<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C.
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal year ended April 30, 1997
------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
-------------- -------------
Commission file number 0-22760
---------------------------------------
Airport Systems International, Inc.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Kansas 48-1099142
-------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 West 89th Street, Overland Park, Kansas 66214
- --------------------------------------------------------------------------------
Address of principal executive offices) (Zip Code)
Issuer's telephone number (913) 495-2600
------------------------------------------------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
- --------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $20,098,000
--------------
The aggregate market value of the voting stock held by non-affiliates
of the issuer on June 1, 1997, based upon the average bid and ask prices for
such stock on that date was $14,219,437. The number of shares of Common Stock of
the issuer outstanding as of June 1, 1997 was 2,230,500.
Documents incorporated by reference:
- Portions of the Annual Report to Shareholders for the year
ended April 30, 1997, are incorporated by reference into
Part II.
- Registrant's definitive proxy statement to be filed
pursuant to Regulation 14A promulgated by the
Securities and Exchange Commission under the Securities
Exchange Act of 1934, which definitive proxy statement
is anticipated to be filed within 120 days after the
end of Registrant's fiscal year ended April 30, 1997,
is incorporated by reference in Part III hereof.
Page 1
<PAGE> 2
Part I
Item 1. DESCRIPTION OF BUSINESS
(A) BUSINESS DEVELOPMENT
The Company engages in the design, manufacture, marketing and installation of
ground-based navaids as well as DGPS (differential global positioning systems).
Navaids provide enroute and approach to landing guidance to aircraft, allowing
them to safely navigate and land in poor visibility conditions. Navaids are
required by the United States Federal Aviation Administration ("FAA") and the
International Civil Aviation Organization ("ICAO") regulations at all airports
in the world that conduct all-weather operations. DGPS is a ground-based station
that measures GPS signal error from a precisely known ground location and
transmits correction to approaching aircraft.
The Company's revenues are generated principally from sales of its products and
services to government agencies internationally and in the United States. The
products are sold directly to such agencies or through prime contractors for
integration into systems procured by those agencies. The Company's sales are
largely dependent upon government construction and procurement contracts. The
majority of the Company's revenues in any single quarter is typically derived
from relatively few customers and quarterly revenue will, therefore, fluctuate
based on a number of factors, including the timing and magnitude of orders,
customer installation schedules, and political and economic factors.
Sales are typically made pursuant to fixed price contracts and cost overruns, if
any, are assumed by the Company. Historically, the Company has not had any
contracts which have required significant product development efforts, however,
the Company may, in the future, enter into fixed price contracts which require
significant product development efforts. See "Certain Factors That May Effect
Future Results - Dependence on Fixed Price Contracts."
Generally, the time from when an order is accepted until the first equipment is
shipped is approximately six months. Training is normally completed during the
production of the equipment. Final acceptance of the installed equipment (and
thus completion of the installation portion of the contract) normally occurs two
to four months after the equipment is shipped. Installation time can vary,
however, with weather and site conditions, and the progress of other portions of
the construction project into which the Company's products are incorporated. The
Company generally provides a limited product warranty with its equipment.
Warranty costs are tracked by the Company and have historically not varied
materially from management's estimates.
The Company was incorporated on May 1, 1991, by Allsop Venture Partners III,
L.P. ("AVP"), Kansas Venture Capital, Inc. ("KVCI") and Fernau Holdings, Ltd.
("FHL"), a United Kingdom-based navaids manufacturer, for the purpose of
acquiring substantially all of the assets (the "Acquisition") of Aviation
Systems, Inc. The closing of the Acquisition occurred on May 21, 1991, and the
Company commenced operations on May 22, 1991.
Page 2
<PAGE> 3
In September, 1991, Mr. Keith Cowan, the Company's President and Chief Executive
Officer, commenced employment with Airport Systems. During its first fiscal year
following the Acquisition, the Company recruited an experienced management team,
developed domestic and international marketing and distribution networks, made
significant design improvements to the products acquired in the Acquisition,
instituted a total quality management system, and enhanced the credibility of
the Company with customers and vendors.
The Company completed an initial public offering on November 30, 1993, at which
time 1,550,000 shares of common stock were sold, including an over-allotment of
150,000 shares, 700,000 shares being sold by the Company and 850,000 shares
being sold by certain existing stockholders.
In September 1994, the Company acquired from Vomar International, Inc. and Vomar
Products, Inc. ("Vomar") certain contracts, inventories, machinery, and
intangibles relating to the Vomaglow line of airfield signage used to direct
aircraft along runways, taxiways and to terminals. The Company has been engaged
in the design, manufacture, marketing, and installation of airfield signage
subsequent to this date.
(B) BUSINESS OF THE COMPANY
Products, Markets and Distribution
The Company's primary products are Instrument Landing Systems (ILS), Very High
Frequency Omni-Range Transmitters (VOR), Distance Measuring Equipment (DME), and
Airfield Signage. ILS, VOR, and DME's are generally referred to as navaids.
Navaid products, such as those manufactured by the Company, are an integral part
of the air traffic control system used worldwide for navigation of aircraft
operating in Instrument Meteorological Conditions (IMC) under Instrument-flight
Rules (IFR). Signals generated by these products are received by electronic
avionics equipment installed in all aircraft equipped for IFR. The avionics
include cockpit displays which provide navigational guidance to the pilot. Most
navaids are radio frequency devices which use measurement of angles and distance
to establish aircraft position coordinates.
