SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 30, 1997
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 1-11056
ADVANCED PHOTONIX, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0325826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 Avenida Acaso, Camarillo, CA 93012
(Address of principal executive offices) (Zip Code)
(805) 987-0146
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 Par Value
Class A Common Stock
Indicate by check mark whether the registrant (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 registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No
As of June 2, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $8,900,000.
As of June 2, 1997, there were 10,717,493 shares of Class A Common Stock and
137,002 shares of Class B Common Stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
-----
DOCUMENTS INCORPORATED BY REFERENCE
Part I, Item 9 - The Current Report on Form 8-K, amended by
8-K/A, Dated January 26, 1995, is
incorporated herein by reference.
<PAGE>
Item 1. BUSINESS
General
- -------
Advanced Photonix, Inc.(R) (with its subsidiary, Silicon Detector Corporation, a
California corporation ("SDC"), hereafter referred to together as the
"Company") is engaged in the development and manufacture of proprietary and
other solid state light and radiation detection devices. The Company believes
that its proprietary Avalanche Photodiode ("APD") technology represents a
leading-edge advancement in photodetection and imaging.
The Company was incorporated under the laws of the State of Delaware on June 22,
1988 as a wholly- owned subsidiary of Xsirius, Inc. ("Xsirius") under the name
Xsirius Photonics, Inc. The Company changed its name to Advanced Photonix, Inc.
on November 13, 1990. Xsirius changed its name to Advanced Detectors, Inc.
("ADI") on December 27, 1995.
The Company's proprietary technology extends the capability of the traditional
APD by introducing a large surface area silicon device or Large Area Avalanche
Photodiode (the "LAAPD"). The Company believes that the LAAPD is an alternative
to photomultiplier vacuum tubes ("PMTs"), which have been used for many years as
the primary technological solution for highly sensitive light detection in
certain measurement, control and monitoring applications used in industrial,
medical, military, scientific and commercial settings.
The LAAPD and PMT are at the highly complex and engineered end of the spectrum
of activities in the photonics industry, which encompasses all light detection
devices and associated electronic components. Fundamentally, photodetection
devices sense light of varying intensity and convert the light detected to
electronic signals that cause the systems of which they are a part to respond in
programmed ways. The photonics industry includes other custom-engineered devices
of less complexity than the LAAPD and the PMT such as PIN
(Positive-Intrinsic-Negative) photodiodes.
The Company early-on saw advantages of being able to offer both the existing PIN
photodiode technology and the LAAPD, thereby having a full line of solid state
photodetectors. In addition, the Company needed a manufacturing facility with
semiconductor production capability for its LAAPD device similar to that
required for PIN photodiodes. After an Initial Public Offering in February 1991,
the Company acquired SDC in September 1991 to provide a sales base of
photodetector products and a manufacturing facility and capability which could
be used for its LAAPD devices. SDC manufactured and marketed custom-engineered
and other photodetection devices and had sales of approximately $4 million in
the twelve months ended July 31, 1991. In March 1992, the Company acquired from
Applied Solar Energy Corporation ("ASEC") the inventory, equipment, intellectual
property rights and customer order board of ASEC relating exclusively to the
production, development, sales and maintenance of ASEC's solid state
photodetector products. By June 1992, these assets had been integrated with the
existing SDC business in the Company's facility in Camarillo, CA. In addition to
using the SDC facility as a development and manufacturing site for the LAAPD,
the Company has continued the photodetector business of both SDC and ASEC under
the Company name. This complementary, non-LAAPD "core business" is profitable
and, together with equity financing, has provided the funds to enable the
Company to continue development of the LAAPD technology.
Products
- --------
The Company designs and manufactures optoelectronic semiconductor based
components and hybrid assemblies. While the Company was founded in 1988, the
acquired business base of SDC can be traced to 1977 and for the photo sensor
business of ASEC (a business formerly known as Advanced
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Optoelectronics) to the early 1960's. Therefore, even though the Company was
formed in 1988, it draws upon over 30 years of optoelectronic, product
manufacturing experience. The Company's product line includes:
o Spectrally enhanced single and multi-element PIN photodetectors
o Photodetector/preamplifier hybrids
o Military/commercial aerospace products
o Custom optoelectronic products, including visible and non visible
(infrared) light-emitting diodes ("LEDs"), LED displays and indium gallium
arsenide ("InGaAs") photodetectors
o Patented technology integrating spectrally enhanced filters with silicon
photodiode applications (Spectrode(TM))
o Small Area Avalanche photodiodes
o Large Area Avalanche photodiodes
The Company supplies detectors for military/commercial aerospace and other High
Reliability ("Hi-Rel") applications. Hi-Rel devices are those which are
designed, manufactured, screened and qualified to function under exceptionally
severe levels of environmental stress. The Company has many years of experience
in supplying Hi-Rel devices which require modern wafer fabrication techniques,
dedicated assembly area, and a well equipped test lab. Hi-Rel products
manufactured by the Company include:
o Multi-Element Detector Pre-Amplifier assembly employed on the optical fuse
used on the Rolling Airframe Missile (RAM)
o Narrow and Wide Field of View detectors used in various TOW Missile
Trackers
o Common Module LED Array qualified with the Center for Night Vision Electro
Optics for use in displaying thermal images in various night sights
o Quadrant Photodetector used in the autocollimator for airborne
navigation/FLIR PODs
o Multi-Element Detector Arrays used in space-based optical encoders for
Space Shuttle Arm Control
The Company's patented Spectrode(TM) technology integrates optical coatings
directly on photodiode chips, replacing previous conventional technology that
requires a separate filter glass or pigmented epoxy be assembled to the top of a
detector. While the technology offers a simpler design and lower cost,
reliability and performance are improved because the integrated design is
resistant to moisture, shock and vibration. Special packaging of this technology
allows for unique applications whereby both front and back detector surfaces can
be utilized for light detection.
The Company's Small Area Avalanche Photodiodes ("SAAPDs" -- see description of
avalanche photodiode below) utilize a chip fabricated with a silicon epiplanar
reach-through structure. SAAPDs have been designed for a variety of very
low-light level applications and cover the wavelength from 500 nm to 1000 nm.
Applications include optical communication, high-sensitivity bar code reading
and laser range finding including applications used in golf.
Large Area Avalanche Photodiode Technology
- ------------------------------------------
An Avalanche Photodiode is a specialized silicon photodiode capable of sensing
very low levels of light through an internal gain phenomenon known as
"avalanching". This fundamental performance characteristic is not present in the
more conventional PIN photodiode technology.
The first APD was developed in the late 1960's and gave promise as a solid state
replacement for the photomultiplier vacuum tube for sensing extremely low levels
of electromagnetic radiation. However, design and manufacturing limitations have
generally restricted APDs to small diameters (5mm or less) that can only be
practically used with optical fiber, thus sharply limiting the range of useful
applications.
3
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The Company has developed and patented various aspects of an LAAPD with
dimensions of up to 25 mm and active surfaces comparable to those of the PMT.
The LAAPD is a fast pulse detector of low light levels spanning the near UV
(ultraviolet), visible, and near IR (infrared) spectra, and, when coupled to a
scintillator, of x-rays and gamma-rays. It is also sensitive to electrons
accelerated to potentials greater than a few thousand electron-volts. The LAAPD
offers capabilities well beyond those of the existing primary photodetection
devices -- the PIN photodiode, the small area APD and the PMT. Its advantages
over PIN photodiodes include higher sensitivity at higher bandwidths. Its
advantages over small area APDs include larger active areas to collect more
light when the source is diffused and greater sensitivity up to about an order
of magnitude. Its advantages over PMTs include greater counting sensitivity to
pulses above 500 photons in the visible and near IR spectra, higher dynamic
range by two orders of magnitude, a more rugged structure suitable for operation
in harsh environments, and immunity in high level magnetic fields. Its
advantages over PMTs were greatly extended during fiscal year 1995 when the
Company demonstrated that LAAPDs could be made to be 4 to 7 times more sensitive
than PMTs to ultra-violet light. Ultra-violet sensitivity is crucial for some
experiments in high energy and particle physics known as calorimeters. The
improvement in ultra-violet sensitivity will also facilitate the design of more
powerful imaging and analytical instruments for the medical, chemical, and
biological markets.
The Company suspended most shipments of LAAPD products during the fiscal year
ended April 2, 1995 when it realized that its devices had significant
performance and reliability problems. Since that time, the Company has focused
its research and development resources on improving upon its baseline LAAPD
manufacturing process to produce devices with both good performance and improved
reliability as well as with reasonable process yields. As a result of
improvements in its baseline manufacturing process, the Company resumed shipping
LAAPD based products during fiscal 1996. The Company continues to focus its
efforts on optimizing the manufacturing process, reducing costs and further
enhancing reliability with respect to these products.
The Company expects, but there is no assurance, that its proprietary APD
technology, employed in the development of the LAAPD, will form the basis for
continuing the investigation and potential commercial development of other lines
of advanced silicon avalanche photonics products which will have a broader range
of commercial and military applications than the PMT and PIN arrays. For
example:
o LAAPD Arrays -- the Company's patented technology where the rear surface
of an LAAPD is segmented to create isolated pixels, each with a separate
electronic lead to be accessed in parallel fashion for imaging
applications.
o Vacuum Avalanche Photodiode (VAPD) -- another patented technology which
combines a photo cathode and an LAAPD in a vacuum tube and functions as a
detector for high resolution, single photon-counting and low light level
detection.
The Company has identified target markets for its LAAPD products based on
customer evaluations and in-house tests over the past four years, and has sold
over 500 prototypes of LAAPD products to third parties for testing and
evaluation of possible integration into applications. Evaluation detectors
continue to be sold to original equipment manufacturers ("OEMs"), engineers and
scientists who report information to the Company concerning potential
applications and markets, as well as suggesting improvements and pricing
objectives. It is expected, but there is no assurance, that original equipment
manufacturers who can take advantage of the performance capabilities of LAAPDs
will be the source of repeat business for production quantities. Targeted
markets which have been identified include:
o Ranging, Tracking & Imaging -- Night vision glasses, smart image
surveillance/security cameras, 3D collision avoidance cameras, missile
guidance, threat warning, underwater mine detection, and mapping &
salvaging.
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<PAGE>
o Medical Imaging -- Detectors which image human physiology in slices, and
look for pathology. Included in this category are PET scanners, CT
scanners, bone densitometers and gamma cameras.
o Industrial Scanning/Process Control -- Industrial CT inspection, aerospace
ice inspection, drum/flat bed scanning and semiconductor wafer defect
scanning and film to video conversion.
o Analytical Chemistry -- Analyzing the chemical "recipe" of samples, from
glucose levels in the blood to pesticides in ground water.
o Medical Diagnostics -- Human fluids are analyzed to diagnose a medical
pathology or condition. A partial list of conditions which are diagnosed
every day using photonics technology include diabetes, lipid metabolism
disorders, myocardial infarction, gout, liver diseases, renal diseases,
pancreatitis, anemia, and electrolyte disturbances. It is expected that
this list will grow dramatically in the coming years with the explosion of
methods now available to perform immunodiagnostics. Examples of forthcoming
diagnostics include those targeting thyroid and sexually transmitted
disease conditions.
o Environmental Monitoring -- Atmospheric meteorology LIDAR (light detection
and ranging), radiation dose monitors, airborne and liquid particle
measurement, optical air data systems, airport wind shear, atmospheric
pollution monitoring.
o Scientific Research -- The CERN Large Hadron Calorimeter, high energy
physics fiber tracking, space particle experiments and Neutrino
experiments.
The Company's products are primarily sold as components or assemblies to
original equipment manufacturers or other component manufacturers and the
Company does not manufacture any end-user products within the above or any other
markets.
Raw Materials
- -------------
The principal raw materials used by the Company in the manufacture of its
semiconductor chip components and assemblies are silicon wafers, chemicals and
gases used in processing wafers, gold wire, lead frames, metal and plastic
packages that house the chip and the various custom assemblies. All of these raw
materials can be obtained from several suppliers. From time to time,
particularly during periods of increased industry-wide demand, silicon wafers
and other materials have been in short supply. However, the Company has not been
materially affected by such shortages. As is typical in the industry, the
Company allows for a significant lead time between order and delivery of raw
materials.
Research and Development
- ------------------------
The Company undertakes both internally funded and customer funded research and
development programs when they are in support of the Company's development
objectives. The Company has obtained federal government research and development
funding supporting the next generation LAAPD products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more detail on these contracts. Since its inception in June 1988, the Company
has incurred material amounts of research and development expenses. Although the
Company believes, but cannot assure, that its research and development efforts
will yield commercial results, significant additional research and development
funding will still be required. During the fiscal year ended in 1997, 1996 and
1995, such expenses amounted to $1.9 million, $2.1 million and $1.9 million,
respectively.
Manufacturing
- -------------
Located in Camarillo, CA, the Company has an approximately 39,000 sq.ft.
manufacturing facility which includes various fully equipped clean room areas
from Class 100 to Class 100,000 for fabrication,
5
<PAGE>
processing, handling and characterizing a number of semiconductor compounds.
In-house processes include photolithography, diffusion, metallization, lapping,
oxide growth and parametric testing and analysis. An extensive library of
different shapes and sizes is maintained to provide the customer with many
options when a custom device is required. The Company estimates that these
facilities, with some modifications, will be sufficient to accommodate the
expected growth in both the core and LAAPD businesses for the foreseeable
future.
The Company has made a significant investment in the area of production
automation for its core business, which has enhanced manufacturing repeatability
and reliability, leading to higher quality and lower cost for finished products.
The automation techniques are employed on many different package configurations,
including PC boards, ceramic substrates, dual in-line and TO style packages.
For high volume/low cost manufacturing, the Company maintains a strategic
alliance with an optoassembly facility in the Pacific Rim. That facility uses
the latest in assembly and test equipment, and employs a Company approved
quality program which includes Statistical Process Control (SPC) and a
preventive maintenance program. The Facility is UL, FDA and ISO 9002 approved.
All Pacific Rim manufactured products are assembled in a Class 100,000 clean
room.
Environmental Regulations
- -------------------------
The photonics industry, similar to the semiconductor industry, is subject to
governmental regulations for the protection of the environment, including those
that relate to air and water quality, solid and hazardous waste handling and the
promotion of occupational safety.
Various federal, state and local laws and regulations require the Company to
maintain certain environmental permits. The Company believes that it has
obtained all necessary environmental permits to conduct its manufacturing.
Changes in the aforementioned federal and state environmental laws and
regulations or enactment or promulgation of new laws and regulations could
require increases in operating costs and delays or interruptions of operations
and may require additional capital expenditures.
Backlog and Customers
- ---------------------
The Company's sales are made primarily pursuant to standard purchase orders for
delivery of products. However, by industry practice, orders may be canceled or
modified at any time, with the customer being responsible for all finished
goods, all costs, direct and indirect, incurred by the Company and a reasonable
allowance for anticipated profits. No assurance can be given that such amounts
will be received by the Company after cancellation. The Company had
approximately $5.2 million of backlog at the end of fiscal 1997 compared with a
backlog of approximately $4.7 million at the end of fiscal 1996. The Company
expects that approximately $3.9 million of the backlog orders will be filled in
the current fiscal year.
The Company currently supplies core business products in support of satellites,
aircraft and ground vehicle missile guidance and tracking systems. Product sales
to affiliates and divisions of Hughes Aircraft Company, in the aggregate over
several programs, represent approximately 19% of the Company's revenues for the
year ended March 30, 1997.
Customers normally purchase the Company's products and incorporate them in
products that they in turn sell into their own markets on an ongoing basis. As a
result, the Company's sales are dependent upon the success of its customers'
products, and its future performance is dependent upon its success in finding
new customers and receiving new orders from existing customers.
6
<PAGE>
Marketing
- ---------
The Company markets its products in the United States and Canada through its own
technical sales staff and through independent sales representatives.
International sales, principally Western Europe and Japan, are conducted through
foreign distributors.
In marketing LAAPD products, the Company has recognized that it must compete
with producers of PMTs, which have dominated low light level detection markets
for many years. Even if the Company can establish that its LAAPDs are a
potential alternative to PMTs for certain commercial applications, and assuming
that testing of the LAAPD currently being conducted by OEMs and other third
parties proves successful, the ability to successfully market its LAAPD devices
on a volume basis will be substantially dependent upon the willingness of
potential customers who currently use PMTs to incur the substantial expense and
expend the time and effort necessary for the redesign of their products to
accommodate the LAAPD devices.
The Company pursues marketing efforts related to securing government contracts
and subcontracts to fund continued research and product development based on its
APD technology. Such efforts encompass subcontracts with industrial partners as
well as contracts directly with agencies of the federal government. During
fiscal 1997, revenues from these efforts represented approximately 9% of total
revenue.
Competition
- -----------
The Company competes with a range of companies for the custom optoelectronic and
silicon photodetector requirements of vendors of medical instruments, computer
peripherals, a variety of industrial products and specialized military and
commercial aerospace applications. The Company believes its principal
competitors for sales of custom devices are small to medium size companies.
Because the Company specializes in custom devices requiring a high degree of
engineering expertise to meet the requirements of specific applications, it
generally does not compete to any significant degree with other large United
States, European or Far Eastern manufacturers of standard "off-the-shelf"
optoelectronic components or silicon photodetectors.
The Company believes that the principal competition for its silicon LAAPD
photodetection devices lies with producers of PMTs, the only product currently
available for many of the applications for which the Company's LAAPD products
are designed. The Company believes that there are a number of manufacturers of
PMTs, most of which have significantly greater financial, technological,
marketing and personnel resources than the Company. In addition, several
companies produce solid state detectors based on small area APD technology.
