Reason;
(ii) A reduction by the Company of
Executive's base salary as in effect on the date
hereof or as the same may be increased from time
to time during the term of this Agreement or the
Company's failure to increase Executive's base
salary (within 12 months of Executive's last
increase in base salary) after a Change in Control
of the Company in an amount which at least equals,
on a percentage basis, the average percentage
increase in base salary for all executive officers
of the Company effected during the preceding 12
months;
(iii) Any failure by the Company to
continue in effect, or to provide a comparable
substitute for, any benefit plan or arrangement
(including, without limitation, any profit sharing
plan, executive supplemental medical plan, group
life insurance plan, and medical, dental,
accident, and disability plans) in which Executive
is participating at the time of a Change in
Control of the Company (or any other plans
providing Executive with substantially similar
benefits) (hereinafter referred to as "Benefit
Plans"), the taking of any action by the Company
that would adversely affect Executive's
participation in or materially reduce Executive's
benefits under any such Benefit Plan or deprive
Executive of any material fringe benefit enjoyed
by Executive at the time of a Change in Control of
the Company;
(iv) Any failure by the Company to continue
in effect, or to provide a comparable substitute
for, any incentive plan or arrangement (including,
without limitation, any incentive compensation
plan, long-term incentive plan, bonus or
contingent bonus arrangements or credits, the
right to receive performance awards, or similar
incentive compensation benefits) in which
Executive is participating, or is eligible to
participate, at the time of a Change in Control of
the Company (or any other plans or arrangements
providing him with substantially similar benefits)
(hereinafter referred to as "Incentive Plans") or
the taking of any action by the Company which
would adversely affect Executive's participation
in any such Incentive Plan, expressed as a
percentage of his base salary, by more than ten
percentage points in any fiscal year as compared
to the immediately preceding fiscal year;
(v) Any failure by the Company to continue
in effect, or to provide a comparable substitute
for, any plan or arrangement to receive securities
of the Company (including, without limitation, any
stock option plan or any other plan or arrangement
to receive and exercise stock options, stock
appreciation rights, restricted stock, or grants
thereof) in which Executive is participating, or
is eligible to participate, at the time of a
Change in Control of the Company (or plans or
arrangements providing him with substantially
similar benefits) (hereinafter referred to as
"Securities Plans") or the taking of any action by
the Company which would adversely affect
Executive's participation in or materially reduce
Executive's benefits under any such Securities
Plan;
(vi) If at the time of a Change in Control of
the Company Executive is employed at the Company's
principal executive offices, a relocation of such
principal executive offices to a location more
than fifty miles outside of the Minneapolis-St.
Paul Metropolitan Area or, if Executive is not
employed at the Company's principal executive
offices, Executive's relocation to any place other
than the location at which the Executive performed
Executive's duties prior to a Change in Control of
the Company, except for required travel by
Executive on the Company's business to an extent
substantially consistent with Executive's business
travel obligations at the time of a Change in
Control of the Company;
(vii) Any failure by the Company to
provide Executive with at least the number of paid
vacation days to which the Executive is entitled
at the time of a Change in Control of the Company;
(viii) Any material breach by the Company
of any provision of this Agreement;
(ix) Any failure by the Company to obtain the
assumption of this Agreement by any successor or
assign of the Company; or
(x) Any purported termination of Executive's
employment which is not effected pursuant to a
Notice of Termination satisfying the requirements
of Section 1(f) hereof.
(f) "Notice of Termination" shall mean a written
notice which shall indicate those specific
termination provisions in this Agreement relied
upon and which sets forth in reasonable detail the
facts and circumstances claiming to provide a
basis for termination of Executive's employment
under the provisions so indicated. Any
termination by the Company pursuant to this
Agreement shall be communicated by Notice of
Termination. For purposes of this Agreement, no
such purported termination by the Company shall be
effective without such Notice of Termination.