An ILS system provides the close-in navigation support to an aircraft during the
approach to landing phase. An ILS consists of three separate navaids: the
localizer provides lateral guidance to the left and right of the runway
centerline; the glide-slope provides vertical guidance above and below a
glidepath which intersects the runway touchdown point at about a three degree
angle; and between one and three marker beacon transmitters which provide
indication of the aircraft's position at specific points on the approach path.
The Company manufactures and sells null reference and capture effect ILS
configurations, offering both single and dual transmitters. The null reference
configuration is less expensive, while the capture effect configuration is used
when difficult terrain conditions are present near the runway. Single
transmitter systems prevail in the United States, while dual systems are
generally required at international sites to provide redundancy.
Page 3
<PAGE> 4
An ILS is certified for use according to criteria which specify the applicable
landing decision height which is required for a particular approach procedure.
Decision height is that point above the approach end of the runway at which the
pilot must either establish positive visual contact with the runway, or execute
a missed approach. Category I ILS permits a landing decision height of 200 feet;
Category II ILS permits a landing decision height of 100 feet; and Category III
ILS permits a landing decision height of 50 feet or less. The Company produces
Category I and II ILS.
VOR, in combination with DME, provide the principal means for enroute navigation
currently used in the air traffic control system. A VOR located either at an
airport or at enroute points between airports provides a line of bearing from a
ground station to an aircraft based on 360 specific radials (each radial
representing a point on the compass). Position accuracy is a function of range
from the ground station, since a VOR provides angular bearings with an accuracy
of plus or minus one degree. The Company offers both conventional and doppler
effect VOR. A doppler effect VOR typically is used where difficult terrain
conditions can affect signal quality.
A DME provides distance measurement from the aircraft to the DME with an
accuracy of approximately 500 feet. A DME uses a pulsed system, like radar, in
which the ground-based DME station replies with a pulse to an interrogating
signal received from an aircraft. The distance is computed by measuring the time
between signals. The Company manufactures and sells a low power DME for use at
airports and a high power DME for use enroute. A DME can be used in place of
marker beacons in an ILS to provide distance information to the pilot.
Airfield signage is used to direct aircraft along runways, taxiways, and to
terminals. The signs offer value-added design features, which reduce airfield
activity disruption, and readily adapt to all categories and sizes of airports.
The signs incorporate a unique two-post swinging design, which reduces damage
from jet blasts and lowers installation costs when compared with traditional
fixed-position signs.
The Company serves three primary markets: international; United States
non-federal; and the United States government.
The international market consists of all sales where the installation of the
Company's products is outside the United States. Almost all countries have civil
aviation authorities which regulate the airways within their borders and procure
equipment for their air traffic control systems and airports. The Company sells
either directly to these international organizations through a network of
representatives and distributors, or through prime contractors. The Company has
over 31 independent sales representatives covering over 35 countries. The
Company's international sales were 88% and 72%, of total sales for the fiscal
years ended April 30, 1997, and 1996, respectively.
The United States non-federal market is comprised primarily of state and local
governmental entities which have responsibility for airport development,
improvement and management. The Company either contracts directly with the
governmental entity constructing or improving an airport for the navaids portion
of the project, or acts as a subcontractor to a prime contractor. The Company's
United States non-
Page 4
<PAGE> 5
federal sales were 11% and 23%, of total sales for the fiscal years ended April
30, 1997, and 1996, respectively.
The United States government market includes all governmental agencies which
have a need for navaid products for installation in the United States. The
primary customer for Airport Systems in this market is the FAA. The Company's
sales to the United States Government were approximately 1% and 5%, of total
sales for the fiscal periods ended April 30, 1997, and 1996, respectively. The
Company has, to date, approached this market as both a subcontractor and direct
provider.
Status of Publicly Announced New Product
Satellite-based navigation systems for aircraft navigation and landing is an
emerging technology in the navaids industry. The Global Positioning System
("GPS"), controlled jointly by the Department of Defense and Department of
Transportation, uses 24 orbiting satellites and is the only such system
currently operating. Approach-to-landing satellite guidance, however, is
currently affected by accuracy and integrity limitations.
The Company entered into a strategic alliance during fiscal 1995 with a leading
manufacturer of military global positioning system products, Interstate
Electronics Corporation ("Interstate"). The Company is jointly developing with
Interstate a Differential Global Positioning System ("DGPS") that measures GPS
signal errors from a precisely known ground location and transmits corrections
to approaching aircraft. As part of a contract awarded in 1995 by Crossair AG, a
subsidiary of Swissair, and Swisscontrol, the Company has installed an interim
ground station at Lugano, Switzerland. This system is being used by Crossair AG
and Swisscontrol to collect flight test data and design an approach to the
airport at Lugano using DGPS. The basic design work for the final system has
been completed, and the Company and Interstate are currently engaged in
integrating hardware and software components. Initial flight tests have been
completed. As part of its review, the FAA has requested and will receive an
evaluation system for use in completing certification of the system in the
United States.
Competition
The Company competes against several large multi-national companies which
provide a broad spectrum of products and which serve a wide customer base. Most
contracts in the navaid and sign markets are awarded through a sealed bid or
competitive request for proposal process. The principal competitive factors in
these markets are (i) product conformance with FAA and ICAO specifications, (ii)
quality of product manufactured and ease of customer usability and maintenance,
(iii) delivery time, (iv) customer training and support, and (v) price. To date,
the international and United States non-federal markets have accounted for a
substantial portion of the Company's revenues. It is the Company's belief that
significant barriers to entry into the markets for its existing products are
presented by the difficulty and expense of developing the products and obtaining
FAA and ICAO approvals.