Although a few additional photodetector companies are engaged in developing
APDs, the Company believes that most of these companies are limited by their
technology to small area APD devices which the Company believes are considerably
less useful than the Company's LAAPD devices in broadening the applicability of
APD technology to imaging and the sensing of extremely low light levels. The
Company's LAAPD products have an electronic signal gain approaching 1,000, while
typical small area APD devices have a gain of about 100 and, therefore, are not
competitive with the Company's LAAPD devices in certain applications.
PMTs were first invented in the 1940's. It is possible that existing PMT
manufacturers or other photodetector manufacturers will begin APD development
and eventually manufacture competitive APD devices. Additionally, RMD
Corporation ("RMD"), a research and development company, has produced Large Area
APD devices similar to devices under development by the Company, and the Company
believes RMD has delivered several devices to customers for testing and possible
application.
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Proprietary Technology
- ----------------------
The Company has been issued patents as follows:
US PATENT NO. DESCRIPTION DATE ISSUED
- --------------------------------------------------------------------------------
5,021,854 Silicon Avalanche Photodiode Array June 1991
5,057,892 Light Responsive Avalanche Diode October 1991
5,146,296 Devices for Detecting and/or September 1992
Imaging Single Photoelectron
5,477,075 Solid State Photodetector With December 1995
Light-Responsive Rear Face
5,311,044 Avalanche Photomultiplier Tube May 1994
4,717,946 Thin Line Junction Photodiode Acquired in ASEC Acquisition
4,782,382 High Quantum Efficiency Acquired in ASEC Acquisition
Photodiode Devices
Other patent submissions are currently under review by the U.S. Patent and
Trademark Office. There can be no assurance that the pending patent applications
will issue as patents, that any issued patents will provide the Company with
significant competitive advantages, or that challenges will not be instituted
against the validity or enforceability of any patent owned by the Company or, if
instituted, that such challenges will not be successful. The cost of litigation
to uphold the validity and prevent infringement of a patent would be
substantial. If the Company is unable to obtain patents for its proposed
applications, other entities may exploit the Company's developments in APD
technology. Furthermore, there can be no assurance the Company's APD technology
will not infringe patents or other rights owned by others, licenses to which may
not be available to the Company. Based on limited patent searches, contacts with
others knowledgeable in the field of APD technology and a review of pertinent
published materials, to the Company's knowledge, its competitors hold no
patents, licenses or other rights to the APD technology which would preclude the
Company from pursuing its intended operations or from obtaining patent
protection for its proposed applications.
In some cases, the Company may rely on trade secrets to protect its innovations.
There can be no assurance that trade secrets will be established, that secrecy
obligations will be honored or that others will not independently develop
similar or superior technology. To the extent that consultants, key employees or
other third parties apply technological information independently developed by
them or by others to Company projects, disputes may arise as to the proprietary
rights to such information which may not be resolved in favor of the Company.
Employees
- ---------
At June 2, 1997 the Company employed 66 full-time employees, including 3
officers, 5 LAAPD engineering and development personnel, 48 operations
personnel, 7 sales and marketing personnel (including 1 officer), and 6 general
administrative personnel (including 2 officers). The Company may, from time to
time, engage personnel to perform consulting services and to perform research
and development under third party funding. In certain cases, the cost of such
personnel may be included in the direct cost of the contract rather than as
payroll expense.
Item 2. Properties
----------
The Company leases its executive offices, research, marketing and manufacturing
facility which consists of approximately 39,000 square feet in a building
complex located at 1240 Avenida Acaso, Camarillo, California. The lease expires
in September 1998. The Company believes that its existing facility is adequate
to meet its needs for the foreseeable future. See "Business - Manufacturing."
Item 3. Legal Proceedings None
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Item 4. Submission of Matters to a Vote of Security Holders:
The Company's Annual Stockholders' Meeting was held on October 16, 1996. The
following persons were elected to the Company's Board of Directors to serve
until the next Annual Meeting of the Stockholders and until their respective
successors have been duly elected and qualified:
FOR WITHHELD TOTAL
--- -------- -----
James W. Ward 8,436,246 11,000 8,447,246
James A. Gordon 8,248,846 198,400 8,447,246
Hayden Leason 8,436,246 11,000 8,447,246
Jon B. Victor 8,436,246 11,000 8,447,246
PART II
Item 5. Market for the Registrant's Securities and Related Stockholder Matters
The Company's Class A Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "API". The Company's Class B stock is not publicly
traded.
At June 2, 1997, the Company had 95 holders of record for the Class A Common
Stock, representing approximately 1,000 holders owning shares of Class A Common
Stock in street name. On the same date, there were 21 holders of the Class B
Common Stock.
The following table sets forth high and low closing prices by quarter for fiscal
years 1997 and 1996.
Quarterly Stock Market Data
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1997 1996 1997 1996 1997 1996 1997 1996
- ------------ ------------- ---------------- --------------- ----------------
Common Stock(1)
High 4 1/4 1 7/8 4 1/8 2 15/16 3 7/8 3 2 11/16 3 1/8
Low 2 5/8 7/8 2 1/2 1 1/2 2 2 1 3/4 2 3/8
- ------------ ------------- ---------------- --------------- ----------------
1 Price ranges on the American Stock Exchange
The Company has not paid any cash dividends on its capital stock. The Company
intends to retain earnings, if any, for use in its business and does not
anticipate that any funds will be available for the payment of cash dividends on
its outstanding shares in the foreseeable future. The holders of Common Stock
will not be entitled to receive dividends in any year until the holders of the
Class A Redeemable Convertible Preferred Stock receive an annual non-cumulative
dividend preference of $.072 per share. As of June 2, 1997, 657,000 shares of
Class A Redeemable Convertible Preferred Stock had been converted into 197,000
shares of Class B Common Stock, leaving outstanding 123,000 shares of Class A
Redeemable Convertible Preferred Stock. The aggregate non-cumulative annual
dividend preference of such Class A Redeemable Convertible Preferred Stock is
$8,856. There is no public market for the Company's Class A Redeemable
Convertible Preferred Stock or Class B Common Stock; however, such stock is
convertible into Class A Common Stock at the option of the holder and upon
transfer by the holder of the Class A Redeemable Convertible Preferred Stock or
Class B Common Stock.
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<TABLE>
Item 6. Selected Financial Data
<CAPTION>
1997 1996 1995 1994 1993
- ------------------------------------------- ---------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Selected Statement of Operations Data:
- --------------------------------------
Revenues $ 6,375,000 $ 7,863,000 $ 6,775,000 $ 6,267,000 $ 7,160,000
Loss from operations (2,061,000) (807,000) (2,448,000) (3,944,000) (2,253,000)
Net Loss (1,886,000) (654,000) (2,368,000) (3,897,000) (2,302,000)
Net Loss per share (1) $(0.17) $(0.07) $(0.28) $(0.55) $(0.42)
Weighted average shares outstanding (1) 10,831,000 9,988,000 8,383,000 7,075,000 5,483,000
Selected Balance Sheet Data:
- ----------------------------
Working capital $ 3,334,000 $ 4,931,000 $ 2,083,000 $ 4,182,000 $ 3,473,000
Total assets 6,165,000 7,706,000 5,580,000 7,835,000 7,834,000
Long-term debt, net - - 26,000 42,000 58,000
Redeemable convertible preferred stock 98,000 98,000 98,000 120,000 148,000
Accumulated deficit (17,672,000) (15,786,000) (15,132,000) (12,764,000) (8,867,000)
Stockholders' equity 4,948,000 6,806,000 4,438,000 6,785,000 6,104,000
<FN>
1 See Note 2 to Financial Statements.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
Fiscal year 1997 Compared to Fiscal Year 1996
REVENUES
The Company's revenues for the fiscal year ended March 30, 1997 ("1997") were
$6.4 million, a decrease of 19% from revenues of $7.9 million for the fiscal
year ended March 31, 1996 ("1996"). The Company believes that cutbacks in its
sales and marketing efforts during fiscal 1996 impacted its ability to book new
orders and resulted in lower sales during 1997. These cutbacks were a result of
cash conservation measures put in place prior to the Company completing a
private placement in August 1995. After receiving the additional equity
financing, the Company hired and replaced employees in the sales department and
otherwise increased marketing efforts including additional trade-show attendance
and advertising. As a result of this refocus, bookings for the fourth quarter of
1997 were the highest in Company history ($3.5 million).
Net product sales of $5.8 million decreased $1.3 million (18%) in 1997 primarily
due to a lower level of shipments of military aerospace products. Military
shipments were impacted by the winding down of a missile guidance system program
which is approaching the end of its life cycle. Volume in military aerospace
products should increase in fiscal 1998 as the Company begins deliveries under a
new, longer term military program. The Company was awarded a contract for $1.3
million under this program which, along with follow-on orders, should
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provide a solid base to grow revenues over the next few years. During 1997, net
product sales of Large Area Avalanche Photodiode (LAAPD) products increased by
$53,000 to $154,000. During 1996, the Company curtailed LAAPD production because
of low reliability and yields it was obtaining in the manufacturing process.
After considerable research efforts, the Company developed a new manufacturing
process which it anticipates will significantly improve both reliability and
process yields. In July 1996, the Company filed for a patent seeking protection
of the new manufacturing process, and has begun to aggressively market LAAPD
products to original equipment manufacturers. While the Company anticipates
increasing volume from sales of LAAPD products made with its newly developed
manufacturing process, further refinements in the manufacturing process will be
required before full production can be achieved. While current demand exceeds
the Company's ability to deliver, the Company expects but cannot insure that the
remaining manufacturing issues can be corrected in the near-term. The Company
has a number of customers who are early adopters and evaluators of the
technology and believes that demonstration of these applications and evaluations
will help to develop the marketplace.
Development contract revenues decreased by $233,000 (29%). The Company was
awarded a Phase II Department of Energy (DOE) grant of approximately $750,000 in
June 1995 based upon the success of a Phase I effort, and in December 1995, was
awarded a $1.1 million contract from the Advanced Research Projects Agency of
the Pentagon and the Aircraft Division of the Naval Air Warfare Center
(ARPA/NAWC). These types of government development contracts are typically
multi-year awards and are subject to periodic review and cancellation by the
government due to a variety of reasons including a lack of funding. During the
third quarter of 1997, revenues from the DOE contract began to wind down and the
contract was completed. During the second half of 1997, revenues from the
ARPA/NAWC contract were impacted by a delay in funding from the customer.
Funding was awarded in January 1997 to complete option one of the contract and
work should resume in Q1 1998.
COSTS AND EXPENSES
Cost of product sales decreased by $566,000 (13%) in 1997 and gross profit
margin on net product sales decreased by 4 percentage points compared to 1996 to
33%. The decreases are attributable to lower product shipments and a related
decrease in manufacturing volume efficiencies. In line with the reduction in
product shipments, the Company has reduced its workforce (permanent and
temporary employees from 86 to 69 during 1997) through attrition and a reduction
in force in February 1997.
Research and development costs decreased by $187,000 (9%) to $1.9 million in
1997. The decrease in R&D costs is primarily due to the lower level of R&D
effort on government contracts (see "Revenues" above) as well as a general
reduction in internal R&D efforts as the Company focuses more on the production
of the LAAPD. In addition, the Company has better controlled internal R&D
activities. R&D costs have varied significantly in the past, and may continue to
do so, due to the level of activity associated with development contracts as
well as the number and complexity of new process and product development
projects, the qualification of new process developments and customer evaluation
and acceptance of new products. The Company is currently developing LAAPD
imaging arrays which the Company believes will have the greatest future market
potential within the line of LAAPD products. An acceleration in development
and/or efforts to bring this technology into production could substantially
impact R&D costs.
Marketing and sales expenses increased by $296,000 (42%) to $997,000 in 1997.
The increases were primarily due to increased manpower and higher marketing
costs. This increase was expected, as the Company pursues its plan for growth.
In addition, sales and marketing expenditures had been deferred during 1996
awaiting the successful completion of a private placement offering (See
Liquidity and Capital Resources). Marketing and sales expenses should continue
to increase as the Company continues to pursue its plan for growth and
commercialization of the LAAPD family of products.
11
<PAGE>
General and administrative expenses increased by $223,000 (16%) to $1.6 million
in 1997 primarily due to a one-time reorganization charge of approximately
$323,000 related to management changes which occurred in October 1996. Other
general and administrative expenses decreased by $111,000 (8%) in 1997 compared
to 1996. The decline was primarily due to lower personnel and insurance costs
(coverages remained constant or were improved).
Interest income in 1997 of $167,000 was $24,000 higher than 1996 as a result of
higher average cash balances. In August 1995, the Company completed a private
placement which increased its average cash balances during Q3 and Q4 of 1996 and
all of 1997 (see Liquidity and Capital Resources).
Fiscal year 1996 Compared to Fiscal Year 1995
REVENUES
The Company's revenues for 1996 were $7.9 million, an increase of 16% from
revenues of $6.8 million for the fiscal year ended April 2, 1995 ("1995"). Net
product sales of $7.0 million increased $540,000 (8%) in 1996. Development
contract revenues increased by $548,000 (204%) primarily due to two development
contracts which were awarded during 1996 (see Revenue discussion in "Fiscal Year
1997 Compared to Fiscal Year 1996" above).
1996 net product sales increased by 8% principally from increased volume in
military and commercial aerospace products. Included in these products are
shipments to the Company's largest customer where the Company has been able to
expand it's product offering and provide additional value added to it's product
line. Higher volume in military and commercial aerospace products was partially
offset by lower volume in industrial and medical products. 1996 shipments of
LAAPD products were nominal and slightly lower than for 1995. During 1995, the
Company suspended most shipments of its proprietary LAAPD products and curtailed
LAAPD production because of a high rate of field failures and low manufacturing
yields. During 1996, the Company focused essentially all research and
development resources on the baseline LAAPD manufacturing process to produce
devices with both good performance and improved reliability as well as with
improved process yields. The Company believed these efforts were successful and
resumed shipment of evaluation products during the third quarter of fiscal year
1996.
COSTS AND EXPENSES
Cost of product sales decreased by $304,000 (6%) in 1996 despite the increase in
net product sales. The gross profit margin on net product sales strengthened to
37%, an increase of 10 percentage points compared to 1995. This increase in
gross margin on net product sales was attributable to a number of factors
including improved pricing, cost containment programs, productivity improvements
and product mix improvements.
A 12% reduction in personnel at the end of fiscal year 1994 (12 people out of
103) improved results of operations in each of the quarters of fiscal 1995 and
1996 by approximately $100,000, or $400,000 on a fiscal year basis. The Company
again took action to reduce costs in March 1995 through another reduction in
personnel and other adjustments, including consolidation of certain
administrative functions.
Research and development costs increased by $247,000 (13%) to $2.1 million in
1996. The increase in R&D costs is primarily due to the higher level of R&D
effort on government contracts. The portion of R&D costs not related to
government contracts decreased in 1996 as compared to 1995. The Company has
better controlled its internal R&D activities and has been able to obtain
government funded development contracts to support its internal R&D efforts.
These costs might otherwise be incurred as internal R&D without any additional
funding.
Marketing and sales expenses decreased by $206,000 (23%) to $701,000 in 1996.
Expenses in the core product lines decreased by $113,000 (17%) due to reductions
in salary expense, advertising and commissions to outside sales representatives.
The Company made a decision in fiscal year 1995 to reduce the number of
independent
12
<PAGE>
representatives who are paid on a commission basis and increase the focus on a
direct sales force. In addition, replacement of a senior level employee who
resigned in March 1995 was deferred until December 1995. Marketing and sales
expenses in the LAAPD product lines decreased by $93,000 (41%) due to reductions
in headcount, advertising and other marketing expenses. Marketing efforts have
been curtailed as the Company focused on improving the reliability of its LAAPD
products. The Company has combined its sales and marketing efforts for all
product lines during 1997.
General and administrative expenses decreased by $290,000 (17%) to $1.4 million
in 1996. These decreases are primarily due to reductions in salaries and wages
and to a reduction in fees paid to outside members of the Company's Board of
Directors. The Company appointed a new President and Chief Executive Officer in
May 1994 while continuing to pay the salary of the prior executive through March
1995, resulting in higher salaries and wages during 1995. Changes in the make-up
of the Board of Directors during 1996 have resulted in a reduction in fees. In
October 1995, the Company's Board of Directors unanimously agreed to eliminate
all fees for its outside directors except for reasonable travel expenses in
conjunction with regular or committee meetings. The decrease in 1996 versus 1995
expenses was somewhat offset by higher legal fees due to a higher level of
patent reviews and general corporate matters.
Interest income in 1996 of $143,000 was $41,000 higher than 1995 as a result of
higher average cash balances. In August 1995, the Company completed a private
placement which increased its average cash balances for 1996 (see Liquidity and
Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 30, 1997, the Company had cash, cash equivalents and short-term
investments of $2.7 million, working capital of $3.3 million and an accumulated
deficit of $17.7 million. The Company's cash, cash equivalents and short-term
investments decreased $1.4 million during the twelve months ended March 30,
1997. Cash of $1.1 million was used for operating activities, including an
increase in net inventories of $288,000. Capital spending during 1997 was
$331,000 compared to $82,000 during 1996. Capital spending was lower during 1996
as the Company conserved its resources pending receipt of additional equity
financing.