(g) "Retirement" shall mean termination by the Company
or Executive of Executive's employment based on
Executive's having reached age 65 or such other
age or upon such other terms as shall have been
fixed in any arrangement established with
Executive's consent.
2. Separate Employment Arrangements. Executive is,
and shall be, employed by the Company solely upon the
existing arrangements which are separate from this
Agreement, as those employment arrangements hereafter may be
amended by the parties. The parties expressly acknowledge
and agree that this Agreement is not intended to be an
employment agreement.
3. Participation in Other Executive Benefit Plans.
Nothing in this Agreement shall in any manner modify,
impair, or affect the existing or future rights or interests
of Executive (a) to receive any employee benefits from the
Company to which he would otherwise be entitled or (b) as a
participant in any incentive, profit-sharing or bonus plan,
stock option plan or pension plan of the Company. The
rights and interests of Executive to any employee benefits
or as a participant or beneficiary in or under any or all
such plans shall continue in full force and effect.
Executive shall have the right at any future time to become
a participant or beneficiary under or pursuant to any and
all such plans. Any compensation payable under this
Agreement shall not be deemed salary or other compensation
to Executive for purposes of any retirement plans maintained
by the Company or for purposes of any other fringe benefit
obligations of the Company.
4. Nonassignability of Benefits. Executive shall not
transfer, assign, encumber, or otherwise dispose of his
right to receive payments hereunder and, in the event of any
attempted transfer or assignment, the Company shall have no
further liability to Executive under this Agreement.
5. Payments and Benefits upon a Change in Control.
If Executive is employed by the Company upon the occurrence
of a Change in Control, the following provisions shall
govern:
(a) Executive shall continue to be employed for at
least thirty-six (36) months with substantially
the same duties, compensation, and benefits in the
same geographic location as existed just prior to
the Change in Control.
(b) Executive may terminate his employment during the
thirty-six (36) months following the Change in
Control for Good Reason, as defined herein, and,
upon such termination, shall receive from the
Company in a lump sum, in cash, on the fifth (5th)
day following the Date of Termination, an amount
equal to two and one-half (2-1/2) times
Executive's "annualized includible compensation
for the base period" (as defined in Section
280G(d) of the Internal Revenue Code of 1986, as
amended (the "Code")), and shall not engage in any
Competitive Activities for one year following the
Date of Termination.
(c) If Executive's employment is terminated within
thirty-six (36) months following the Change in
Control, other than for Cause as defined herein or
as a result of his Retirement, disability, or
death, the Executive shall receive as severance
pay in a lump sum, in cash, on the fifth (5th) day
following the Date of Termination, an amount equal
to two and one-half (2-1/2) times Executive's
"annualized includible compensation for the base
period" (as defined in Section 280G(d) of the
Code), and shall not engage in any Competitive
Activities for one year following the Date of
Termination.
(d) Executive may terminate his employment other than
for Good Reason upon at least three months' notice
following the Change in Control, thereby waiving
any further benefits hereunder except a severance
benefit of three months' salary and a prorated
portion of any annual bonus, provided that
Executive then agrees not to engage in any
Competitive Activities for six months following
the Date of Termination.
(e) If Executive terminates his employment otherwise
than under any of paragraphs (b) or (d) of this
Section 5, Executive shall not be entitled to any
payments for any period after the end of the
employment and shall not receive any severance
benefit.
(f) If the Executive holds any options to purchase
stock of the Company after a Change in Control,
Executive shall be entitled, upon involuntary
termination except for Cause during the thirty-six
(36) month period, to demand payment of the
current value of such options (fair market value
as of the Date of Termination less the then
effective exercise price).
(g) If the lump sum severance payment provided for
under this Section 5, calculated as set forth
above, either alone or together with other
payments which Executive has the right to receive
from the Company, would constitute an "excess
parachute payment" (as defined in Section 280G of
the Code), such lump sum severance payment shall
be reduced to the largest amount as will result in
no portion of the lump sum severance payment under
this Section 5 being subject to the excise tax
imposed by Section 4999 of the Code. The
determination of any reduction in the lump sum
severance payment under this Section 5(g) pursuant
to the foregoing sentence shall be made by
Executive in good faith, and such determination
shall be conclusive and binding on the Company.