The Company's principal conventional navaid competitor in the United
Page 5
<PAGE> 6
States non-federal market is Wilcox Electric Company, which is, to the Company's
knowledge, the only other United States manufacturer of ground-based navaids of
the type sold by the Company that has products certified for use in projects
partially funded by the Airport Improvement Program (AIP).
To date, the Company is unaware of any DGPS equipment that has been certified
for use by commercial aviation either domestically or internationally. The
Company is aware of a number of major electronic and air traffic control
equipment manufacturers who have publicly announced they are pursuing
development of DGPS equipment. The Company is unable to determine the extent to
which these potential competitors will effect the competitive future of the DGPS
product.
The Company has several competitors both domestically and internationally in
airfield signage. Domestically, the Company's primary competitors are ADB Alnaco
(a division of Siemens, Inc.), Crouse Hinds (a division of Cooper Industries)
and Standard Signs, Inc. (a privately held company). Internationally, the
Company competes primarily against ADB Alnaco and local indigenous sign
manufacturers.
Sources and Availability of Raw Materials and Principle Suppliers
Raw materials used in the manufacture of the Company's products are readily
available from a number of sources in the United States.
Dependence on One or a Few Major Customers
The Company had sales to four customers which, in the aggregate, accounted for
54% of total sales in fiscal 1997, and sales to two customers which accounted
for 33% of total sales in fiscal 1996. Because of the nature of the Company's
business, it is possible that future revenues could be dependent on one or a few
major customers.
Patents, Trademarks, Licenses
The Company holds no United States or foreign patents. The Company's only
trademark is the "AIRPORT SYSTEMS" name and design which is registered with the
United States Patent and Trademark office. The Company's material intellectual
property consists of drawings, plans, software, specifications and engineering
and manufacturing know how which the Company maintains as confidential
proprietary information. In November, 1992, the Company paid Fernau Avionics,
Ltd. $217,225 for an irrevocable, fully transferrable, non-exclusive perpetual
royalty-free license to manufacture, sell and maintain products using DME
technology owned by FAL, replacing an earlier license agreement. In addition,
the Company's strategic alliance with Interstate for the development and sale of
DGPS equipment provides that each party shall develop and own certain
intellectual property which is incorporated into the DGPS equipment. Generally,
the Company's portion is focused on radio frequency transmission and reception,
and Interstate's portion is focused on differential correction software and
hardware.
Government Approvals
All navigation aids to be installed in the United States, whether purchased by
airport owners, local or state governments or the FAA,
Page 6
<PAGE> 7
require FAA and United States Federal Communications Commission ("FCC")
approval. The Company has received all applicable FCC approvals for the products
it sells in the United States.
FAA approval takes different forms depending on how the equipment is procured.
When the FAA purchases equipment it typically issues a detailed specification
describing the functional performance requirements, and the design and
production methods. FAA design and production requirements historically have
contained more detailed specifications than those required in the international
and the United States non-federal markets, resulting in products which are more
costly to produce.
Local or state governments typically procure equipment in accordance with the
technical requirements of FAA Federal Airways Regulations ("FAR") Part 171. FAR
Part 171 is a functional performance requirement which does not include specific
design and construction methods. Because no design or construction
specifications are required to be met, products sold in the United States
non-federal market cost less than similar products procured by the FAA. The
types of ILS, VOR and DME sold by the Company in the United States non-federal
market have been approved in accordance with FAR Part 171 by the FAA.
In addition, certain local or state airport projects for which the Company
contracts are partially funded by the AIP, a United States government trust-fund
program funded by airport user fees. When ILS or DME equipment are procured
under a program funded by the AIP, the buyer of the equipment typically
transfers ownership, maintenance and operation of the equipment to the FAA after
installation is complete. There is an additional FAA approval process required
for AIP funded contracts which requires demonstration that the FAA can
successfully maintain and operate the equipment. The Company's ILS and DME
products are approved by the FAA for AIP funded contracts. To the Company's
knowledge, there is only one other company in the United States with approval to
supply ILS and DME equipment for AIP funded contracts.
The ICAO is a United Nations chartered organization which establishes
international standards for navigation equipment, and member countries' navaids
must conform with ICAO functional standards. Equipment for international
procurement normally is tested after installation to insure conformance with
ICAO standards. In some cases, international programs may require proof of FAA
FAR 171 approval prior to bid. Airfield signage must meet the requirements of
FAA Circular AC150/5345-44F. The Company's airfield signage line meets these
requirements.
Effect of Existing or Probable Governmental Regulations on the Business
The Company is subject to federal, state and local regulations concerning the
environment, occupational safety and health. The Company has not experienced any
difficulty in complying with such regulations and compliance has not had a
material impact on the Company's business or its financial results.
Research and Development
During fiscal 1997, approximately 43% of the Company's engineering staff time
was spent on research and development activities, none of
Page 7
<PAGE> 8
which was borne by the customer. In fiscal 1996, the amount of engineering time
spent on research and development was 42%, none of which was borne by the
customer.
Total Number of Employees
At April 30, 1997, the Company had 129 full time employees. Of these, 67 are
engaged in manufacturing, 8 in sales and marketing, 28 in engineering, 7 in
quality assurance and 19 in administration. The Company's employees are not
represented by a labor organization.