The Company's LAAPD technology is still considered to be in the development
stage and subject to risks inherent in the development of products based on new
technologies. These risks include getting the invention out of the laboratory
and into actual use in the field and stepping up production from the prototype
(early) stages of manufacturing. To enable the Company to meet its capital
commitment needs, the Company historically has supplemented cash operating needs
with proceeds from private placement equity financing, bank lines of credit and
loans from stockholders. At March 30, 1997, no amounts were outstanding under
any bank line-of-credit and there were no stockholder loans to the Company. On
August 15, 1995, the Company completed a $3,000,000 private placement offering
in which it issued 2,400,000 shares of Class A Common Stock.
The Company has used the proceeds of its private placement offering to implement
its strategic business plan, which focuses on growing the core business,
bringing initial LAAPD products to market and developing proof- of-concept
demonstration LAAPD Arrays which are expected to prove helpful in securing
future financing and strategic partners. The continued development of LAAPD
Arrays beyond the proof-of-concept phase may require additional funds.
The Company believes that the moderate rate of inflation over the past few years
has not had a significant impact on the Company's sales or operating results.
13
<PAGE>
FORWARD LOOKING STATEMENTS
This Annual Report includes forward looking statements that are based on
assumptions that management believes to be reasonable but are subject to
inherent uncertainties and risks including, but not limited to, unforseen
technological obstacles which may prevent or slow the development and/or
manufacture of new products, limited (or slower than anticipated) customer
acceptance of new products which have been and are being developed by the
Company (particularly its LAAPD product line), and a decline in the general
demand for optoelectronic products.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of Advanced Photonix, Inc.
are included in Item 8.
Page
Report of Independent Public Accountant 15
Consolidated Statements of Operations
for each of the three years in the period ended March 30, 1997 16
Consolidated Balance Sheets at March 30, 1997 and March 31, 1996 17-18
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended March 30, 1997 19
Consolidated Statements of Cash Flows
for each of the three years in the period ended March 30, 1997 20
Notes to Consolidated Financial Statements 21-28
All other schedules for which provisions are made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, or are disclosed in the consolidated financial statements,
or are inapplicable and, therefore, have been omitted.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Advanced Photonix, Inc.:
We have audited the accompanying consolidated balance sheets of Advanced
Photonix, Inc. (a Delaware Corporation) and Subsidiary as of March 30, 1997 and
March 31, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Photonix, Inc. and
Subsidiary as of March 30, 1997 and March 31, 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 23, 1997
15
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For each of the three years
in the period ended March 30, 1997 1997 1996 1995
- ---------------------------------------------------- --- ------------------ -- ------------------ -- ------------------
<S> <C> <C> <C>
REVENUES
Net product sales $ 5,792,000 $ 7,047,000 $ 6,507,000
Development contracts 583,000 816,000 268,000
------------------ ------------------ ------------------
6,375,000 7,863,000 6,775,000
------------------ ------------------ ------------------
COSTS AND EXPENSES
Cost of product sales 3,900,000 4,466,000 4,770,000
Research and development 1,912,000 2,099,000 1,852,000
Marketing and sales 997,000 701,000 907,000
General and administrative 1,627,000 1,404,000 1,694,000
------------------ ------------------ ------------------
8,436,000 8,670,000 9,223,000
------------------ ------------------ ------------------
LOSS FROM OPERATIONS (2,061,000) (807,000) (2,448,000)
------------------ ------------------ ------------------
OTHER INCOME (EXPENSE)
Interest expense - (3,000) (4,000)
Interest income 167,000 143,000 102,000
Other, net 8,000 13,000 (18,000)
------------------ ------------------ ------------------
175,000 153,000 80,000
------------------ ------------------ ------------------
NET LOSS - $(.17), $(.07), $(.28) per share $ (1,886,000) $ (654,000) $ (2,368,000)
================== ================== ==================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
16
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 30, March 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,217,000 $ 4,042,000
Short-term investments 1,459,000 -
Accounts receivable, less allowance of $83,000 in 1997 and
$105,000 in 1996 642,000 792,000
Inventories 1,074,000 813,000
Prepaid expenses and other current assets 61,000 86,000
------------ ------------
Total Current Assets 4,453,000 5,733,000
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,331,000 3,198,000
Less accumulated depreciation and amortization (2,364,000) (2,038,000)
------------ ------------
967,000 1,160,000
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated amortization of
$186,000 in 1997 and $152,000 in 1996 650,000 684,000
Patents, net of accumulated amortization of
$21,000 in 1997 and $9,000 in 1996 40,000 53,000
Other 55,000 76,000
------------ ------------
745,000 813,000
------------ ------------
$ 6,165,000 $ 7,706,000
============ ============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
17
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 30, March 31,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 295,000 $ 167,000
Accrued expenses:
Salaries and employee benefits 451,000 293,000
Warranty 95,000 95,000
Other 278,000 247,000
------------ ------------
Total Current Liabilities 1,119,000 802,000
------------ ------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK AT REDEMPTION VALUE 98,000 98,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 per share; authorized
50,000,000 shares;
1997--10,717,493 shares issued and outstanding
1996--10,631,186 shares issued and outstanding 11,000 10,000
Class B Common Stock, par value $.001 per share; authorized
4,420,113 shares;
1997--159,225 shares issued and 137,002 outstanding
1996--193,003 shares issued and 170,780 outstanding - -
Additional paid-in capital 22,659,000 22,632,000
Less cost of 22,223 shares of Class B Common Stock in
Treasury in 1997 and 1996 (50,000) (50,000)
Accumulated deficit (17,672,000) (15,786,000)
------------ ------------
4,948,000 6,806,000
------------ ------------
$ 6,165,000 $ 7,706,000
============ ============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
18
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Class A Class B Class B Common
For each of the three years Common Stock Common Stock Additional Treasury Stock
in the period ended ------------ ------------ Paid-in --------------- Accumulated
March 30, 1997 Shares Amount Shares Amount Capital Shares Amount Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 3, 1994 6,775,225 $ 7,000 1,605,741 $ 2,000 $19,590,000 22,223 $(50,000) $(12,764,000) $ 6,785,000
Conversion of Redeemable
Convertible Preferred Stock - - 8,100 - 22,000 - - - 22,000
Conversion of Class B Common
Stock 281,413 - (281,413) (1,000) - - - - (1,000)
Net loss for the year - - - - - - - (2,368,000) (2,368,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT APRIL 2,1995 7,056,638 7,000 1,332,428 1,000 9,612,000 22,223 (50,000) (15,132,000) 4,438,000
Issuance of Class A
Common Stock 2,400,000 2,000 - - 2,992,000 - - - 2,994,000
Conversion of Class B
Common Stock 1,161,648 1,000 (1,161,648) (1,000) - - - - -
Exercise of Warrants
and Options 12,900 - - - 28,000 - - - 28,000
Net loss for the year - - - - - - - (654,000) (654,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 10,631,186 10,000 170,780 - 22,632,000 22,223 (50,000) (15,786,000) 6,806,000
Issuance Costs on Sale of
Class A Common Stock - - - - (18,000) - - - (18,000)
Conversion of Class B
Common Stock 33,778 - (33,778) - - - - - -
Exercise of Warrants
and Options 52,529 1,000 - - 45,000 - - - 46,000
Net loss for the year - - - - - - - (1,886,000) (1,886,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 30, 1997 10,717,493 $11,000 137,002 $ - $22,659,000 22,223 $(50,000) $(17,672,000) $ 4,948,000
====================================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For each of the three years in the period ended March 30, 1997 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,886,000) $ (654,000) $(2,368,000)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 524,000 539,000 539,000
Amortization 66,000 55,000 56,000
Decrease in market value of investments - - 26,000
(Gain) loss on disposal of fixed assets - (4,000) 2,000
Changes in assets and liabilities:
Short-term investments (1,459,000) - -
Accounts receivable 150,000 328,000 (177,000)
Inventories (288,000) 219,000 66,000
Prepaid expenses and other current assets 25,000 (40,000) 69,000
Other assets 2,000 (2,000) 7,000
Accounts payable and other accrued expenses 317,000 (116,000) 86,000
Advances 27,000 (84,000) 76,000
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,522,000) 241,000 (1,618,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (331,000) (82,000) (319,000)
Purchase and maturity of investments, net - - 2,140,000
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (331,000) (82,000) 1,821,000
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common and/or preferred stock, net of issuance costs (17,000) 2,994,000 -
Proceeds from exercise of stock options and warrants 45,000 28,000 -
Repayment of long-term debt - (42,000) (48,000)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 28,000 2,980,000 (48,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,825,000) 3,139,000 155,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,042,000 903,000 748,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,217,000 $ 4,042,000 $ 903,000
=========== =========== ===========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
20
<PAGE>
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 30, 1997
NOTE 1 - LINE OF BUSINESS AND BUSINESS RISKS
Advanced Photonix, Inc. (together with its subsidiary Silicon Detector
Corporation ("SDC"), the "Company"), founded in 1988 as a research and
development company, designs and manufactures optoelectronic semiconductor based
components and hybrid assemblies (the "core business") and is engaged in the
development and manufacture of proprietary and other solid state light and
radiation detection devices, including proprietary advanced solid state silicon
photodetection devices which utilize Large Area Avalanche Photodetection
("LAAPD") technology.
The Company has an accumulated deficit of $17,672,000 as of March 30, 1997, and
has incurred losses since inception. The Company's LAAPD technology is still
considered to be in the development stage and subject to risks inherent in the
development of products based on new technologies. These risks include getting
the invention out of the laboratory and into actual use in the field and
stepping up production from the prototype (early) stages of manufacturing. In
order to fund these development efforts, the Company historically has relied
upon proceeds from equity financings, bank lines-of-credit and loans from
stockholders. At March 30, 1997, no amounts were outstanding under any bank
line-of-credit and there were no stockholder loans to the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year: The Company's fiscal year ends on the last Sunday in March. Fiscal
years in the three-year period ended March 30, 1997, each contain fifty-two
weeks.
Principles of consolidation: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, SDC. All significant
intercompany accounts and transactions have been eliminated.
Cash, cash equivalents and short-term investments: The Company considers all
highly liquid investments, with an original maturity of three months or less
when purchased, to be cash equivalents. Short-term investments are comprised of
readily marketable debt securities with remaining maturities of more than 90
days at date of purchase. The short-term investments are all considered trading
securities and are bought and held principally for the purpose of selling in the
near term. Cash flows from purchases and sales of trading securities are
classified as cash flows from operating activities.
The Company maintains cash balances at a financial institution that is insured
by the Federal Deposit Insurance Corporation up to $100,000. The Company places
its cash equivalents and short-term investments in investment grade, short-term
debt instruments and limits the amount of credit exposure to any one commercial
issuer. As of March 30, 1997, the Company had cash, cash equivalents and
short-term investment balances of $2,576,000 at various financial institutions
and in various highly liquid investments which were in excess of federally
insured amounts.
Credit risk: Accounts receivable are unsecured and the Company is at risk to the
extent such amount becomes uncollectible. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Receivables generally are due within 60 days. A
21
<PAGE>
significant portion of revenues and accounts receivable are with U.S. Government
contractors, including approximately 19%, 16% and 17% of revenues from a major
customer for the fiscal years ending 1997, 1996 and 1995, respectively. In
fiscal 1997, the Company had export sales of approximately $800,000 to customers
in Canada, Germany, Great Britain and Sweden (none of which was individually
greater than 10% of total revenues).
Inventories: Inventories, which include material, labor and manufacturing
overhead are stated at the lower of cost (first in, first out) or market.
Inventories consist of the following:
March 30, 1997 March 31, 1996
-------------- --------------
Raw materials $ 336,000 $ 245,000
Work in progress 586,000 448,000
Finished products 152,000 120,000
--------------- --------------
$ 1,074,000 $ 813,000
=============== ==============
Equipment and leasehold improvements: Equipment and leasehold improvements are
stated on the basis of cost or estimated fair market value on the date acquired.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets or lease term ranging from five years
to eleven years. The Company capitalizes expenditures that materially increase
asset lives and charges ordinary repairs and maintenance to operations as
incurred. When assets are sold or otherwise disposed of, the cost and related
depreciation or amortization are removed from the accounts and any resulting
gain or loss is included in other income (expense) in the accompanying
statements of operations. Equipment and leasehold improvements consist of the
following:
March 30, 1997 March 31, 1996
-------------- --------------
Laboratory equipment $2,570,000 $2,411,000
Furniture, fixtures and office equipment 365,000 448,000
Leasehold improvements 315,000 309,000
Construction in progress 81,000 30,000
--------------- --------------
$3,331,000 $3,198,000
=============== ==============
Patents: Patents represent costs incurred in connection with patent
applications. Such costs are amortized using the straight-line method over the
useful life of the patent once issued, or expensed immediately if any specific
application is unsuccessful. Amortization expense was $12,000; $2,000 and $2,000
for the fiscal years 1997, 1996 and 1995, respectively.
Goodwill: The excess of cost over the purchase price of acquired net assets is
amortized on a straight-line basis over a 25 year period. Amortization expense
was $34,000; $33,000 and $34,000 for the fiscal years 1997, 1996 and 1995,
respectively.
Revenue recognition:
Development contracts - Revenues from research and development cost
reimbursement-type contracts are recorded as costs are incurred based upon the
relationship between actual costs incurred, total estimated costs, and the
amount of the contract or grant award. Estimation of costs are reviewed
periodically and any anticipated losses are recognized in the period in which
they first become determinable.
22
<PAGE>
Production contracts - The Company uses the unit of delivery method for
recognizing sales and cost of sales under production contracts. Provision for
estimated losses, if any, is made in the period in which such losses are
determined.
Net Loss Per Share: Net loss per share is based on the weighted average number
of common and common equivalent shares outstanding. Common stock equivalents
were not considered in the calculation as their effect would be antidilutive.
Such weighted average shares were approximately 10,831,000 in 1997; 9,988,000 in
1996; and 8,383,000 in 1995.
Research and Development Costs: The Company charges all research and development
costs, including costs associated with development contract revenues, to expense
when incurred. Manufacturing costs associated with the development of a new
fabrication process or a new product are expensed until such times as these
processes or products are proven through final testing and initial acceptance by
the customer. Costs related to revenues on non-recurring engineering services
billed to customers are generally classified as cost of product sales.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Authoritative Pronouncements: In October 1995, the FASB issued FAS No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123 encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), but requires pro
forma disclosure of net income and earnings per share as if the fair value based
method had been applied. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in APB 25
and comply with the pro forma disclosure requirements (see Note 7).
In March 1997, the FASB issued FAS No. 128, "Earnings per Share" ("FAS 128") and
FAS No. 129, "Disclosure of Information about Capital Structure" ("FAS 129").
FAS 128 revises and simplifies the computation for earnings per share and
requires certain additional disclosures. FAS 129 requires additional disclosures
regarding the Company's capital structure. Both standards will be adopted in
fiscal 1998. Management does not expect the adoption of these standards to have
a material effect on the Company's financial position or the results of
operations.
NOTE 3 - CAPITALIZATION AND STOCK PURCHASE WARRANTS
The Company's Certificate of Incorporation provides for two classes of common
stock, a Class A for which 50,000,000 shares are authorized for issuance and a
Class B for which 4,420,113 shares are authorized for issuance. The par value of
each class is $.001. Subject to certain limited exceptions, shares of Class B
Common Stock are automatically converted into an equivalent number of Class A
shares upon the sale or transfer of the Class B Common Stock by the original
holder. The holder of each share of Class A and Class B Common Stock is entitled
to one vote per share.
23
<PAGE>
Pursuant to a Private Offering Memorandum dated June 15, 1995, the Company
completed a private placement of 2,400,000 shares, from which the Company
received gross proceeds of $3,000,000. The first closing was completed in July
and the final closing in August 1995.
In June 1992, the Company granted a warrant to purchase 500,000 shares of Class
A Common Stock at $3.00 per share which expire in December 1997 to a consultant
in conjunction with the Company's 1992 private placement. None of these warrants
have been exercised.
In August 1992, the Company granted a five year unit purchase option to the
placement agent and certain of its officers in connection with the Company's
1992 private placement. The unit purchase option consisted of options to
purchase 375,008 shares of Class A Common Stock at $3.00 per share and 375,008
Class A Warrants to purchase the Company's Class A Common Stock at $3.00 per
share. Options to purchase 25,000 shares have been exercised at March 30, 1997.
None of the warrants have been exercised.
NOTE 4 - REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has authorized 10,000,000 shares of Preferred Stock, of which
780,000 shares have been designated Class A Redeemable Convertible Preferred
Stock with a par value of $.001 per share. The number of shares of Class A
Preferred Stock issued and outstanding was 123,000 at March 30, 1997 and March
31, 1996, respectively. The Class A Preferred Stock has a liquidation preference
equal to its issue price ($.80 per share).The Class A Preferred Stock is
convertible at any time, at the option of the holder, into .3 share of Class B
Common Stock for each share of Preferred Stock converted. As of March 30, 1997,
there were 37,000 shares of Class B Common Stock reserved for the potential
conversion of the Class A Preferred Stock. The Class A Preferred Stock is
subject to redemption at the Company's option for $.80 per share at any time.
The Company would be required to pay approximately $98,000 to redeem these
shares. The holders of the Class A Preferred Stock are entitled to an annual
non-cumulative dividend preference of $.072 per share when the Company's net
earnings per share of Class A Preferred Stock equals or exceeds $.072. The Class
A Preferred stockholders do not have voting rights except as required by
applicable law.