(h) In the event of termination of Executive's
employment for any reason, Executive shall be
entitled to continue to participate in the
Company's group health plan for employees
following such termination. Executive shall be
responsible for payment of premiums. This benefit
shall be available until Executive's death or his
election not to continue such participation.
6. No Obligation to Mitigate Damages; No Effect on
Other Contractual Rights.
(a) Executive shall not be required to mitigate
damages or the amount of any payment provided for
under Section 5 hereof by seeking other employment
or otherwise, nor shall the amount of any payment
provided for under Section 5 be reduced by any
compensation earned by Executive as the result of
employment by another employer after the Date of
Termination, or otherwise.
(b) The provisions of Section 5, and any payment
provided for thereunder, shall not reduce any
amounts otherwise payable, or in any way diminish
Executive's existing rights, or rights which would
accrue solely as a result of the passage of time,
under any Benefit Plan, Incentive Plan, Securities
Plan, employment agreement, or other contract,
plan, or arrangement.
7. Entire Agreement; Headings. This Agreement is the
entire Agreement between the parties on its subject matter
and shall be deemed to supersede any other agreements
allegedly made between the parties regarding the subject
matter. The parties represent that no other such agreements
or understandings exist. Headings shall not be utilized in
any interpretation of this Agreement.
8. Notices. Any notice or other communication
provided for herein or given hereunder shall be in writing
and shall be delivered in person or, in the case of the
Company, to the Board of Directors, or mailed by first class
registered or certified mail, postage prepaid, addressed to
the Company at its registered office in the State of
Minnesota and addressed to the Executive or any other person
at the last known address of such person appearing on the
books of the Company.
9. Amendment. This Agreement may not be changed,
modified or amended except in writing signed by both
parties.
10. Waiver of Breach. The waiver by either party of
the breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach
by either party.
11. Invalidity of Any Provision. The provisions of
this Agreement are severable, it being the intention of the
parties hereto that should any provision hereof be invalid
or unenforceable, such invalidity or unenforceability of any
provision shall not affect the remaining provisions hereof,
but the same shall remain in full force and effect as if
such invalid or unenforceable provision or provisions were
omitted.
12. Resolution of Disputes. Any dispute or claim
arising out of this Agreement, or breach thereof, shall be
decided by arbitration, under the commercial arbitration
rules of the American Arbitration Association (the "AAA"),
and shall be conducted in the Minneapolis, Minnesota
metropolitan area. Demand for arbitration hereunder may be
made by either party hereto upon written notification to the
other party. The arbitration shall be by a single
arbitrator mutually selected by Executive and the Company.
If the parties do not agree upon an arbitrator within 20
days after the date of a demand for arbitration, the
selection of the single arbitrator shall be made in
accordance with the rules of the AAA. This agreement to
arbitrate shall be specifically enforceable. Any decision
rendered by the arbitrator shall be final and binding, and
judgment may be entered upon it by any court having
jurisdiction. The arbitrator shall assess arbitration fees,
expenses, attorneys' fees, and compensation in accordance
with the applicable AAA rules. Nothing herein contained
shall bar either party from seeking equitable remedies in a
court of appropriate jurisdiction.
13. Successors and Assigns. This Agreement shall be
binding upon, and inure to the benefit of, the Company, its
successors and assigns, and Executive, his heirs, legal
representatives and assigns.
14. Governing Law. This Agreement is being delivered
and is intended to be performed in the State of Minnesota
and shall be construed and enforced in accordance with the
laws of such state.
15. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
APA OPTICS, INC.
By
_________________________________
Its________________________________
EXECUTIVE
____________________________________
____________________________________