Certain Factors That May Effect Future Results
This annual report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In addition, from time
to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are not limited to, various filings made by
the Company with the Securities and Exchange Commission, press releases or oral
statements made by or with the approval of an authorized executive officer of
the Company. Forward-looking statements consist of any statement other than a
recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate,"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. Actual results could differ materially from those projected or
suggested in any forward-looking statements as a result of a wide variety of
factors and conditions, including, but not limited to, the factors summarized
below and the factors and conditions which are described under the headings
"Backlog," and "Quarterly Results" in the discussion of "Results of Operations"
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations under Item 6 of this Form 10KSB, as well as those which
have been included in other documents the Company files from time to time with
the Securities and Exchange Commission including the Company's annual reports on
Form 10-KSB, quarterly reports on Form 10-QSB and current reports on Form 8-K,
and holders of the Company's securities are specifically referred to these
documents with regard to the factors and conditions that may affect future
results. The reader or listener is cautioned that the Company does not have a
policy of updating or revising forward-looking statements and thus he or she
should not assume that silence by management of the Company over time means that
actual events are bearing out as estimated in such forward-looking statements.
Emerging Technology - The Company's products are based upon proven ground-based
radio technology which has been the standard for navaids worldwide and is the
technology used in the vast majority of navaids currently in service. However,
currently there are potentially competitive technologies being procured or
actively considered by the FAA, ICAO and civil aviation authorities around the
world, the most significant of which is GPS. Based on future FAA, ICAO and other
civil aviation authorities' actions with regard to satellite technologies, the
long-term ability of the Company to compete successfully will depend in large
measure on its ability to acquire or develop products which are compatible with
technological changes and advances in the
Page 8
<PAGE> 9
navaids industry. The Company's ability to develop a GPS-based landing system
depends to some degree on the success of a teaming agreement it has entered into
with Interstate Electronics Corporation. See "Business of the Company - Status
of Publicly Announced New Product."
Competition - The Company is in direct competition with one other supplier of
navaids in the United Sates. This competitor, Wilcox Electric, Inc. ("Wilcox"),
is a subsidiary of Thomson-CSF, a French defense and electronics company
partially owned by the French government. Thomson-CSF has substantially greater
resources than the Company, and Wilcox has been, for many years, the principal
supplier of navaids to the FAA. In the international market, there are several
foreign competitors for one or more of the products produced by the Company,
most of which are substantially larger and have greater resources than the
Company. See "Business of the Company - Competition."
The market potential for satellite based landing systems has resulted in
alliances being formed between industry participants and companies not
historically involved in ground-based navigation and will over time result in
additional competitors. See "Business of the Company - Competition."
Dependence on FAA Approvals - The Company's products used in the United States'
national airspace system have been approved by the FAA. These approvals are
required in order for the Company to sell its navaids to public use airports in
the United States. Furthermore, although not specifically required, FAA approval
of the Company's navaids is a very strong selling point in international sales.
While the Company has no reason to expect withdrawal of FAA approvals of the
Company's navaids, withdrawal of any such approvals would have an adverse impact
on the ability of the Company to sell its products both domestically and
internationally. See "Business of The Company - Government Approvals."
Product Liability - The Company currently carries a $50 million product
liability insurance policy, however, it is possible that judgment in an amount
greater than the policy limits could be awarded in the event the Company's
equipment was found to have been a contributing cause to an aircraft crash. Any
judgment in excess of the Company's product liability insurance limits could
have a material adverse effect on the Company.
The United States Dollar Exchange Rates - The Company competes internationally
with competitors from Europe and Japan and is thus subject to the effects of
changes in United States dollar exchange rates. To date, this has not had an
adverse effect on the Company's ability to compete for international projects.
If the United States dollar gains strength against the currencies of its
principal competitors, it could impede the marketing of the Company's products
by making them relatively more expensive in international markets compared to
competitors' products. The Company's contracts are denominated in United States
dollars.
Dependence on Key Personnel - The future success of the Company is highly
dependent upon several executive officers. The Company has signed employment
agreements with three executives and has purchased key man life insurance on
five executive officers. There can be no
Page 9
<PAGE> 10
assurance that the loss of any one of these individuals would not have a
material adverse effect on the Company's operations or profits. See "Executive
Officers of the Company."
Possible Volatility of Stock Price - Company's Trading Volume Historically
Limited - The trading price of the Common Stock could be subject to significant
fluctuations in response to announcements of developments related to the
Company's business, the Company's financial results, general conditions in the
industry, the United States dollar exchange rates and the general economy.
Historically, the trading volume of the Company's Common Stock on the NASDAQ
National Market has been limited due to the relatively few number of
shareholders and shares outstanding.
Dependence on Fixed-Price Contracts - Sales are typically made pursuant to fixed
price contracts and cost overruns, if any, are assumed by the Company. Revenues
from fixed-price contracts are recognized using percentage-of-completion units
of delivery method. Revisions in revenue and profit estimates are reflected in
the period in which the conditions that require the revision become known and
are estimable. Therefore, adjustments for profits or losses may have a material
effect on results for the quarter in question. The risks inherent in fixed-price
contracts include the forecasting of costs and schedules, while the recognition
of contract revenues relates to delivery of equipment and completion of contract
services.
Competitive Bidding - Airport Systems generally obtains its contracts through
the process of competitive bidding. There can be no assurance that the Company
will continue to be successful in having its bids accepted or, if accepted, that
awarded contracts will generate sufficient revenues to result in profitability
for the Company. To the extent that actual costs exceed the projected costs on
which bids or contract prices were based, the Company's profitability could be
materially adversely affected.