NOTE 5 - LINE OF CREDIT
The Company has a revolving line of credit agreement with a bank for the lesser
of $1,000,000 or 75 percent of eligible trade accounts receivable, as defined by
the agreement. The agreement expires in September 1997 and provides for interest
to be paid monthly at prime plus 1.25 percent (9.75 percent at March 30, 1997).
The Company must adhere to certain requirements and provisions to be in
compliance with the terms of the agreement. Borrowings under the line of credit
are secured by accounts receivable, inventory, equipment and general
intangibles. There was no outstanding balance under the line of credit agreement
as of March 30, 1997.
NOTE 6 - INCOME TAXES
At March 30, 1997, the Company had net operating loss carry forwards of
approximately $16.2 million for federal tax purposes that expire at various
dates through fiscal year 2012. The tax laws related to the utilization of loss
carryforwards are complex and the amount of the Company's loss carry forward
that will ultimately be available to offset future taxable income may be subject
to annual limitations resulting from changes in the ownership of the Company's
common stock. The Company also has approximately $462,000 in research and
development credit carryovers available for federal tax purposes that expire in
the fiscal years 2004 through 2012.
24
<PAGE>
Under FAS 109, deferred tax assets may be recognized for temporary differences
that will result in deductible amounts in future periods and for loss
carryforwards. A valuation allowance is recognized if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax asset will not be realized. A detail of the Company's net deferred
tax asset as of March 30, 1997 and March 31, 1996 follows:
March 30, 1997 March 31, 1996
-------------- --------------
NOL Carryforwards $ 6,273,000 $ 5,596,000
Inventory obsolescence 541,000 511,000
Warranty 37,000 37,000
Depreciation (3,000) (75,000)
Other 105,000 97,000
------------- --------------
6,953,000 6,166,000
Less valuation allowance (6,953,000) (6,166,000)
-------------- --------------
Net deferred tax asset $ -0- $ -0-
============== ==============
Due to the uncertainty surrounding the realization of the favorable tax
attributes of such net operating loss carry forwards in future tax returns, the
Company has recorded a valuation allowance against its otherwise recognizable
deferred tax assets. Accordingly, no deferred tax asset has been reported in the
accompanying balance sheet.
As the Company incurred losses in fiscal years 1997, 1996 and 1995, the Company
has recorded minimum state taxes of $1,600 in other expense each year in the
accompanying statements of operations.
NOTE 7 - STOCK OPTIONS
The Company has three stock option plans, the 1990 Incentive Stock Option and
Non-Qualified Stock Option Plan ("The 1990 Plan"), the 1991 Directors' Stock
Option Plan ("The Directors' Plan") and the 1997 Employee Stock Option Plan
("The 1997 Plan"). The Company accounts for these plans under APB Opinion No.
25, under which no compensation cost has been recognized. Had compensation
expense for these plans been determined consistent with FAS 123, the Company's
net loss and net loss per share would have increased to the following pro forma
amounts:
1997 1996
------------- -------------
Net Loss - as reported $ (1,886,000) $ (654,000)
Net Loss - pro forma (2,108,000) (1,410,000)
Net Loss per share - as reported (0.17) (0.07)
Net Loss per share - pro forma (0.19) (0.14)
------------- -------------
25
<PAGE>
Because the FAS 123 method of accounting has not been applied to options granted
prior to April 3, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants in
1997 and 1996, respectively: risk free interest rates of 6.53 percent and 6.56
percent, expected volatility of 63.33 percent and 66.84 percent, and expected
lives of 10 years in both periods. No dividends were assumed in the
calculations.
The Company's various stock option plans provide for the granting of
non-qualified and incentive stock options to purchase up to 2,200,000 shares of
common stock for periods not to exceed 10 years. As of March, 30, 1997, there
were 1,077,500 shares available for future grant under such plans. Options
typically vest at the rate of 25 percent per year over four years, except for
options granted under The Directors' Plan, which typically vest at the rate of
50 percent per year over two years. Under these plans, the option exercise price
equals the stock's market price on the date of grant. Options may be granted to
employees, officers, directors and consultants. The Company has also granted
options, under similar terms as above, under no specific shareholder approved
plan.
Stock option transactions for 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- -------------------------- -------------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,191 $ 3.52 2,247 $ 4.16 2,131 $ 4.78
- -------------------------------------------------------------------------------------------------------------------
Granted 530 2.58 550 2.18 744 2.20
Exercised (101) 2.13 (13) 2.16 - -
Canceled (108) 2.74 (593) 4.74 (628) 3.94
- -------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,512 $ 3.41 2,191 $ 3.52 2,247 $ 4.16
- -------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,905 $ 3.76 1,825 $ 3.83 1,838 $ 4.66
- -------------------------------------------------------------------------------------------------------------------
Weighted average fair value
of options granted $2.010 $1.755 -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at March 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Wtd Avg Remaining Wtd Avg Exercise Wtd Avg Exercise
Option Price Range Shares (000) Contractual Life Price Shares (000) Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 6.00 750,000 3.87 years $ 6.00 750,000 $ 6.00
$ 4.00-5.75 87,000 4.41 years $ 4.86 85,000 $ 4.86
$ 2.25-3.31 1,074,500 7.00 years $ 2.42 595,400 $ 2.35
$ 2.13 199,800 .17 years $ 2.13 199,800 $ 2.13
$ 1.5-1.75 401,000 7.66 years $ 1.57 274,500 $ 1.57
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company leases its manufacturing and office facility under a noncancellable
operating lease. Future minimum lease payments are subject to annual adjustment
upward for increases in the Consumer Price Index. Approximate minimum future
lease payments under all noncancellable operating leases expiring at various
dates through fiscal 2001, are as follows:
Fiscal year ending:
1998 $364,000
1999 165,000
2000 24,000
2001 12,000
--------
$565,000
========
Rent expense for the fiscal years ending 1997, 1996 and 1995 was approximately
$346,000; $323,000 and $310,000, respectively.
The Company has employment and termination agreements with certain employees
under which the employees may receive severance pay through the end of the term
of the contract or up to six months. Total compensation under these agreements
in the event of employment through the full term would be approximately $275,000
for each of the fiscal years ending 1998, 1999 and 2000, respectively.
NOTE 9 - LEGAL
The Company is, from time to time, subject to legal and other matters in the
normal course of its business. While the results of such matters cannot be
predicted with certainty, management does not believe that the final outcome of
any pending matters will have a material effect on the financial position and
results of operations of the Company.
NOTE 10 - EMPLOYEES' RETIREMENT PLAN
The Company maintains a 401(k) Plan which is qualified under the Internal
Revenue Code. All full-time employees are eligible to participate in the Plan.
Employees may make voluntary contributions to the Plan which are matched by the
Company at the rate of $.50 for every $1.00 of employee contribution, subject to
certain limitations. The Company contributions recognized as expense were
approximately $69,000, $68,000, and $84,000 for the fiscal years ending 1997,
1996 and 1995, respectively.
NOTE 11 - SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
March 3, March 31, April 2,
1997 1996 1995
---- ---- ----
Cash paid during the year for:
Interest (net of amount capitalized) $ - $ 2,600 $ 4,000
Income taxes 1,600 5,407 -
Noncash Transactions:
Issuance of common stock upon the
conversion of Redeemable Convertible
Preferred Stock - - 22,000
27
<PAGE>
NOTE 12 - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning of Cost and End of
(Dollars in thousands) Period Expenses Deductions Period
------------ ---------- ---------- ----------
Year end March 30, 1997
Reserve for obsolescence $1,323 $ 77 $ - $1,400
Allowance for bad debt 105 - 22 83
Warranty 95 39 39 95
Year end March 31, 1996
Reserve for obsolescence 956 367 - 1,323
Allowance for bad debt 105 - - 105
Warranty 95 - - 95
Year end April 2, 1995
Reserve for obsolescence 894 215 153 956
Allowance for bad debt 87 50 32 105
Warranty 95 10 10 95
28
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The information contained in the Current Report on Form 8-K amended by Form
8-K/A, dated January 26, 1995, is incorporated herein by reference.
PART III
Item 10. Directors and Executive Officers
Set forth below is certain information relating to the directors and officers of
the Company.
Name Age Position
Hayden Leason 66 Chairman of the Board and Chief Executive Officer
James A. Gordon 47 Director
Jon B. Victor 44 Director
James W. Ward 58 Director
Harry Melkonian 47 President
Patrick J. Holmes 51 Executive Vice President, Chief Financial Officer,
Secretary & Treasurer
Robert C. King 53 Vice President of Sales & Marketing
Hayden Leason, Chairman of the Board and Chief Executive Officer
- ----------------------------------------------------------------
Mr. Leason became a director of the Company in July 1995 and was elected
Chairman of the Board in October 1996 and elected Chief Executive Officer in
November 1996. In 1965 Mr. Leason founded Filtertek Inc., a designer and
manufacturer of specialty filtration elements, which subsequently became a New
York Stock Exchange listed company. He served as Chairman and Chief Executive
Officer until 1992 when he sold his interest to Schawk Inc. Since 1992, Mr.
Leason has managed various private investments. Mr. Leason is a 1954 graduate of
Northwestern University where he received his Bachelor of Science degree in
Business Administration.
James A. Gordon, Director
- -------------------------
Mr. Gordon became a director of the Company in August 1992. Since January 1992,
Mr. Gordon has been President of Gordon Management, Inc., which is the general
partner of Edgewater Private Equity Fund L.P., a limited partnership formed for
investment purposes. In addition, Mr. Gordon has managed Focused Value Equity
portfolios since 1985. Since 1986, Mr. Gordon has been a member of the Board of
Directors of Bankers Trust Company (Iowa), and has served as Chairman of its
Trust and Investment Committee, as well as a member of both its Audit and Loan
Committees. He presently serves as a member of the Boards of Directors of the
following organizations: Grinnell College (also serving as Chairman of the
Investment Committee); IMNET, Inc.; SoftNet Systems, Inc.; HealthDesk, Inc.;
Cellular World Corp.; DAC Vision, Inc.; Microware Systems Corporation; Pride
Industries, Inc.; and Pangea, Inc. He is currently a Board member of the
National Committee for the Performing Arts of the Kennedy Center. Mr. Gordon
served as a member of the Board of Directors for Des Moines Art Center; Des
Moines Ballet; Des Moines Metro Opera; Governor's United Nations Board; Iowa
Society to Prevent Blindness; Des Moines Parent Teacher Association; Young
President's Organization; and Northwestern University Alumni Board.
29
<PAGE>
Jon B. Victor, Director
- -----------------------
Mr. Victor became a director of the Company in June 1995. Mr. Victor is the
Manager of Greenwich Ventures, LLC, which is the general partner of Greenwich
Ventures, LP and Vantage Ventures, CV, Investment Partnerships which he
organized in 1996. He began his career in the equity research and trust
departments of the Bank of New York. From 1978 through 1982 he worked for J. &
W. Seligman & Co., where he was responsible for offshore advisory relationships,
and was President of the firm's broker/dealer subsidiary. Mr. Victor founded
Security Capital Management, Inc., an investment advisory firm, in 1983, and
served as its President or Co-President until 1996. In 1992, Mr. Victor
co-founded Gordon Management, Inc., the general partner of Edgewater Private
Equity Fund, LP, and Edgewater Private Equity Fund II, LP. Mr. Victor is a 1973
magna cum laude graduate of Washington University and a 1977 graduate of the
George Washington University School of Law where he earned his J.D. cum laude
and completed his M.B.A. course work. Mr. Victor serves on the Board of
Directors of several private investment firms and acts as an independent
arbitrator for the National Futures Association.
James W. Ward, Director
- -----------------------
Mr. Ward has been a director of the Company since May 1994. He served as
President and Chief Executive Officer from May 1994 until October 1996 and as
Chairman of the Board from February 1995 until October 1996. Prior to joining
the Company, he was President and CEO of Boss Golf Company, Inc., a company that
he co-founded in September 1992. From 1990 to 1992, Mr. Ward was President of
Ling Electronics, Inc. a manufacturer of electrodynamic vibration test systems
worldwide. From 1980 through 1989, he was President of two Gulton Industries,
Inc. companies, Engineered Magnetics and Transrex. Mr. Ward experienced a
distinguished career with General Electric Company over a period of 18 years,
holding various management responsibilities in marketing, engineering,
manufacturing and quality assurance, primarily for the commercial nuclear power
generating plant business. He also served on the IEEE Standards Committee that
generated the IEEE Standard on Nuclear Quality Assurance. Mr. Ward is a
Registered Professional Engineer in California and past-recipient of The
Missouri Honor Award for Distinguished Service in Engineering from the
University of Missouri, Columbia. He holds a Bachelor of Science Degree and a
Master of Science Degree in electrical engineering from the University of
Missouri.
Harry Melkonian, President
- --------------------------
Mr. Melkonian joined the Company in June 1992 and was elected President in
November 1996. He served as General Manager of the Company's PIN photodiode
business from 1993 until November 1996. From 1989 until joining the Company, Mr.
Melkonian operated Melkonian Associates, a consulting firm that assisted the
Company in the acquisition of its subsidiary, Silicon Detector Corporation. From
1987 until 1989, he was Director of Operations at Simulaser Corporation; and for
six years previously, he held various operations level positions at Sensor
Technology, Inc. Mr. Melkonian holds a Bachelor of Science degree in Business
Administration from Northeastern University.
Patrick J. Holmes, Executive Vice President, Chief Financial Officer, Corporate
Secretary and Treasurer
- ---------------------------
Mr. Holmes joined the Company in August 1993 and was named Executive Vice
President in November 1996. From 1989 until joining the Company, Mr. Holmes was
a Division Controller for Textron, Inc. From 1985 until 1989, he was Chief
Accountant and Financial Operations Manager for two start-up companies of
Lockheed Corporation in Sunnyvale, CA. Previously, Mr. Holmes held senior
financial posts with General Dynamics and Datapoint Corporation. Mr. Holmes, who
is a Certified Public Accountant, received his degree in accounting, magna cum
laude, from the University of Missouri in St. Louis and is a past recipient of
the Missouri Society of CPAs Silver Medal.
Robert C. King, Vice President of Sales & Marketing
- ---------------------------------------------------
Mr. King joined the Company in December 1995. From 1992 until joining the
Company, Mr. King was Vice President, Sales and Marketing of Medical Materials
Corporation. From 1989 until 1992, he was Vice President, Market and Business
Development of PCO, a subsidiary of Corning Incorporated and an affiliate
30
<PAGE>
of IBM. From 1986 until 1989, he was Executive Vice President, Sales and
Marketing of Wangtek. Prior to 1986, Mr. King held sales and executive level
positions for Granger Associates, Q.T. Wiles and Associates, TRW Semiconductor
and North American Aviation. Mr. King holds a Bachelor of Science degree in
Mechanical Engineering, cum laude, from Ohio University in Athens, Ohio.
Directors serve annual terms until the next annual meeting of stockholders and
until their successors are elected and qualified. Officers serve at the pleasure
of the Board of Directors. Pursuant to an agreement between the Company and D.H.
Blair, entered into in connection with a private placement offering of the
Company's capital in 1992, D.H. Blair has the right, at its option through
August 10, 1997, to designate one director to the Board of Directors of the
Company. To date, it has not exercised its option.
Item 11. Executive Compensation
The following table sets forth compensation paid or accrued by the Company for
services rendered to the Company's Chief Executive Officer and to each of the
other executive officers of the Company whose cash compensation exceeded
$100,000 for services rendered during the last three fiscal years.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
---------------------------- -------------------------- -------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Fiscal Salary Bonus Compensation Awards Options Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hayden Leason 1997 - - - - - - -
Chairman of the Board and 1996 - - - - 25,000 - -
Chief Executive Officer(2) 1995 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------
James W. Ward 1997 109,000 - - - - - 55,700(3)
Chairman of the Board, 1996 173,000 25,000 - - - - 4,700
President and Chief 1995 142,000 - - - 150,000(4) - 3,600
Executiv Officer(3)
- ---------------------------------------------------------------------------------------------------------------------
Harry Melkonian, 1997 135,000 - - - 140,000 - 3,900
President(5) 1996 110,000 15,000 - - - - 3,300
1995 110,000 15,000 - - 60,000 - 3,300
- ---------------------------------------------------------------------------------------------------------------------
Patrick J. Holmes 1997 125,000 - - - 70,000 - 3,300
Executive Vice President, 1996 125,000 15,000 - - - - 3,800
CFO, Secretary & Treasurer 1995 125,000 - - - 80,000 - 3,800
- ---------------------------------------------------------------------------------------------------------------------
Robert King 1997 125,000 18,000 - - 20,000 - 4,500
Vice President of Sales 1996 42,000 8,000 - - 60,000 - 900
1995 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------
<FN>
1 Represents amounts paid by the Company on behalf of the named person in connection with the Company's 401(k) Retirement Plan
accept for $51,000 paid to Mr. Ward (see note 3 below).
2 Mr. Leason became Chairman of the Board in October 1996 and Chief Executive Officer in November 1996.
3 Mr. Ward terminated his employment in October 1996. Pursuant to an arrangement with the Company, amounts paid to him subsequent
to the termination of his employment are included in All Other Compensation.
4 Does not include 150,000 option shares granted in May 1994 which were canceled in January 1995.See "Ten-Year Option Repricings."
5 Mr. Melkonian became President in November 1996.
</FN>
</TABLE>
Employment Agreements
The Company has employment and termination agreements with certain employees,
including Messrs. Melkonian and Holmes under which the employees may receive
severance pay through the end of the term of the contract or up to twelve
months. See Notes to Consolidated Financial Statements - Note 8.
31
<PAGE>
James W. Ward terminated his employment on October 16, 1996 and remained as a
Director. Pursuant to an agreement with the Company, Mr. Ward will continue to
be paid his salary through September 16, 1996, subject to certain reductions for
his other earnings.
Stock Options
The following tables set forth certain information concerning stock options
granted to and exercised by the persons named in the Summary Compensation Table
during the last fiscal year and unexercised stock options held by such persons
at the end of such fiscal year. No options were exercised during the last fiscal
year.
Option Grants in Fiscal 1997
Individual Grants
----------------------------
Number of Securities %of Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name(1) Granted (#) Fiscal Year ($/Sh) Date
- --------------------------------------------------------------------------------
Hayden Leason - - - -
Harry Melkonian 140,000 28% $2.50 1/14/07
Patrick J. Holmes 70,000 14% $2.50 1/14/07
Robert C. King 20,000 4% $2.50 1/14/07
1 See "Summary Compensation Table" and Item 10 "Directors and Executive
Officers" for principal position.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-the-Money Options at
Shares Acquired Unexercised Options at Fiscal Year End(#) Fiscal Year End ($)
Name1 on Exercise (#) Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Hayden Leason - - 25,000/0 -
James W. Ward - - 90,000/60,000 33,750/22,500
Harry Melkonian - - 88,000/112,000 22,500/0
Patrick J. Holmes - - 74,000/76,000 18,000/4,500
Robert C. King - - 28,000/52,000 -
- ------------------------ ---------------- ---------------- ------------------------------------- --------------------------
<FN>
1 See "Summary Compensation Table" and Item 10 "Directors and Executive Officers" for principal position.
</FN>
</TABLE>
On January 18, 1995 the Board of Directors canceled outstanding options to
purchase an aggregate of 365,000 shares of the Company's Class A Common Stock
and granted to the holders of such options new options to purchase an equivalent
number of shares. These options were the only options of the Company which have
been issued coincident with the cancellation of outstanding options or otherwise
repriced since the Company's inception through April 2, 1995. The Board of
Directors concluded that the subsequent decrease in the market price for the
Company's Class A Common Stock below the exercise price for the canceled options
was due to factors which were principally not all within the realm of
responsibility of the option holders and that the options no longer provided the
incentive to such option holders to perform on behalf of the Company in the
manner contemplated by the Board when the canceled options were initially
granted. On the date of the issuance of the new options and the cancellation of
the outstanding options, the closing sale price for the Company's Class A Common
Stock as reported on the American Stock Exchange was $1.56. The following table
sets forth certain information regarding the aforementioned canceled and new
options:
32
<PAGE>
<TABLE>
Ten-Year Option Repricings
<CAPTION>
Number of Securities Market Price of Exercise Price at Length of Original
Underlying Options Stock at Time of Time of New Option Term Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Name1 Date Amended (#) Amendment ($) Amendment ($) Price ($) Repricing or Amendment
- ---- ---- ----------- ------------- ------------- --------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
James W. Ward 1/18/95 150,000 1.56 3.25 1.56 9 years
Harry Melkonian 1/18/95 60,000 1.56 3.62 1.56 7 years
Patrick J. Holmes 1/18/95 30,000 1.56 4.87 1.56 9 years
30,000 1.56 4.50 1.56 9 years
- -------------------- ---------- -------------------- ----------------- ---------------- ---------- -------------------------
<FN>
1 See "Summary Compensation Table" and Item 10 "Directors and Executive Officers" for principal position.
</FN>
</TABLE>
Compensation of Directors
Prior to October 1995, each director who is not an employee of the Company or an
affiliate received an annual fee of $10,000, payable in quarterly increments,
and a fee of $1,000 for each meeting attended. Each of the directors who is not
an employee of the Company is eligible for grants of stock options upon their
appointment to the Board of Directors under the 1991 Special Directors Stock
Option Plan and on an annual basis so long as they remain on the Board.
Directors who are also officers of the Company or its affiliates do not receive
cash compensation in consideration for their services as directors. All
directors, however, including employee directors, are reimbursed for reasonable
travel expenses incurred in connection with their attending meetings of the
Board of Directors and committees. In October 1995, the Board of Directors
eliminated the accrual or payment of all fees including all annual fees, meeting
fees and any payment for services as the Chairman or Member of any Committee of
the Board of Directors except for reasonable travel expenses. In addition,
participation in the 1991 Special Directors Stock Option Plan other than initial
grants for new directors was suspended.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities (collectively, the "Reporting Persons")
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies of these reports. New
rules governing these reports were adopted in February 1991 and generally became
effective in May 1991. Based upon the Company's review of copies of these
reports received by it, the Company believes that all filings required to be
made by the Reporting Persons during the fiscal year ended March 30, 1997 were
made on a timely basis.
33
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 2, 1997, certain information
concerning the holdings of each person who was known by the Company to be the
beneficial owner of more than five percent (5%) of the outstanding shares of
Class A or Class B Common Stock of the Company, by each director and executive
officers and by all directors and officers as a group.
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
-------------------------------------------- ------------------------------------------
Shares Under Shares Under
Shares Exercisable Percent of Shares Exercisable Percent of Percent
Owned Options/Warrants(1) Class Owned Options/Warrants Class Voting(2)
<S> <C> <C> <C> <C> <C> <C> <C>
The Dreyfus Corporation(3) 1,521,000 - 14.2 - - - 14.0
Hayden Leason(4) 1,304,100 25,500 12.4 - - - 12.2
J. Morton Davis(5) 656,045 333,340 9.0 - - - 8.9
The Townsend Group 758,900 - 7.1 - - - 7.0
Advanced Detectors, Inc.(6) - 750,000 6.5 - - - 6.5
John Pappajohn(7) 186,668 500,000 6.1 - - - 6.0
James A. Gordon(8) 593,640 28,000 5.8 - - - 5.7
Edgewater Private Equity Fund(9) 593,640 28,000 5.8 - - - 5.7
Jon Victor(10) 237,400 25,000 2.4 - - - 2.4
James W. Ward 13,850 120,000 1.2 - - - 1.2
Patrick J. Holmes 50,000 64,000 1.1 - - - 1.0
Harry Melkonian 10,000 60,000 0.6 - - - 0.6
Robert C. King 30,000 24,000 0.5 - - - 0.5
Directors & Officers as a Group 2,238,990 346,000 23.4 - - - 23.1
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Includes shares under options/warrants exercisable on March 30, 1997 and options which become exercisable within 60 days
thereafter.
2 Represents combined voting power of both Class A and Class B Common Stock, assuming beneficial owner exercises all exercisable
options and warrants.
3 Shareholder is a subsidiary of Mellon Bank, N. A., One Mellon Bank Center, Pittsburgh, PA 15258-0001.
4 The address of this shareholder is Palmas Del Mar, 10 Monte Sol, Humacao, Puerto Rico 00791.
5 The address of this shareholder is D.H. Blair, 44 Wall Street, New York, NY 10005. Includes 617,760 shares and 333,340 shares
underlying a unit purchase option owned by D. H. Blair Investment Banking Corp. and 38,285 shares owned by Parliament
Hill Corporation.
6 Formerly Xsirius, Inc., the last address known for this beneficial owner was 1220 Avenida Acaso, Camarillo, CA 93012.
7 The address of this shareholder is c/o Equity Dynamics, 2116 Financial Center, Des Moines, IA 50309.
8 The address of this shareholder is c/o Edgewater Private Equity Fund, 666 Grand Avenue, Suite 200, Des Moines, IA 50309.
Includes 593,640 shares owned by Edgewater Private Equity Fund, L.P. ("Edgewater"). Mr. Gordon is the President of Gordon
Management, Inc. which is the general partner of Edgewater.
9 The address of this shareholder is c/o Edgewater Private Equity Fund, 666 Grand Avenue, Suite 200, Des Moines, IA 50309.
Includes 28,000 options granted to Mr. Gordon ( see footnote 8).
10 The address of this shareholder is c/o Greenwich Ventures, LLC, 2 Soundview Drive, Greenwich, CT 06830.
</FN>
</TABLE>
34
<PAGE>
Item 13. Certain Relationships and Related Transactions
On May 16, 1995, the Company issued Bernhardt Denmark an option to purchase
400,000 shares of Class A Common Stock at an exercise price of $2.25 a share.
The option, which has a five-year term, was issued in connection with Mr.
Denmark's resignation from the Board of Directors, and in exchange for the
cancellation of options to purchase 400,000 shares of the Company's Class A
Common Stock at exercise prices ranging from $4.625 to $5.00 a share which were
originally granted to Mr. Denmark in 1992 and 1993 and which would have expired
by their terms three months after his resignation as a director.
See Item 11. Executive Compensation for employment agreements.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following is a list of the financial statement schedules and exhibits filed
herewith.
(a) (2) Financial Statement Schedules:
Schedules for which provisions are made in the applicable accounting regulations
of the Securities and Exchange Commission are not required under the related
instructions, or are disclosed in the accompanying consolidated financial
statements, or are inapplicable and, therefore, have been omitted.
(a) (3) Exhibits:
Exhibit
No. Description
3.1 Certificate of Incorporation of the Registrant, as amended. -
incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on November 23, 1990.
3.1.1 Amendment to Certificate of Incorporation of the Registrant, dated
October 29, 1992-incorporated by reference to the Registrant's March 31,
1996 Annual Report on Form 10-K.
3.2 By-laws of the Registrant, as amended - incorporated by reference to the
Registrant's March 31, 1996 Annual Report on Form 10-K.
10.1* Advanced Photonix, Inc. 1991 Special Directors Stock Option Plan -
incorporated by reference to Exhibit 10.9 to the Registrant's March 31,
1991 Annual Report on Form 10-K.
10.2* Advanced Photonix, Inc. 1990 Incentive Stock Option and Non-Qualified
Stock Option Plan - incorporated by reference to Exhibit No. 10.11 to
the Registrant's Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on November 23, 1990.
10.3 Form of Non-Qualified Stock Option granted to Advanced Detectors, Inc.,
formerly Xsirius, Inc. - incorporated by reference to Exhibit 10.13 to
Amendment No. 3 to the Registrant's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on February 11, 1991.
35
<PAGE>
10.4 Lease Agreement dated October 26, 1987 between Silicon Detector
Corporation and High Tech No. 1, Ltd. - incorporated by reference to
Exhibit 10.17 to the Registrant's March 31, 1992 Annual Report on Form
10-K.
10.5 Second Amendment to Lease dated September 9, 1991 between Silicon
Detector Corporation and High Tech No. 1, Ltd. - incorporated by
reference to Exhibit 10.18 to the Registrant's March 31, 1992 Annual
Report on Form 10-K.
10.6 Form of Non-Qualified Stock Option granted to Bernhardt Denmark -
incorporated by reference to the Registrant's March 31, 1996 Annual
Report on Form 10-K.
10.7 Form of Non-Qualified Stock Option granted to James W. Ward -
incorporated by reference to the Registrant's March 31, 1996 Annual
Report on Form 10-K.
10.8 Employment Agreement between Advanced Photonix, Inc. and James W. Ward -
incorporated by reference to the Registrant's March 31, 1996 Annual
Report on Form 10-K.
10.9 Employment Agreement between Advanced Photonix, Inc. and Patrick J.
Holmes.
10.10 Employment Agreement between Advanced Photonix, Inc. and Harry
Melkonian.
10.11 Loan and Security Agreement dated September 6, 1995 between Silicon
Valley Bank and Registrant - incorporated by reference to the
Registrant's March 31, 1996 Annual Report on Form 10-K.
10.12 Termination agreement between Advanced Photonix, Inc. and James W. Ward.
10.13 Advanced Photonix, Inc. 1997 Employee Stock Option Plan.
16 Letter from Certifying Accountant, dated January 30, 1993 - incorporated
by reference to Current Report on Form 8-K, dated January 30, 1993
21 List of Subsidiaries of Registrant - incorporated by reference to
Exhibit 22 to the Registrant's March 31, 1993 Annual Report on Form
10-K.
23.1 Consent of Arthur Andersen LLP, independent auditors.
(b) Reports on Form 8-K: On January 26, 1995, the Company filed a Current
Report on Form 8-K, amended by a Current Report on Form 8-K/A dated
January 26, 1995, relating to a change in the Company's certifying
accountant.
*Constitutes a compensation plan or arrangement required to be filed as part of
this report.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ADVANCED PHOTONIX, INC.
Date: June 23, 1997 By: /s/ Harry Melkonian
--------------- -------------------------
Harry Melkonian, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Signature Title Date
/s/ Hayden Leason Director, Chairman of the Board June 23, 1997
- --------------------- and Chief Executive Officer
(Principal Executive Officer)
Hayden Leason
/s/ James A. Gordon Director June 23, 1997
- ---------------------
James A. Gordon
/s/ Jon B. Victor Director June 23, 1997
- ---------------------
Jon B. Victor
/s/ James W. Ward Director June 23, 1997
- ---------------------
James W. Ward
/s/ Patrick J. Holmes Vice President, Chief Financial Officer, June 23, 1997
- --------------------- Corporate Secretary/Treasurer,
Patrick J. Holmes (Principal Financial and Accounting Officer)
37
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Agreement, made this 1st day of November, 1996, by and between Advanced
Photonix, Inc., a Delaware corporation (hereinafter called "Company"), and
Patrick J. Holmes, an individual (hereinafter called "Employee").
W I T N E S S E T H :
Company wishes to employ Employee and Employee wishes to enter into the employ
of the Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and covenants
contained herein and intending to be legally bound hereby, Company and Employee
agree as follows:
1. Employment
Company hereby employs Employee and Employee hereby accepts employment by the
Company for the period and upon the terms and conditions contained in this
Agreement.
2. Office and Duties
a) Employee shall serve Company generally as Executive Vice President, Chief
Financial Officer and Corporate Secretary & Treasurer. In his capacity, Employee
shall have such authority and such responsibilities as the President and the
Board of Directors reasonably may determine from time to time.
b) Throughout the term of this Agreement, Employee shall devote his entire
working time, energy, skill and best efforts to the performance of his duties
hereunder in a manner which will faithfully and diligently further the business
and interests of the Company. Notwithstanding the foregoing, Employee shall be
permitted to maintain memberships on the Boards of Directors and in
organizations identified to the Company in writing, provided that such
activities shall not, at any time, preclude Company or any Subsidiary (as herein
defined) of the Company, from obtaining contracts from any such company or
organization. Employee shall also be permitted to serve as a director or
consultant of additional organizations and participate in other activities for
the federal government and other groups upon the prior written approval by the
Company, which approval shall not unreasonably be withheld; provided, however,
that no such activities shall, at any time, exclude Company or any subsidiary of
the Company from obtaining contracts from the government or any other
organizations. For purposes of this Agreement, any corporation with respect to
which Company has the ability to control more than fifty percent of the voting
power shall be a "subsidiary" and all such corporations shall be "Subsidiaries".
Page 1
<PAGE>
3. Term
This Agreement shall be for a term of two years, commencing on November 1, 1996
and ending on October 31, 1998, unless sooner terminated as hereinafter
provided. Unless either party elects to terminate this Agreement at the end of
the original or any renewal term by giving the other party notice of such
election at least ninety (90) days before the expiration of the then current
term, this Agreement shall be deemed to have been for an additional term of one
(1) year commencing on the day after the expiration of the then current term.
4. Compensation and Benefits
a) For all the services rendered by the Employee to the Company, Employee shall
receive a base salary at the rate of $125,000 per year, ("Base Salary"), payable
in reasonable installments in accordance with Company's regular payroll
practices in effect from time to time.
b) Employee shall be eligible for additional salary increases as well as cash
and stock bonuses during the term of this Agreement at the discretion of the
Board of Directors. Incentive cash bonus will be $15,000.
c) Benefits to the Employee shall be the same as those customarily provided by
the Company to other employees except employee shall begin to accrue vacation at
three weeks per year and follow the normal progression as outlined in the
Company's employee manual.
5. Expenses
Company will reimburse Employee for all reasonable expenses incurred by Employee
in connection with the performance of the Employee's duties hereunder, upon
receipt of appropriate documentation and in accordance with Company's regular
reimbursement procedures and practices in effect from time to time.
6. Disability
a) If Employee becomes unable to perform his duties hereunder due to partial or
total disability or incapacity resulting from a mental or physical illness,
injury or other cause, Company will continue the payment of Employee's Base
Salary at its current rate for a period of twenty-six (26) weeks following the
date Employee is first unable to perform his duties due to such disability or
incapacity. Thereafter, Company shall have no obligation for Base Salary or
other compensation payments to Employee during the continuance of such
disability of incapacity.
b) If Employee is unable to perform his duties hereunder due to partial or total
disability or incapacity resulting from a mental or physical illness, injury or
any other cause for a period of twenty-six (26) consecutive weeks or for a
cumulative period of twenty-six (26) weeks during any twelve month period,
Company shall have the right to terminate this Agreement thereafter, in
Page 2
<PAGE>
which event company shall have no further obligations or liabilities hereunder
after the date of such termination.
7. Death
If Employee dies, all payments hereunder shall cease at the end of the month in
which Employee's death shall occur and Company shall have no further obligations
or liabilities hereunder to Employee's estate or legal representative or
otherwise.
8. Discharge for Cause
Company may discharge Employee at any time for criminal conduct (whether or not
related to Employee's employment), intoxication or drug addiction, if either of
these conditions impairs the Employee's ability to perform his duties,
insubordination, gross negligence, any violation of any express direction or any
reasonable rule or regulation established by the Company from time to time
regarding the conduct of its business, any misrepresentation made in this
Agreement, or any violation by Employee of the terms and conditions of this
Agreement, in which event Company shall have no further obligations or
liabilities hereunder after the date of such discharge.