Additional Financing Requirements - Although at April 30, 1997 the Company had
$3,122,000 in cash, the financing requirements of all of the various
opportunities it is currently considering, if funded solely by the Company, may
exceed this amount. This includes working capital to meet current and future
contract obligations as well as funding for product expansion either through
acquisition or internal development. The extent of such total capital
requirements cannot be quantified at this time since many of these opportunities
are at an early stage of consideration. In order to fully fund all such
projects, the Company may need to issue debt or equity securities or engage in
other financing activities. There can be no assurance that such financing will
be available on favorable terms or on a timely basis, if at all. Any issuance of
equity securities by the Company may result in a dilution of shareholders'
equity. In addition, additional debt may have an adverse impact on operating
results.
Item 2. DESCRIPTION OF PROPERTY
Real Estate. The Company conducts all of its operations from its facility at
11300 West 89th Street in Overland Park, Kansas, which consists of approximately
50,000 square feet. Approximately 26,000
Page 10
<PAGE> 11
square feet is used for manufacturing, approximately 17,000 is used for
engineering and training, while the remaining 7,000 square feet is used for
administration and marketing. The building and the seven acres on which it is
located are owned by the Company, subject to a mortgage due June, 2011. The
principal balance of the mortgage at April 30, 1997, was $1,220,000, with a
final payment of approximately $788,200 due on the due date assuming no
prepayments. The Company believes that its existing facility provides adequate
capacity for growth for the foreseeable future. No specific plans have been
formed at the present time for expanding the facility, however, the Company
believes that it has a range of suitable alternatives for future expansion.
The Company conducts production of airfield signage from a leased facility at
8920 Bond in Overland Park, Kansas, which consists of approximately 7,200 square
feet. The Company has a 2 year renewable lease for this facility. The Company
believes this facility will provide adequate capacity for the remaining lease
term.
Manufacturing and Engineering Equipment. The Company's manufacturing equipment,
including automatic lead forming/cutting and wave solder capability, is suitable
for its low volume electronics production. Through-hole components are manually
placed with the assistance of semi-automatic component insertion equipment.
Surface mount components are manually placed and attached. The test department
is equipped with general purpose and automatic test equipment such as network
analyzers, spectrum analyzers and vector voltmeters. Hot mock-up test beds are
used to ensure subassembly functionality, with all Navaid assemblies tested
environmentally in a temperature chamber. The Company's engineering department
is equipped with state of the art design and test equipment, including advanced
computer-aided design systems, radio frequency signal modeling software and
necessary test and design equipment.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any lawsuits, but is subject to contract disputes
arising in the ordinary course of business, which the Company believes will not
have, either individually or in the aggregate, a material adverse effect on the
Company's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders, through a
solicitation of proxies or otherwise, during the fourth quarter of the Company's
fiscal year ended April 30, 1997.
Supplementary Item - EXECUTIVE OFFICERS OF THE COMPANY
The following are the executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------- ----- --------------------------------------------
<S> <C> <C>
Keith S. Cowan 43 President, Chief Executive Officer and
Director
Thomas C. Cargin 42 Vice President-Finance and Administration,
Secretary and Director
</TABLE>
Page 11
<PAGE> 12
<TABLE>
<S> <C> <C>
John C. Roos 56 Vice President-Engineering
Michael M. Warner 43 Vice President-Business Development
John R. Wharton 55 Vice President-Sales
Gregory C. Brand 47 Vice President-Field Operations and Training
Wayne S. Howard 57 Vice President-Indonesia Programs
Karl B. Gemperli 33 Vice President-Manufacturing
</TABLE>
Each of the executive officers is a full-time employee of the Company. Set forth
below are descriptions of the backgrounds of the executive officers of the
Company.
Keith S. Cowan has served as President and a Director of the Company since
September, 1991, and as Chief Executive Officer of the Company since August,
1993. Prior to joining the Company, Mr. Cowan was an employee of the Teledyne
Controls Division of Teledyne, Inc. for more than five years, last serving as
Vice President, Airport and Instrumentation Products. Mr. Cowan has over 23
years of system engineering, project management and corporate experience in the
development, manufacturing and sale of electronic systems. He is also a licensed
pilot holding an instrument rating.
Thomas C. Cargin has served as Vice President-Finance and Administration of the
Company since December, 1991, as its Secretary since March, 1993, and as a
Director of the Company since October, 1993. Prior to joining the Company, Mr.
Cargin was a partner in the accounting firm of Ifft & Barber since 1989 and
prior to that was an employee of DYMON, Inc., a specialty chemical manufacturer
located in Kansas City, Kansas, since 1983, last serving as Vice President of
Finance and Chief Financial Officer. Mr. Cargin is a Certified Public Accountant
with over 20 years of public accounting and private industry accounting
experience. He is also a licensed pilot holding an instrument rating.
John C. Roos has served as Vice President-Engineering of the Company since
December, 1991. Prior to joining the Company, Mr. Roos was an employee of AIL
Systems, Inc., a subsidiary of Eaton Corporation, for more than five years, last
serving as Manager of Design Engineering. Mr. Roos has over 31 years in
engineering management experience in radio frequency design, government
contracting and engineering project management.
Michael M. Warner has served as Vice President-Business Development since
January, 1995. Prior to that, he held the position of Director-Business
Development with Harris Corporation from 1993 to 1995. From 1982 to 1993 he held
various positions with Hughes Aircraft Company, last serving as Manager, New
Business Development. He has over 15 years experience in marketing and managing
air traffic control systems projects.
John R. Wharton has served as Vice President-Sales of the Company since May,
1991. Prior to joining the Company, Mr. Wharton was employed by Aviation
Systems, Inc., since 1988, last serving as Vice President of Marketing, and
prior thereto by Wilcox for over 20 years. Mr. Wharton
Page 12
<PAGE> 13
has over 33 years experience in marketing airport navigation aids both in the
United States and internationally.