9. Termination of Employment
(a) In the event Company shall terminate Employee's employment during the term
of this agreement, other than as a result of disability as set forth in
Paragraph 6 or for cause as set forth in Paragraph 8, at any time prior to the
expiration date of this Agreement as set forth in Paragraph 3, Company shall be
obligated to continue Employee's compensation and benefits set forth in
Paragraph 4 and 5 hereof until the later of the expiration date of this
Agreement or nine months from the date of such termination. In either such
event, (i) Company's liability to Employee as a result of any such termination
shall be limited as set forth above and (ii) Employee shall have the obligation
to mitigate his damages by using his best efforts to seek employment for which
he is suitably trained and experienced elsewhere. In the event Employee's
compensation from any such employment during the applicable period in which he
is entitled to receive compensation and benefits as set forth in this paragraph
shall be less than that available to him under this Agreement, Company shall pay
Employee any such difference. Employment from consulting activities defined in
Paragraph 2.b) and identified to the Company in writing will not be considered
for purposes of this section.
(b) In the event Company terminates Employee's employment after termination of
this agreement, other than as a result of disability or for cause, Company shall
continue compensation and medical benefits for a period of nine months after
such termination. Employee shall have the obligation to mitigate his damages by
using his best efforts to seek employment for which he is suitably trained and
experienced elsewhere. In the event Employee's compensation from any such
employment during the applicable period in which he is entitled to receive
compensation and benefits as set forth in this paragraph shall be less than that
available to him under this
Page 3
<PAGE>
Agreement, Company shall pay Employee any such difference. Employment from
consulting activities identified to the Company in writing will not be
considered for purposes of this section.
10. Company Property
All research, technology developed or being developed, advertising, sales,
manufacturers' and other materials or article or information, including without
limitation data processing reports, customer sales analyses, invoices, price
lists or information, samples or any other materials or data of any kind
furnished to Employee by Company, learned by Employee from Company's direction
or for Company's use or otherwise in connection with Employee's employment
hereunder, are and shall remain the sole and confidential property of Company;
provided, however, the foregoing shall not apply to any such material in the
public domain other than by reason of a breach of this Paragraph 10. If the
Company requests the return of such materials at any time during or at or after
the termination of Employee's employment, Employee shall immediately deliver the
same to Company.
11. Noncompetition, Trade Secrets, Etc.
a) During the term of this Agreement and for a period of one year after the
termination of his employment with the Company for any reason whatsoever,
Employee shall not, directly or indirectly, solicit, induce, encourage or
attempt to influence any client, customer, salesman or supplier of Company to
cease to do business with or to terminate his employment with Company and shall
not utilize for any such purpose any names and addresses of customers or clients
of Company or any data on or relating to past, present or prospective (at the
time of termination of Employee's employment) customers or clients of Company.
b) During the term of this Agreement, Employee shall not engage in (as a
principal, partner, director, officer, agent, employee, consultant or otherwise)
or be financially interested in any business operating within the United States,
which is involved in business activities which are the same as the business
activities carried on by Company, or being definitely planned by Company,
including exploitation of the technology developed by Company or being developed
by Company at the time of the termination of Employee's employment. However,
nothing contained in this paragraph 11 shall prevent Employee from holding for
investment no more than five percent (5%) of any class of equity securities of a
company whose securities are traded on a national securities exchange.
c) During the term of this Agreement and at all times thereafter, Employee shall
not use for his personal benefit, or disclosure, communicate or divulge to, or
use for the direct or indirect benefit of any person, firm, association or
company other than Company, any material referred to in this paragraph 11 or any
confidential information regarding the business methods, business policies,
procedures, techniques, research or development projects or results, trade
secrets, or other knowledge or processes of or developed by Company or any names
and addresses of customers or clients or any data on or relating to past,
present or prospective customers or clients or any
Page 4
<PAGE>
other confidential information relating to or dealing with the business
operations or activities of Company, made known to Employee or learned or
acquired by Employee while in the employ of Company.
d) Any and all writings, inventions, improvements, processes, procedures and/or
techniques which Employee may make, conceive, discover or develop, either solely
or jointly with any other person or persons, at any time during the term of this
Agreement, whether during working hours or at any other time and whether at the
request or upon the suggestion of the Company or otherwise, which relate to or
are useful in connection with any business now or hereafter carried on or
contemplated by the Company, including developments or expansions of its present
fields of operations, shall be the sole and exclusive property of Company.
Employee shall make full disclosure to Company of all such writings, inventions,
improvements, processes, procedures and techniques, and shall do everything
necessary or desirable to vest the absolute title thereto in Company. Employee
shall write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and otherwise aid
and assist Company so the Company can prepare and present applications for
copyright or Letters of Patent wherever possible, as well as reissues, renewals,
and extensions thereof in all countries in which it may desire to have copyright
or patent protection. Employee shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques.
e) Employee acknowledges that the restrictions contained in the foregoing
subparagraphs a), b), and c), in view of the nature of the business in which
Company is engaged are reasonable and necessary in order to protect the
legitimate interests of Company, and that any violation thereof would result in
irreparable injuries to Company, and Employee therefore acknowledges that, in
the event of his violation of any of these restrictions, Company shall be
entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled.
f) If the period of time or the area specified in subparagraphs a) or b) above
should be adjudged unreasonable in any proceeding, then the period of time shall
be reduced by such number of months or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjusted to be reasonable. If
Employee violates any of the restrictions extended for that period beginning at
the time of the commencement of any such violation and running until such time
as such violation shall be cured by Employee to the satisfaction of Company, on
a day to day basis.
12. Prior Agreements
Employee represents to Company a) that there are no restrictions, agreements or
understandings whatsoever to which Employee is a party which would prevent or
make unlawful his execution
Page 5
<PAGE>
of this Agreement and his employment hereunder shall not constitute a breach of
any contract, agreement or understanding, oral or written, to which he is a
party or by which he is bound and b) that he is free and able to execute this
Agreement and to enter into employment by Company.
13. Personal Rights and Obligations
This Agreement and all rights and obligations hereunder are personal and shall
not be assignable by either party except as provided in this subparagraph, and
any purported assignment in violation thereof shall be null and void. Any
person, firm or corporation succeeding to the business of Company (or that
portion of the business with which Employee is involved) by merger,
consolidation, purchase of assets or otherwise, must assume by contract or
operation of law the obligations of Company hereunder and in such a case
Employee shall continue to honor this Agreement with such person, firm or
corporation substituted for Company as the employer; provided, however, that
Company shall, if it still exists as a separate entity, notwithstanding such
assumption and/or assignment, remain liable and responsible for the fulfillment
of the terms and conditions of this Agreement on the part of the Company.
14. Miscellaneous
a) Indulgences, Etc.
Neither the failure nor any delay on the part of either party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same or any other right,
remedy, power or privilege, nor shall any waiver of any right, remedy, power or
privilege with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
b) Notices
All notices, requests, demands and other communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given, made and received only when delivered (personally, by courier service
such as Federal Express, or by other messenger) or when deposited in the United
States mails, registered or certified mail, postage prepaid, return receipt
requested, addressed as set forth below:
(i) if to Employee: (ii) if to Company:
Patrick J. Holmes Advanced Photonix, Inc.
259 High Meadow St. 1240 Avenida Acaso
Simi Valley, CA 93065 Camarillo, CA 93012
Page 6
<PAGE>
In addition, notice by mail shall be by air mail if posted outside of the
continental United States.
Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
c) Binding Nature of Agreement
This Agreement shall be binding upon and inure to the benefit of Company and its
successors and assigns and shall be binding upon Employee, his heirs and legal
representatives.
d) Execution in Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
e) Provisions Separable
The provisions of this Agreement are independent of and separable from each
other, and no provision shall be affected or rendered invalid or unenforceable
by virtue of the fact that for any reason any other or others of them may be
invalid or unenforceable in whole or in part.
f) Entire Agreement
This Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by agreement in writing.
g) Paragraph Headings
The paragraph headings in this Agreement are for convenience only; they form no
part of this Agreement and shall not affect its interpretation.
Page 7
<PAGE>
h) Gender, Etc.
Words used herein, regardless of the number and gender specifically used, shall
be deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context indicates is
appropriate.
i) Number of Days
In computing the number of days for purposes of this Agreement, all days shall
be counted, including Saturdays, Sundays and holidays; provided, however, that
if the final day of any time period falls on a Saturday, Sunday or holiday on
which federal banks are or may elect to be closed, then the final day shall be
deemed to be the next day which is not a Saturday, Sunday or holiday.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
ADVANCED PHOTONIX, Inc.
By: /s/ Robert G. Allison
- -------------------------
Robert G. Allison
President & Chief Executive Officer
EMPLOYEE
By:/s/ Patrick J. Holmes
- ------------------------
Patrick J. Holmes
Page 8
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Agreement, made this 1st day of November, 1996, by and between Advanced
Photonix, Inc., a Delaware corporation (hereinafter called "Company"), and Harry
Melkonian, an individual (hereinafter called "Employee").
W I T N E S S E T H :
Company wishes to employ Employee and Employee wishes to enter into the employ
of the Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and covenants
contained herein and intending to be legally bound hereby, Company and Employee
agree as follows:
1. Employment
Company hereby employs Employee and Employee hereby accepts employment by the
Company for the period and upon the terms and conditions contained in this
Agreement.
2. Office and Duties
a) Employee shall serve Company generally as President. In his capacity,
Employee shall have such authority and such responsibilities as the Board of
Directors reasonably may determine from time to time.
b) Throughout the term of this Agreement, Employee shall devote his entire
working time, energy, skill and best efforts to the performance of his duties
hereunder in a manner which will faithfully and diligently further the business
and interests of the Company. Notwithstanding the foregoing, Employee shall be
permitted to maintain memberships on the Boards of Directors and in
organizations identified to the Company in writing, provided that such
activities shall not, at any time, preclude Company or any Subsidiary (as herein
defined) of the Company, from obtaining contracts from any such company or
organization. Employee shall also be permitted to serve as a director or
consultant of additional organizations and participate in other activities for
the federal government and other groups upon the prior written approval by the
Company, which approval shall not unreasonably be withheld; provided, however,
that no such activities shall, at any time, exclude Company or any subsidiary of
the Company from obtaining contracts from the government or any other
organizations. For purposes of this Agreement, any corporation with respect to
which Company has the ability to control more than fifty percent of the voting
power shall be a "subsidiary" and all such corporations shall be "Subsidiaries".
Page 1
<PAGE>
3. Term
This Agreement shall be for a term of two years, commencing on November 1, 1996
and ending on October 31, 1998, unless sooner terminated as hereinafter
provided. Unless either party elects to terminate this Agreement at the end of
the original or any renewal term by giving the other party notice of such
election at least ninety (90) days before the expiration of the then current
term, this Agreement shall be deemed to have been for an additional term of one
(1) year commencing on the day after the expiration of the then current term.
4. Compensation and Benefits
a) For all the services rendered by the Employee to the Company, Employee shall
receive a base salary at the rate of $150,000 per year, ("Base Salary"), payable
in reasonable installments in accordance with Company's regular payroll
practices in effect from time to time. Employee shall also be granted an option
to purchase 140,000 shares of the Company's Class A Common Stock subject to the
terms of the Advanced Photonix, Inc. 1990 Incentive Stock and Non-Qualified
Option Plan including those terms included in Employee's stock option agreement
dated January 18, 1995 and amended May 1, 1995.
b) Employee shall be eligible for additional salary increases as well as cash
and stock bonuses during the term of this Agreement at the discretion of the
Board of Directors. Incentive cash bonus will be $25,000.
c) Benefits to the Employee shall be the same as those customarily provided by
the Company to other employees except employee shall begin to accrue vacation at
three weeks per year and follow the normal progression as outlined in the
Company's employee manual.
5. Expenses
Company will reimburse Employee for all reasonable expenses incurred by Employee
in connection with the performance of the Employee's duties hereunder, upon
receipt of appropriate documentation and in accordance with Company's regular
reimbursement procedures and practices in effect from time to time.
6. Disability
a) If Employee becomes unable to perform his duties hereunder due to partial or
total disability or incapacity resulting from a mental or physical illness,
injury or other cause, Company will continue the payment of Employee's Base
Salary at its current rate for a period of twenty-six (26) weeks following the
date Employee is first unable to perform his duties due to such disability or
incapacity. Thereafter, Company shall have no obligation for Base Salary or
other compensation payments to Employee during the continuance of such
disability of incapacity.
Page 2
<PAGE>
b) If Employee is unable to perform his duties hereunder due to partial or total
disability or incapacity resulting from a mental or physical illness, injury or
any other cause for a period of twenty-six (26) consecutive weeks or for a
cumulative period of twenty-six (26) weeks during any twelve month period,
Company shall have the right to terminate this Agreement thereafter, in which
event company shall have no further obligations or liabilities hereunder after
the date of such termination.
7. Death
If Employee dies, all payments hereunder shall cease at the end of the month in
which Employee's death shall occur and Company shall have no further obligations
or liabilities hereunder to Employee's estate or legal representative or
otherwise.
8. Discharge for Cause
Company may discharge Employee at any time for criminal conduct (whether or not
related to Employee's employment), intoxication or drug addiction, if either of
these conditions impairs the Employee's ability to perform his duties,
insubordination, gross negligence, any violation of any express direction or any
reasonable rule or regulation established by the Company from time to time
regarding the conduct of its business, any misrepresentation made in this
Agreement, or any violation by Employee of the terms and conditions of this
Agreement, in which event Company shall have no further obligations or
liabilities hereunder after the date of such discharge.
9. Termination of Employment
(a) In the event Company shall terminate Employee's employment during the term
of this agreement, other than as a result of disability as set forth in
Paragraph 6 or for cause as set forth in Paragraph 8, at any time prior to the
expiration date of this Agreement as set forth in Paragraph 3, Company shall be
obligated to continue Employee's compensation and benefits set forth in
Paragraph 4 and 5 hereof until the later of the expiration date of this
Agreement or twelve months from the date of such termination. In either such
event, (i) Company's liability to Employee as a result of any such termination
shall be limited as set forth above and (ii) Employee shall have the obligation
to mitigate his damages by using his best efforts to seek employment for which
he is suitably trained and experienced elsewhere. In the event Employee's
compensation from any such employment during the applicable period in which he
is entitled to receive compensation and benefits as set forth in this paragraph
shall be less than that available to him under this Agreement, Company shall pay
Employee any such difference. Employment from consulting activities defined in
Paragraph 2.b) and identified to the Company in writing will not be considered
for purposes of this section.
(b) In the event Company terminates Employee's employment after termination of
this agreement, other than as a result of disability or for cause, Company shall
continue compensation and medical benefits for a period of twelve months after
such termination. Employee shall have
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the obligation to mitigate his damages by using his best efforts to seek
employment for which he is suitably trained and experienced elsewhere. In the
event Employee's compensation from any such employment during the applicable
period in which he is entitled to receive compensation and benefits as set forth
in this paragraph shall be less than that available to him under this Agreement,
Company shall pay Employee any such difference. Employment from consulting
activities identified to the Company in writing will not be considered for
purposes of this section.
10. Company Property
All research, technology developed or being developed, advertising, sales,
manufacturers' and other materials or article or information, including without
limitation data processing reports, customer sales analyses, invoices, price
lists or information, samples or any other materials or data of any kind
furnished to Employee by Company, learned by Employee from Company's direction
or for Company's use or otherwise in connection with Employee's employment
hereunder, are and shall remain the sole and confidential property of Company;
provided, however, the foregoing shall not apply to any such material in the
public domain other than by reason of a breach of this Paragraph 10. If the
Company requests the return of such materials at any time during or at or after
the termination of Employee's employment, Employee shall immediately deliver the
same to Company.
11. Noncompetition, Trade Secrets, Etc.
a) During the term of this Agreement and for a period of one year after the
termination of his employment with the Company for any reason whatsoever,
Employee shall not, directly or indirectly, solicit, induce, encourage or
attempt to influence any client, customer, salesman or supplier of Company to
cease to do business with or to terminate his employment with Company and shall
not utilize for any such purpose any names and addresses of customers or clients
of Company or any data on or relating to past, present or prospective (at the
time of termination of Employee's employment) customers or clients of Company.
b) During the term of this Agreement, Employee shall not engage in (as a
principal, partner, director, officer, agent, employee, consultant or otherwise)
or be financially interested in any business operating within the United States,
which is involved in business activities which are the same as the business
activities carried on by Company, or being definitely planned by Company,
including exploitation of the technology developed by Company or being developed
by Company at the time of the termination of Employee's employment. However,
nothing contained in this paragraph 11 shall prevent Employee from holding for
investment no more than five percent (5%) of any class of equity securities of a
company whose securities are traded on a national securities exchange.
c) During the term of this Agreement and at all times thereafter, Employee shall
not use for his personal benefit, or disclosure, communicate or divulge to, or
use for the direct or indirect benefit of any person, firm, association or
company other than Company, any material referred to in this
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paragraph 11 or any confidential information regarding the business methods,
business policies, procedures, techniques, research or development projects or
results, trade secrets, or other knowledge or processes of or developed by
Company or any names and addresses of customers or clients or any data on or
relating to past, present or prospective customers or clients or any other
confidential information relating to or dealing with the business operations or
activities of Company, made known to Employee or learned or acquired by Employee
while in the employ of Company.
d) Any and all writings, inventions, improvements, processes, procedures and/or
techniques which Employee may make, conceive, discover or develop, either solely
or jointly with any other person or persons, at any time during the term of this
Agreement, whether during working hours or at any other time and whether at the
request or upon the suggestion of the Company or otherwise, which relate to or
are useful in connection with any business now or hereafter carried on or
contemplated by the Company, including developments or expansions of its present
fields of operations, shall be the sole and exclusive property of Company.
Employee shall make full disclosure to Company of all such writings, inventions,
improvements, processes, procedures and techniques, and shall do everything
necessary or desirable to vest the absolute title thereto in Company. Employee
shall write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and otherwise aid
and assist Company so the Company can prepare and present applications for
copyright or Letters of Patent wherever possible, as well as reissues, renewals,
and extensions thereof in all countries in which it may desire to have copyright
or patent protection. Employee shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques.
e) Employee acknowledges that the restrictions contained in the foregoing
subparagraphs a), b), and c), in view of the nature of the business in which
Company is engaged are reasonable and necessary in order to protect the
legitimate interests of Company, and that any violation thereof would result in
irreparable injuries to Company, and Employee therefore acknowledges that, in
the event of his violation of any of these restrictions, Company shall be
entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled.
f) If the period of time or the area specified in subparagraphs a) or b) above
should be adjudged unreasonable in any proceeding, then the period of time shall
be reduced by such number of months or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjusted to be reasonable. If
Employee violates any of the restrictions extended for that period beginning at
the time of the commencement of any such violation and running until such time
as such violation shall be cured by Employee to the satisfaction of Company, on
a day to day basis.
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<PAGE>
12. Prior Agreements
Employee represents to Company a) that there are no restrictions, agreements or
understandings whatsoever to which Employee is a party which would prevent or
make unlawful his execution of this Agreement and his employment hereunder shall
not constitute a breach of any contract, agreement or understanding, oral or
written, to which he is a party or by which he is bound and b) that he is free
and able to execute this Agreement and to enter into employment by Company.
13. Personal Rights and Obligations
This Agreement and all rights and obligations hereunder are personal and shall
not be assignable by either party except as provided in this subparagraph, and
any purported assignment in violation thereof shall be null and void. Any
person, firm or corporation succeeding to the business of Company (or that
portion of the business with which Employee is involved) by merger,
consolidation, purchase of assets or otherwise, must assume by contract or
operation of law the obligations of Company hereunder and in such a case
Employee shall continue to honor this Agreement with such person, firm or
corporation substituted for Company as the employer; provided, however, that
Company shall, if it still exists as a separate entity, notwithstanding such
assumption and/or assignment, remain liable and responsible for the fulfillment
of the terms and conditions of this Agreement on the part of the Company.
14. Miscellaneous
a) Indulgences, Etc.
Neither the failure nor any delay on the part of either party to exercise any
right, remedy, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same or any other right,
remedy, power or privilege, nor shall any waiver of any right, remedy, power or
privilege with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
b) Notices
All notices, requests, demands and other communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given, made and received only when delivered (personally, by courier service
such as Federal Express, or by other messenger) or when deposited in the United
States mails, registered or certified mail, postage prepaid, return receipt
requested, addressed as set forth below:
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(i) if to Employee: (ii) if to Company:
Harry Melkonian Advanced Photonix, Inc.
10454 Hugo Ct. 1240 Avenida Acaso
Ventura, CA 93004 Camarillo, CA 93012
In addition, notice by mail shall be by air mail if posted outside of the
continental United States.
Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this paragraph for the giving of notice.
c) Binding Nature of Agreement
This Agreement shall be binding upon and inure to the benefit of Company and its
successors and assigns and shall be binding upon Employee, his heirs and legal
representatives.
d) Execution in Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
e) Provisions Separable
The provisions of this Agreement are independent of and separable from each
other, and no provision shall be affected or rendered invalid or unenforceable
by virtue of the fact that for any reason any other or others of them may be
invalid or unenforceable in whole or in part.
f) Entire Agreement
This Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by agreement in writing.
g) Paragraph Headings
The paragraph headings in this Agreement are for convenience only; they form no
part of this Agreement and shall not affect its interpretation.
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<PAGE>
h) Gender, Etc.
Words used herein, regardless of the number and gender specifically used, shall
be deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context indicates is
appropriate.
i) Number of Days
In computing the number of days for purposes of this Agreement, all days shall
be counted, including Saturdays, Sundays and holidays; provided, however, that
if the final day of any time period falls on a Saturday, Sunday or holiday on
which federal banks are or may elect to be closed, then the final day shall be
deemed to be the next day which is not a Saturday, Sunday or holiday.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
ADVANCED PHOTONIX, Inc.
By: /s/Robert G. Allison
- ------------------------
Robert G. Allison
President & Chief Executive Officer
EMPLOYEE
By: /s/Harry Melkonian
- ------------------
Harry Melkonian
Page 8
<PAGE>
October 16, 1996
Mr. James W. Ward
c/o Advanced Photonix, Inc.
1240 Avenida Acaso
Camarillo, California 93012
Dear James:
This letter sets forth the terms and conditions of our agreement (the
"Agreement") regarding the termination of your employment with Advanced
Photonix, Inc. (the "Company"). This Agreement is made and entered into as of
October 16, 1996 (the "Effective Date"). You and the Company hereby agree as
follows:
1. You will no longer be Chairman of the Board, Chief Executive Officer and
President of the Company effective as of October 16, 1996. You and the Company
agree that you shall remain a transition employee of the Company until the
earlier to occur of (the "Separation Date"): (i) July 16, 1997; (ii) such time
as you secure employment outside the Company which provides you with annual
compensation in an amount equal to or greater than your current base salary; or
(iii) such time as you secure employment outside the Company which presents a
conflict of interest with the Company.
a) You may submit, at any time prior to the Separation Date, written request to
the Company for a determination as to whether any particular employment would
present a conflict of interest with the Company. Such request shall be delivered
to the Chief Executive Officer of the Company and shall set forth in reasonable
detail all relevant facts regarding such employment, including but not limited
to the name of the employer, the type of business engaged in by such employer
and the specific duties to be performed by you for such employer.
b) Should the Company determine that such employment would present a conflict of
interest with the Company, it shall inform you of such determination within
seven (7) business days of the date the Company receives any request submitted
in accordance with subparagraph (a) above, and shall set forth with reasonable
detail the basis for its determination.
c) Any failure by the Company to respond to a request submitted in accordance
with subparagraph (a) above within seven (7) business days of the date such
request is received shall be deemed to be, for the purposes of this Agreement, a
determination by the Company that such employment would not present a conflict
of interest with the Company.
2. During the period commencing as of the Effective Date hereof and ending as of
the Separation Date (the "Transition Period"), we will facilitate the transition
of your employment as follows:
a) During the Transition Period, you shall be responsible for such transition
activities as may be reasonably assigned by the Company's President and/or Chief
Executive Officer ("CEO"). Any such activities shall be appropriately suited for
an individual of your education, employment history and business experience. You
shall not be required to perform any activities that would interfere with your
efforts to secure other employment and you shall not be required to perform any
activities that would interfere with any other employment you secure. You agree
that, throughout the Transition Period, you will continue to be bound by the
Company's policies, procedures and practices, to the extent such policies,
procedures and practices do not conflict with the provisions of this Agreement.
You shall report to the CEO throughout the Transition Period.
<PAGE>
James W. Ward
October 16, 1996
Page 2
b) During the period commencing on October 16, 1996 and ending as of the
Separation Date, the Company will continue to pay you your base salary in effect
as of the Effective Date, such payments to be paid on the Company's current
payroll dates and subject to withholding of any and all applicable state and
federal taxes and any and all applicable payroll withholding taxes and
obligations; provided that
i) After April 16, 1997, the salary paid to you in accordance with this
subparagraph (b) shall be reduced by any and all compensation earned
or received by you during the Transition Period from sources other
than the Company, including but not limited to any and all wages,
salaries, bonuses, commissions and/or consulting fees, but excluding
any interest, dividends, investment income and income from other
non-employment activities. You agree to notify the Company of such
compensation within five (5) business days of the earlier of (i) the
receipt of such compensation, or (ii) the date on which you become
entitled to receive such compensation.
ii) In the event the Separation Date occurs prior to April 16, 1997, the
Company shall pay you severance benefits equal to (i) your monthly
base salary multiplied by (ii) the number of months (or portions
thereof) remaining between the Separation Date and April 16, 1997,
such benefits to be paid in equal payments coincident with the
Company's current payroll dates and subject to withholding of any and
all applicable state and federal taxes and any and all applicable
withholding taxes and obligations.
c) In the event the Separation Date occurs prior to May 10, 1997, the Company
shall take all necessary action to accelerate the vesting of the stock options
granted to you prior to the Effective Date, such that the number of shares of
the Company's common stock you are entitled to purchase pursuant to such options
as of the Termination Date equals the number of shares of common stock you would
have been entitled to purchase pursuant to such options as of May 10, 1997.
d) If you become unable to perform activities pursuant to this Agreement due to
partial or total disability or incapacity resulting from a mental or physical
illness, injury or other cause, the Company will continue the payment of your
base salary, as such may be reduced by subparagraph (b) above, through the
Separation Date. If you die before the Separation Date, all payments hereunder
shall cease at the end of the calendar month in which your death occurs or at
the Separation Date, whichever is earlier, and the Company shall have no further
obligations or liabilities hereunder to your estate or legal representative or
otherwise.
e) Commencing as of the Effective Date, you shall have no power, right or
authority to execute contracts on behalf of the Company or otherwise represent
or purport to represent the Company in any manner whatsoever to any third party
unless expressly authorized to do so in writing by the CEO of the Company;
provided, however, that no provision of this Agreement shall be construed as
limiting or expanding your rights, or authority to act, as a member of the Board
of Directors of the Company.
f) The Company will pay you, within 20 business days of the Effective Date, the
128.45 hours of accrued and unused vacation time you earned through the
Effective Date, subject to standard payroll deductions and withholdings. You
shall not accrue, nor shall you be entitled to, any paid vacation time during
the Transition Period.
g) To the extent permitted by the Company's employee benefit plans, you will be
entitled to continue, until the Separation Date, your participation in all
employee benefit plans in which you are currently a participant.
h) During the Transition Period, you agree that you will use your reasonable
best efforts to secure employment for which you are suitably trained and
experienced.
<PAGE>
James W. Ward
October 16, 1996
Page 3
3. You will be entitled to keep the personal computer provided to you by the
Company, provided that, within five (5) business days of the Separation Date,
you execute the Release attached hereto as Exhibit A. You agree that, if you do
not execute the Release attached hereto as Exhibit A within five (5) days of the
Separation Date, you shall return the personal computer provided to you by the
Company within ten (10) business days of the Separation Date.
4. You hereby acknowledge that, except as expressly provided in (i) this
Agreement, (ii) your Incentive Stock Option dated January 15, 1995, as amended
May 1, 1995, and (iii) your Non-Qualified Stock Option dated January 15, 1995,
as amended May 1, 1995, all benefits and compensation to which you may otherwise
be entitled pursuant to any other agreement, written or oral, entered into prior
to this Agreement shall cease as of the Effective Date.
5. You hereby agree that you will not, until January 17, 1997, without the prior
written consent of the Company, exercise any of the stock options granted to you
prior to the Effective Date.
6. You hereby represent and warrant to the Company that, to the best of your
actual, present knowledge, you have previously disclosed all material
transactions involving, arising from or relating to your employment with the
Company as Chairman of the Board, Chief Executive Officer and President.
7. You acknowledge and agree that you will continue to be bound by the
provisions of Section 11 of your employment Agreement dated January 15, 1995, a
copy of which is attached hereto as Exhibit B, which provisions are incorporated
herein by reference.
8. You agree not to disparage the Company or its officers, directors, employees,
stockholders, accountants, attorneys or agents in any manner likely to be
harmful to it or the business or personal reputation of its officers, directors,
employees, stockholders, accountants, attorneys or agents; provided that you
shall respond accurately and fully to any question, inquiry or request for
information when required by legal process. The Company agrees not to disparage
you in any manner likely to be harmful to your business or personal reputation;
provided that the Company shall respond accurately and fully to any question,
inquiry or request for information when required by legal process.
9. The Company hereby represents and warrants to you that, to the best of the
Company's actual, present knowledge, the Company does not have any claims or
causes of action against you arising from or relating to your employment with
the Company or any agreements, acts or conduct at any time prior to the date of
this Agreement. As used herein, the phrase "the Company's actual, present
knowledge" means the actual present knowledge of Robert Allison, Harry
Melkonian, Patrick Holmes and Robert King.
10. You hereby release, acquit, and forever discharge the Company, its officers,
directors, agents, servants, employees, shareholders, partners, successors,
assigns, affiliates, insurers, attorneys, customers, and clients of and from any
and all liabilities, demands, causes of action, costs, expenses, attorneys'
fees, damages, and obligations of every kind and nature, at law, in equity, or
otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, acts or conduct
at any time prior to the date of this Agreement, including, without limitation:
all such claims and demands directly or indirectly arising out of or in any
connected with the Company's employment of you, the termination of that
employment, and the Company's performances of its obligations as your former
employer; claims or demands related to salary, bonuses, commissions, stock,
stock options, vacation pay, fringe benefits, expense reimbursements or any form
of compensation; claims pursuant to any federal, state or local law or cause of
action including, but not limited to, the federal Civil Rights Act of 1964, as
amended; the Americans With Disabilities Act; fraud; wrongful discharge;
discrimination; defamation; emotional distress, and breach of the implied
covenant of good faith and fair dealing; provided, however, that the foregoing
release shall not include a release of any rights you may have to
indemnification by the Company with respect to claims brought against you by
third parties in connection with your performance within the course and scope of
your employment with the Company and/or your performance as a member of the
Board of Directors of the Company.
<PAGE>
James W. Ward
October 16, 1996
Page 4
You further acknowledge that you are knowingly and voluntarily waiving and
releasing any rights you may have under the Age Discrimination in Employment Act
of 1967 ("ADEA"). You also acknowledge that the consideration given for the
waiver and release in the preceding paragraphs hereof is in addition to anything
of value to which you were already entitled. If you are more than forty (40)
years of age or older when this release is signed, you hereby provide the
further acknowledgment that you are advised by this writing, as required by the
Older Workers Benefit Protection Act, that: (a) your waiver and release do not
apply to any rights or claims that may arise after the effective date of this
release; (b) you should consult with an attorney prior to executing this release
(although you may voluntarily choose not to do so); (c) you may have at least
twenty-one (21) days to consider this Agreement (although you may by your own
choice execute this release earlier); (d) you have seven (7) days following the
execution of this release to revoke this release; and (e) this Agreement shall
not be effective until the date upon which the revocation period has expired,
therefore making the Effective Date the eighth day after this release is signed
by you.
11. You acknowledge that you have read and understand, and that your attorney
has explained to you, Section 1542 of the Civil Code of the State of California
which reads as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
You hereby expressly waive and relinquish all rights and benefits under this
section and any law or legal principle of similar effect in any jurisdiction
with respect to the release granted in this Agreement.
12. The parties hereto each hereby agree and acknowledge that they will keep the
terms, amount and existence of this Agreement completely confidential, and that
neither party will hereafter disclose any such information to anyone other than
the party's accountants and legal representatives and, in your case, your
immediate family, future employers and/or investors, which persons shall be
informed of and bound by this confidentiality clause, unless otherwise legally
required to do so.
13. Any controversy, dispute or claim arising out of, in connection with or in
relation to the interpretation or performance of this Agreement shall be
resolved through binding and nonappealable arbitration administered by the
Judicial Arbitration and Medication Services, Inc. ("JAMS") in San Diego County,
California. Any such arbitration shall be conducted before a single arbitrator
to be appointed by the parties from JAMS' roster. If the parties fail to agree
as to the identity of the single arbitrator, JAMS shall have the right to make
such appointment. Discovery prior to the arbitration hearing shall be limited to
the exchange of witness lists and copies of documentary evidence and documents
relating to or arising out of the issues to be arbitrated. The nonprevailing
party shall pay the prevailing party's costs and expenses (including attorneys'
fees) of any such arbitration. Other than as specified herein, the arbitration
shall be governed by the standard rules governing JAMS arbitrations.
14. The parties acknowledge that the drafting and negotiation of this Agreement
has been participated in by each of the parties and their respective attorneys
and, for purposes of interpreting this Agreement, it shall be deemed to have
been jointly drafted by the parties. The parties expressly warrant and represent
that they have been given the opportunity to consult with an attorney with
respect to the terms of this Agreement.
15. The parties hereto hereby acknowledge that this is a compromise settlement
of various matters, and that the promised payments in consideration of this
Agreement shall not be construed to be an admission of any liability or
obligation by either party to the other party or to any other person whomsoever.
16. This Agreement shall bind the heirs, personal representatives, successors
and assigns of each party, and inure to the benefit of each party, its agents,
directors, officers, employees, servants, successors and assigns.
17. If a court of competent jurisdiction determines that any term or provision
of this Agreement is invalid or unenforceable, in whole or in part, then the
remaining terms and provisions hereof shall be unimpaired. Such court will have
the authority to modify or replace the invalid or unenforceable term or
provision with a valid and enforceable term or provision that most accurately
represents the parties' intentions with respect to the invalid or enforceable
term or provision.