Gregory C. Brand has served as Vice President-Field Operations and Training
since May, 1997. Prior to that, he was Manager of Field Services since
September, 1996. Prior to joining the Company, Mr. Brand was an employee of
Wilcox Electric, Inc. Mr. Brand has over 20 years experience in field
installation and program management.
Wayne S. Howard has served as Vice President-Indonesia Programs since January,
1997. Prior to that he was Vice President of Manufacturing Operations of the
Company since March, 1994. Prior to joining the Company, Mr. Howard was an
employee of New Bedford Panoramics Corporation for more than five years, last
serving as Manufacturing Manager. Mr. Howard has over 28 years of electronic
components manufacturing and program management experience.
Karl B. Gemperli has served as Vice President of Manufacturing since March,
1996. Prior to joining the Company, Mr. Gemperli was an employee of BF Goodrich
Aerospace, Test Systems Division for more than five years, last serving as
Director of Manufacturing. Mr. Gemperli has over 12 years of electronic
manufacturing experience.
Page 13
<PAGE> 14
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is set forth on the inside back cover of the
Company's 1997 Annual Report to shareholders and such information is
incorporated herein by reference.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 6 is set forth on pages 8 through 10 of the
Company's 1997 Annual Report to Shareholders and such information is
incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS
The information required by Item 7 is set forth on pages 11 through 19 of the
Company's 1997 Annual Report to Shareholders and such information is
incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
Page 14
<PAGE> 15
Part III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the Company's Directors required by Item 9 is set
forth on pages 5 to 6 of the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders and such information is incorporated herein by
reference.
The information relating to filing of Forms 3, 4, and 5 required by Item 9 is
set forth on page 4 of the Company's Proxy Statement for its 1997 Annual Meeting
of Shareholders and such information is incorporated herein by reference.
Information relating to the Company's Executive Officers, as required by Item 9,
is set forth under the heading Supplementary Item - Executive Officers of the
Company, pages 11 through 13 of Part I of this Form 10-KSB.
Item 10. EXECUTIVE COMPENSATION
The information required by Item 10 is set forth on pages 6 through 8 of the
Company's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders and such information is incorporated herein by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is set forth on pages 3 and 4 of the
Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders
and such information is incorporated herein by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is set forth on pages 8 and 9 of the
Company's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders and such information is incorporated herein by reference.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits have been previously filed or are being
filed herewith, and are numbered in accordance with Item 601 of Regulation
S-B:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
<S> <C>
3.1 ARTICLES OF INCORPORATION
The amended Articles of Incorporation of the Company dated September
14, 1994, attached as Exhibit 3.1 pages 19-55 of the Company's Form
10-KSB, filed July 31, 1995 with the Securities and Exchange Commission
is incorporated herein by reference.
</TABLE>
Page 15
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
<S> <C>
3.2 BY-LAWS
The Restated By-Laws of the Company dated October 1, 1993, attached as
Exhibit 3.2, of the Company's Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and Exchange Commission, are
incorporated herein by reference.
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
A specimen stock certificate representing shares of the common stock,
par value $.01 per share, attached as Exhibit 4.1 of the Company's
Registration Statement, Form SB-2, filed November 29, 1993 with the
Securities and Exchange Commission, is incorporated herein by
reference.
10 MATERIAL CONTRACTS
(a) Teaming agreement between Airport Systems International, Inc.
and Interstate Electronics Corporation (Portions omitted
pursuant to a request for confidential treatment) attached as
exhibit 10.1 of the Company's Form 10-QSB, filed March 17,
1995 with the Securities and Exchange Commission, is
incorporated herein by reference.
(b) A copy of the warrant issued by the Company to Fahnestock &
Company, Inc., attached as Exhibit 4.7 of the Company's
Registration Statement, Form SB-2, filed November 29, 1993
with the Securities and Exchange Commission, is incorporated
herein by reference.
(c) Restated 1991 Stock Option Plan attached as Exhibit 10.5 of
the Company's Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and Exchange Commission,
is incorporated herein by reference.
(d) Stock Option Agreement dated September 3, 1991, by and between
the Company and Keith S. Cowan, as amended, attached as
Exhibit 10.6 of the Company's Registration Statement, Form
SB-2, filed November 29, 1993 with the Securities and Exchange
Commission, is incorporated herein by reference.
(e) Stock Option Agreement dated January 15, 1992, by and between
the company and Thomas C. Cargin, attached as Exhibit 10.7 of
the Company's Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and Exchange Commission,
is incorporated herein by reference.
(f) Stock Option Agreement dated January 15, 1992, by and between
the Company and John C. Roos, attached as Exhibit 10.8 of the
Company's Registration Statement, Form SB-2, filed November
29, 1993 with the Securities and Exchange Commission, is
incorporated herein by reference.
(g) Stock Option Agreement dated January 15, 1992, by and between
the Company and John R. Wharton, attached as Exhibit 10.9 of
the Company's Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and Exchange Commission,
is incorporated herein by reference.
</TABLE>
Page 16
<PAGE> 17
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
<S> <C>
(h) Stock Option Agreement dated June 25, 1993, by and between the
Company and Keith S. Cowan, attached as Exhibit 10.11 of the
Company's Registration Statement, Form SB-2, filed November
29, 1993 with the Securities and Exchange Commission, is
incorporated herein by reference.
(I) Stock Option Agreement dated June 25, 1993, by and between the
Company and Thomas C. Cargin, attached as Exhibit 10.12 of the
Company's Registration Statement, Form SB-2, filed November
29, 1993 with the Securities and Exchange Commission, is
incorporated herein by reference.