<PAGE>
James W. Ward
October 16, 1996
Page 5
18. This Agreement shall be deemed to have been entered into and shall be
construed and enforced in accordance with the laws of the State of California as
such laws are applied to contracts among California residents made and to be
performed entirely within California.
19. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
20. This Agreement constitutes the complete, final and exclusive embodiment of
the entire Agreement between you and the Company with regard to the subject
matter hereof. It is entered into without reliance on any promise or
representation, written or oral, other than those expressly contained herein. It
may not be modified except in a writing signed by you and duly authorized
officer of the Company. Each part has carefully read this Agreement, has been
afforded the opportunity to be advised of its meaning and consequences by his or
its respective attorneys, and signed the same of his or its free will.
Please confirm your assent to the foregoing terms and conditions of our
Agreement by signing both of the enclosed copies of this letter and returning
one of those signed copies to me.
Sincerely,
ADVANCED PHOTONIX, INC.
/s/ Robert G. Allison
Chief Executive Officer
Having read and reviewed the foregoing, I hereby agree to and accept the terms
and conditions as stated above.
/s/ James W. Ward
<PAGE>
EXHIBIT A
RELEASE
In consideration for the provision by the Company of a personal computer, as set
forth under paragraph 3 of the foregoing letter, a benefit to which you are not
otherwise entitled, you hereby release and forever discharge the Company, its
officers, directors, agents, attorneys, employees, stockholders, successors,
assigns and affiliates, of and from any and all claims, liabilities, demands,
causes of action, costs, expenses, attorneys' fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or
in any way related to agreement, events, acts or conduct through the Separation
Date, including, but not limited to: all such claims or demands directly or
indirectly arising out of my employment or the termination of my employment,
claims or demands related to salary, bonuses, commissions, stock, stock options,
or any other ownership interests in the Company, vacation pay, fringe benefits,
expense reimbursements, severance pay, sabbatical benefits or any other form of
compensation; claims pursuant to any federal, state or local law or cause of
action including, but not limited to, the federal civil Rights Act of 1964, as
amended; the California Fair Employment and Housing Act, as amended; the federal
Americans with Disabilities Act of 1990; the federal Age Discrimination in
Employment Act of 1967, as amended; other discrimination claims; tort law;
contract law; wrongful discharge; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that the foregoing
release shall not include a release of any rights you may have to
indemnification by the Company with respect to claims brought against you by
third parties in connection with your performance within the course and scope of
your employment with the Company and/or your performance as a member of the
Board of Directors of the Company.
You further acknowledge that you are knowingly and voluntarily waiving and
releasing any rights you may have under the Age Discrimination in Employment Act
of 1967 ("ADEA"). You also acknowledge that the consideration given for the
waiver and release in the preceding paragraphs hereof is in addition to anything
of value to which you were already entitled. If you are more than forty (40)
years of age or older when this release is signed, you hereby provide the
further acknowledgment that you are advised by this writing, as required by the
Older Workers Benefit Protection Act, that: (a) your waiver and release do not
apply to any rights or claims that may arise after the effective date of this
release; (b) you should consult with an attorney prior to executing this release
(although you may voluntarily choose not to do so); (c) you may have at least
twenty-one (21) days to consider this Agreement (although you may by your own
choice execute this release earlier); (d) you have seven (7) days following the
execution of this release to revoke this release; and (e) this release shall not
be effective until the date upon which the revocation period has expired,
therefore making the effective date of this release the eighth day after this
release is signed by you.
You acknowledge that you have read and understand section 1542 of the Civil Code
of the State of California which reads as follows:
A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.
You hereby expressly waive and relinquish all rights and benefits under that
section and any similar law of any jurisdiction with respect to the release you
are granting in this Release.
Date:___________________
NOT SIGNED AS OF 6/23/97
- -----------------------
JAMES W. WARD
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
See Item 14(a)(3) Exhibit No. 10.8 of this Form 10-K.
<PAGE>
February 10th, 1997
Mr. James W. Ward
28 Beaconsfield
Dove Canyon, CA 92679
Dear Jim,
This letter serves to amend your separation agreement with Advanced Photonix,
Inc. as follows:
Whereas, Mr. Ward has been asked by the Board of Directors to take an active
role in the further validation and development of the Large Area Avalanche
Photodiode and Large Area Array Photodiode and;
Whereas, Mr. Ward has agreed to provide the effort necessary to assist in this
process and;
Whereas, the Company recognizes that such activity will deter Mr. Ward from his
continuing job search and;
Whereas, the Company would like to provide fair compensation to Mr. Ward in
exchange for the efforts required to support the validation process;
Now, Therefore, it is hereby agreed by and between the parties hereto as
follows:
1. The Transition Period shall be extended from April 16th, 1997 to June
16th, 1997.
2. The Separation Date shall be extended from July 16th, 1997 to September
16th, 1997.
Pursuant to this amendment, the Company will change thearticles as described
under items 1, 2, and 4 to match the dates as set forth within this amendment.
You acknowledge that all other elements of your agreement in their original
form remain in force.
Please sign below your acceptance of this amendment.
Sincerely,
/s/ Robert G. Allison
Director
Accepted by:
/s/ James W. Ward Date Accepted: 2-11-97
EXHIBIT 10.13
1997 EMPLOYEE STOCK OPTION PLAN
OF
ADVANCED PHOTONIX, INC.
(As adopted by the Board of Directors as of January 14, 1997)
1. The Plan. This 1997 Employee Stock Option Plan (the "Plan") is intended to
encourage ownership of stock of Advanced Photonix, Inc. (which together with its
subsidiaries is hereinafter referred to as the "Corporation") by specified
employees of, and consultants and advisors to, the Corporation and its
subsidiaries and to provide additional incentive for them to promote the success
of the business of the Corporation.
2. Stock Subject to the Plan. Except as otherwise provided herein, the total
number of shares of Class A Common Stock, par value $.001 per share, of the
Corporation (the "Stock") which may be issued pursuant to the exercise of
options granted hereunder ("Options") shall be 1,000,000. Such shares of Stock
may be in whole or in part, either authorized and unissued shares or treasury
shares as the Board of Directors of the Corporation (the "Board") shall from
time to time determine. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares covered thereby
shall (unless the Plan shall have been terminated) again be available for
Options under the Plan.
3. Administration of the Plan. The Plan shall be administered by a committee
(the "Committee") composed of two or more non-employee members of the Board
which shall have plenary authority, in its discretion, to determine the
employees of the Corporation and its subsidiaries to whom Options shall be
granted ("Optionees"), the number of shares to be subject to each Option
(subject to the provisions of Paragraph 2), the option exercise price (the
"Exercise Price") (subject to the provisions of Paragraph 7), the vesting
schedule of each option, whether an Option is intended to be an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code (an "ISO")
or whether it is intended not to be an ISO (a "Non ISO") and the other terms of
each Option. The Committee shall hold meetings at such times and places as it
may determine. Acts approved at a meeting by a majority of the members of the
Committee or acts approved in writing by the unanimous consent of the members of
the Committee shall be the valid acts of the Committee. The Committee shall have
plenary authority, subject to the express provisions of the Plan, to interpret
the Plan, to prescribe, amend and rescind any rules and regulations relating to
the Plan and to take such other action in connection with the Plan as it deems
necessary or advisable. The interpretation and construction
1
<PAGE>
by the Committee of any provisions of the Plan or of any Option granted
thereunder shall be final and no member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted thereunder by the Committee.
4. Employees Eligible for Options. All employees of and consultants and advisors
to, the Corporation shall be eligible for Options. In making the determination
as to persons to whom Options shall be granted, the number of shares to be
covered by such Options, and the other terms and conditions of the Option, the
Committee shall take into account their duties, their present and potential
contributions to the success of the Corporation and such other factors as it
shall deem relevant in connection with accomplishing the purpose of the Plan.
5. Term of Plan. The Plan shall terminate on, and no Options shall be granted
after, January 13, 2007 provided that the Committee may at any time terminate
the Plan prior thereto.
6. Maximum Option Grant. Subject to the provisions of Section 2 above, the
number of shares of Stock for which any individual may be granted Options shall
be unlimited.
7. Exercise Price. Each Option shall state the exercise price, which shall be
such price as the Committee in its discretion may determine provided, however,
that in the case of ISOs, the exercise price shall be not less than 100% of the
fair market value of the Stock on the date of the granting of the Option, nor
less than 110% of such fair market value in the case of an ISO granted to an
individual who, at the time the Option is granted, is a 10% Holder (as
hereinafter defined). The fair market value of shares of Stock shall be
determined by the Committee and shall be (i) the closing price of the Stock on
the date of the granting of the Option if the Stock is traded on a regulated
securities exchange, or (ii) if not traded on such an exchange, the mean between
the high bid and low asked prices on such date as reported by a recognized
over-the-counter reporting source.
8. Term of Options. The term of each Option granted under this Plan shall be for
a maximum of ten years from the date of granting thereof, and a maximum of five
years in the case of an ISO granted to a 10% Holder, but may be for a lesser
period or be subject to earlier termination as hereinafter provided.
9. Exercise of Options. Except as otherwise provided by the Committee, an Option
may be exercised from time to time as to any part or all of the Stock covered
thereby, provided, however, that an Option may not be exercised (a) as to less
than 100 shares at any time (or as to less than the remaining shares then
purchasable under
2
<PAGE>
the Option, if less than 100 shares), and (b) prior to the expiration of at
least six months from the date of grant. The Exercise Price shall be paid in
full at the time of the exercise of an Option (i) in cash or (ii) by the
transfer to the Corporation of shares of its Stock with a fair market value (as
determined by the Committee) equal to the purchase price of the Stock issuable
upon exercise of such Option. The holder of an Option shall not have any rights
as a stockholder with respect to the Stock issuable upon exercise of an Option
until certificates for such Stock shall have been delivered to him after the
exercise of the Option.
10. Non-Transferability of Options. Except as provided in the following
sentence, an Option shall not be transferable otherwise than by will or the laws
of descent and distribution and is exercisable during the lifetime of the
employee only by him or his guardian or legal representative. Options will be
transferable to members of an Optionee's immediate family, including trusts for
the benefit of such family members and partnerships in which such family members
are the only partners ("Permitted Transferees"). A transferred Option would be
subject to all of the same terms and conditions as if such Option had not been
transferred.
11. Form of Option. Each Option granted pursuant to the Plan shall be evidenced
by an agreement (the "Option Agreement") which shall clearly identify the status
of the Options granted thereunder (i.e., whether an ISO or Non-ISO) and which
shall be in such form as the Committee shall from time to time approve. The
Option Agreement shall comply in all respects with the terms and conditions of
the Plan and may contain such additional provisions, including, without
limitation, restrictions upon the exercise of the Option, as the Committee shall
deem advisable.
12. Termination of Options. No Option shall be exercisable after the first to
occur of the following:
a. Expiration of the Option term specified in the Option, which in no event
shall exceed (A) ten years from the date of grant, or (B) in the case of an
ISO granted to an Optionee who is a 10% Holder, five years from the date of
the grant;
b. Six months following the date the Optionee ceases to be an employee of the
Company for any reason; or
c. The date, if any, set by the Committee to be an accelerated expiration date
pursuant to the provisions of Paragraph 17 below.
13. Cessation of Employment. For purposes of the Plan, the termination of the
contractual relationship between the Corporation and a consultant or advisor
shall be deemed a termination or cessation of employment.
3
<PAGE>
14. Limit on Exercise of Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time Options are granted) of the Shares with respect
to which Incentive Stock Options may first become exercisable by an Optionee in
any one calendar year under the Plan and under any other plan of the Corporation
or an affiliate of the Corporation, shall not exceed $100,000. The limits
imposed by this Paragraph 9 shall apply only to Incentive Stock Options granted
under the Plan, and not to any other Options. In the event an individual
receives an Option intended to be an Incentive Stock Option which is
subsequently determined to have exceeded the limit set forth above, or if any
individual is granted an Option intended to be an ISO that first becomes
exercisable in a calendar year for Option Shares that have an aggregate fair
market value (determined as of the time the Options are granted) exceeding the
limits set forth above, the Options for Option Shares in excess of the limit
shall be treated as non-ISOs.
15. Stock Dividends or Recapitalization. In the event of a stock dividend paid
in shares of the class of stock subject to any Option outstanding hereunder, or
recapitalization, reclassification, split-up or combination of shares with
respect to said class of stock, the Committee shall have the power to make
appropriate adjustments of the exercise price under such option and of the
number and kind of shares as to which such Option is then exercisable, to the
end that the Optionee's proportionate interest shall be maintained as before the
occurrence of such event, and in any case an appropriate adjustment shall also
be made in the total number and kind of shares of stock reserved for the future
granting of options under this Plan. Any such adjustment made by the Committee
pursuant to this Plan shall be binding upon the holders of all unexpired option
rights outstanding hereunder. Anything in the foregoing to the contrary
notwithstanding, no such adjustment shall be made with respect to any option
which is an ISO without the consent of the Optionee, if such adjustment would be
a modification of such option within the meaning of subsection 425(h) of the
Internal Revenue Code.
16. Mergers, Consolidation, Reorganization, Etc. If the Corporation shall become
a party to any corporate merger, agreement for the sale of substantially all of
its assets and property, separation or reorganization, the Committee shall have
the power to make appropriate arrangements, which shall be binding upon the
holders of unexpired option rights, for the substitution of new options for any
unexpired options then outstanding under this Plan, or for the assumption of any
such unexpired options, which in the opinion of the Committee maintain, to the
maximum extent practicable, the Optionee's proportionate interest as before the
occurrence of such event; provided, however, that such arrangements shall meet
the requirements of subsections 422A (with respect to ISOs) and 425(h)(a) of the
Internal Revenue Code.
4
<PAGE>
17. Liquidation or Dissolution of the Corporation.
a. In the event of the dissolution or liquidation of the Corporation,
whether voluntary or otherwise, and unless in connection therewith the
obligations of the Corporation under all outstanding options granted under this
Plan have been assumed or replaced in accordance with Section 16 hereof, all
options outstanding under this Plan shall be exercised, if at all, within the
ninety day period commencing on the date specified in subparagraph (b) below and
shall be exercisable only to the extent of, and with respect to, any or all
shares for which they could have been exercised immediately prior to such date.
All options not exercisable prior to the date specified in subparagraph (b)
shall terminate upon such date, and all options exercisable immediately prior to
such date shall, to the extent not exercised within the ninety-day period
commencing on such date, terminate at the end of such ninety-day period.
b. The date specified in this subparagraph (b) is the date of the earliest to
occur of the following events:
i. The entry, in a court having jurisdiction, of an order that the
corporation be liquidated or dissolved;
ii. Adoption by the shareholders of the Corporation of a resolution
resolving that the corporation be liquidated or dissolved voluntarily;
or
iii. Adoption by the shareholders of the Corporation of a resolution to the
effect that the Corporation cannot, by reason of its liabilities,
continue its business and that it is advisable to liquidate or
dissolve the Corporation.
18. Shareholder and Stock Exchange Approval. This Plan is subject to and no
Options shall be exercisable hereunder until after the approval by the holders
of a majority of the Stock of the Corporation voting at a duly held meeting of
the stockholders of the Corporation within twelve months after the date of the
adoption of the Plan by the Board.
19. Amendment of the Plan. The Board shall have complete power and authority to
modify or amend the Plan (including the form of Option Agreement) from time to
time in such respects as it shall deem advisable; provided, however, that the
Board shall not, without the approval of the votes represented by a majority of
the outstanding Stock of the Corporation present or represented at a meeting
duly held in accordance with the applicable laws of the Corporation's
jurisdiction of incorporation and entitled to vote at a meeting of stockholders
or by the written consent of stockholders owning stock representing a majority
of the votes of the corporation's outstanding stock, (i) increase the maximum
number of shares which in the
5
<PAGE>
aggregate are subject to Options under the Plan (except as provided by Paragraph
15), (ii) extend the term of the Plan or the period during which Options may be
granted or exercised, (iii) reduce the Exercise Price, in the case of ISOs below
100% (110% in the case of an ISO granted to a 10% Holder) of the fair market
value of the Stock issuable upon exercise of Options at the time of the granting
thereof, other than to change the manner of determining the fair market value
thereof, (iv) increase the maximum number of shares of Stock for which any
employee may be granted Options under the Plan pursuant to Paragraph 6, (v)
modify the requirements as to eligibility for participation in the Plan, or (vi)
with respect to options which are ISOs, amend the plan in any respect which
would cause such options to no longer qualify for ISO treatment pursuant to the
Internal Revenue Code. No termination or amendment of the Plan shall, without
the consent of the individual Optionee, adversely affect the rights of such
Optionee under an Option theretofore granted to him or under such Optionee's
Option Agreement.
20. Taxes. The Corporation may make such provisions as it may deem appropriate
for the withholding of any taxes which it determines is required in connection
with any Options granted under the Plan. The Corporation may further require
notification from the Optionees upon any disposition of Stock acquired pursuant
to the exercise of Options granted hereunder.
21. Code References and Definitions. Whenever reference is made in this Plan to
a section of the Internal Revenue Code, the reference shall be to said section
as it is now in force or as it may hereafter be amended by any amendment which
is applicable to this Plan. The term "subsidiary" shall have the meaning given
to the term "subsidiary corporation" by Section 425(f) of the Internal Revenue
Code. The term "10% Holder" shall mean any person who, for purposes of Section
422 of the Internal Revenue Code owns more than 10% of the total combined voting
power of all classes of stock of the employer corporation or of any subsidiary
corporation.
6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statement File No. 33-45462, No. 33-45463 and No. 33-85274.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 25, 1997
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