(j) Stock Option Agreement dated June 25, 1993, by and between the
Company and John C. Roos, attached as Exhibit 10.13 of the
Company's Registration Statement, Form SB-2, filed November
29, 1993 with the Securities and Exchange Commission, is
incorporated herein by reference.
(k) Stock Option Agreement dated June 25, 1993, by and between the
Company and John R. Wharton, attached as Exhibit 10.14 of the
Company's Registration Statement, Form SB-2, filed November
29, 1993 with the Securities and Exchange Commission, is
incorporated herein by reference.
(l) Stock Option Agreement dated October 1, 1993, by and between
the Company and Keith S. Cowan, attached as Exhibit 10.15 of
the Company's Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and Exchange Commission,
is incorporated herein by reference.
(m) Stock Option Agreement dated October 1, 1993, by and between
the Company and Thomas C. Cargin, attached as Exhibit 10.16 of
the Company's Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and Exchange Commission,
is incorporated herein by reference.
(n) Stock Option Agreement dated October 1, 1993, by and between
the Company and John C. Roos, attached as Exhibit 10.17 of the
Company's Registration Statement, Form SB-2, filed November
29, 1993 with the Securities and Exchange Commission, is
incorporated herein by reference.
(o) Stock Option Agreement dated October 1, 1993, by and between
the Company and John R. Wharton, attached as Exhibit 10.18 of
the Company's Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and Exchange Commission,
is incorporated herein by reference.
(p) Stock Option Agreement dated October 1, 1993, by and between
the Company and Barry L. Harris, attached as Exhibit 10.19 of
the Company's Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and Exchange Commission,
is incorporated herein by reference.
(q) Stock Option Agreement dated April 15, 1994, by and between
the Company and Wayne Howard, attached as
</TABLE>
Page 17
<PAGE> 18
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
<S> <C>
Exhibit 10 of the Company's Form 10-KSB, filed July 28, 1994
with the Securities and Exchange Commission, is incorporated
herein by reference.
(r) Stock Option agreement dated January 23, 1995, by and between
the Company and Michael M. Warner, attached as exhibit 10.1 of
the Company's Form 10-QSB, filed March 17, 1995 with the
Securities and Exchange Commission, is incorporated herein by
reference.
(s) Employment Agreement dated June 22, 1993, by and between the
Company and Keith S. Cowan, attached as Exhibit 10.1 of the
Company's Registration Statement, Form SB-2, filed November
29, 1993 with the Securities and Exchange Commission, is
incorporated herein by reference.
(t) Employment Agreement dated October 11, 1993, by and between
the Company and Thomas C. Cargin, attached as Exhibit 10.2 of
the Company's Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and Exchange Commission,
is incorporated herein by reference.
(u) Covenant Not To Compete Agreement dated March 20, 1997, by and
between the Company and Michael M. Warner, attached as Exhibit
10u, of this form 10KSB.
(v) Stock Option Agreement dated February 13, 1997, by and between
the Company and Karl B. Gemperli, attached as Exhibit 10v, of
this form 10KSB.
(w) Sales contract by and between the Company and the Government
of Indonesia attached as Exhibit 5 of the Companys Form 8K,
filed November 15, 1996 with the Securities and Exchange
Commission, is incorporated herein by reference.
11. STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
13. ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED APRIL 30, 1997
(pages 1 through 7 of such report shall not be deemed filed).
21. SUBSIDIARIES OF THE COMPANY
23. CONSENT OF INDEPENDENT AUDITORS
27. FINANCIAL DATA SCHEDULE (for SEC use only)
</TABLE>
(b) REPORTS ON FORM 8-K: None
Page 18
<PAGE> 19
PART IV
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.
AIRPORT SYSTEMS INTERNATIONAL, INC.
By:
/s/ Keith S. Cowan
--------------------------------------
Keith S. Cowan
President and Chief Executive Officer
Date: July 29, 1997
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 and in the capacities and on the date indicated:
/s/ Keith S. Cowan Date: July 29, 1997
- ------------------------------------
Keith S. Cowan
President, and Director
(Chief Executive Officer)
/s/ Thomas C. Cargin Date: July 29, 1997
- ------------------------------------
Thomas C. Cargin
Director
(Vice President-Finance and
Administration, Principal Financial
Officer, and Secretary)
/s/ Michael J. Meyer Date: July 29, 1997
- ------------------------------------
Michael J. Meyer
Director
/s/ Thomas C. Blackburn Date: July 29, 1997
- ------------------------------------
Thomas C. Blackburn
Director
Page 19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
10.(u) COVENANT NOT TO COMPETE dated March 20, 1997,
by and between the Company and Michael M. Warner.
10.(v) STOCK OPTION AGREEMENT dated February 13, 1997,
by and between the Company and Karl B. Gemperli.
11. STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
13. ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED
APRIL 30, 1997 (pages 1 through 7 of such report
shall not be deemed filed).
21. SUBSIDIARIES OF THE COMPANY
23. CONSENT OF INDEPENDENT AUDITORS
27. FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
</TABLE>
Page 20
<PAGE> 1
[AIRPORT SYSTEMS LETTERHEAD]
March 20, 1997
Mr. Michael W. Warner
Vice President Business Development
Airport Systems International, Inc.
11300 W. 89th St.
Overland Park, KS 66204
Re: Airport Systems International, Inc.
Dear Mike:
The purpose of this letter is to set forth our understanding regarding
your efforts on behalf of Airport Systems International, Inc. (the "Company") to
procure the FAT 59 Contract, as well as the principal terms of a loan to be made
by the Company to you in the amount of $80,000, evidenced by the attached
promissory note.
In consideration of your efforts on behalf of the Company to procure
the FAT 59 Contract and your "Covenant Not to Compete" (as set forth below), the
Company will pay you Twenty Thousand Dollars ($20,000) upon your execution of
this letter agreement. Simultaneous with your execution of this letter
agreement, the Company will also loan you Eighty Thousand Dollars (80,000),
evidenced by the promissory note attached hereto, on such terms and conditions
contained therein.
You acknowledge and recognize the highly competitive nature of the
business of the Company and accordingly agree that except as provided below, so
long as you are employed by the Company and for a period of two (2) years
following any termination of, or resignation from, your employment with the
Company, you will not enter into competitive endeavors and will not undertake
any commercial activity which is contrary to the best interests of the Company
or its affiliates, and will not through an affiliate or otherwise, own, manage,
control, participate in, consult with, render services for, or in any manner
engage in any business which designs, builds, manufactures, supplies ground
based instrument landing systems, very-high frequency omni-range, distance
measuring equipment and differential global positioning satellite systems,
anywhere in the world, including becoming an owner, employee, officer, agent,
consultant, partner, member or director of any such business or firm in the
world which competes with the business of the Company (the "Covenant Not to
Compete").
Such Covenant Not to Compete shall not however apply to your employment
and/or association with companies acting as Prime Contractors in the fields of
air traffic control airport management and other related air transportation
activity in which the above mentioned equipment
<PAGE> 2
is offered as a small part of a prime contract, and the company does not
manufacture the above mentioned equipment.
You agree that money damages would be an inadequate remedy for any
breach of the Covenant Not to Compete. If you breach or threaten to breach any
provision of the Covenant Not to Compete, the Company or its successors or
assigns may, in addition to other available rights and remedies, apply to any
court of competent jurisdiction for specific performance and/or injunctive
relief to enforce, or prevent any violation of, the Covenant Not to Compete,
without posting a bond or other security
You agree that the Covenant Not to Compete is reasonable and valid in
temporal, topical and geographical scope and in all other respects.
Notwithstanding the Company's right to specific performance or injunctive relief
set forth in the foregoing paragraph, if at any time a court holds that the
restrictions stated in this letter agreement are unreasonable or otherwise
unenforceable under circumstances then existing, you agree that the maximum
period, scope or geographic area determined to be reasonable under such
circumstances by such court will be substituted for the stated period, scope or
geographic area. Similarly, if any provision of this letter agreement is
prohibited by or invalid under applicable law or otherwise determined to be
unenforceable, such provision will be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of this letter
agreement.
Except as provided below, the Covenant Not to Compete shall survive and
continue in full force and effect notwithstanding any termination of this letter
agreement or your employment with the Company. Notwithstanding anything to the
contrary contained herein, if, following a Change of Control, as defined below,
the Company terminates your employment other than for Cause, as defined below,
the Covenant Not to Compete set forth herein shall no longer be operative and
shall have no force and effect, and the unpaid principal balance of the
promissory note referenced herein and attached hereto, including all interest
accrued and unpaid thereon, shall be reduced to zero. For purposes of this
letter agreement, "Change of Control" means a consolidation, merger or similar
transaction involving the Company which has one or more of the following
results: (i) the Company is not the surviving entity; (ii) a single person or
entity or a group of persons and/or entities acting in concert (an "Acquiring
Entity") acquire a majority amount or more of the Company's common stock,
followed by a change in a majority of the membership of the Board of Directors
of the Company, other than as a result of death or voluntary resignation of any
member or members of the Board of Directors, within six months from the date the
Acquiring Entity acquires a majority amount or more of the Company's common
stock; (iii) there is a sale or transfer of all or substantially all of the
Company's assets; or (iv) the Company is dissolved or liquidated.
Termination for "Cause" means termination of your employment because of
(i) any willful material violation by you of any law or regulation applicable to
the business of the Company or your conviction for, or guilty plea to, a felony
or a crime involving moral turpitude, or any willful perpetration by you of a
common law fraud; (ii) your commission of an act involving gross negligence in
the conduct of your duties to the Company under this letter agreement or any
other employment or consulting agreement with the Company; (iii) your commission
of an act of personal dishonesty which involves personal profit in connection
with the Company; (iv) any material breach by you of any provision of this
letter agreement or any other employment or consulting agreement with the
Company or the continued failure or refusal of you to perform the material
duties required of you as an employee of the Company; or (v) any other
misconduct by you which is materially
<PAGE> 3
injurious to the financial condition or business reputation of, or is otherwise
materially injurious to, the Company.
This letter agreement constitutes the entire agreement and
understanding among the parties and supersedes any prior understandings,
agreements or representations by or among the parties, written or oral, with
respect to the subject matter hereof. Any provision of this letter agreement
may be amended or waived only with the prior written consent of you and the
Company.
You may not assign this letter agreement. The Company may assign this
letter agreement without your prior written consent and the provisions hereof
shall be binding upon and inure to the benefit of the respective heirs,
successors and assigns of you and the Company. This letter agreement shall be
governed by, construed and interpreted in accordance with the laws of the state
of Kansas, without regard to conflicts of laws principles that would cause the
application of the laws of any jurisdiction other than the state of Kansas.
If you are in agreement with the foregoing, please sign and return this
letter agreement, which thereupon will constitute our agreement and
understanding with respect to its subject matter.
Very truly yours,
AIRPORT SYSTEMS INTERNATIONAL, INC.
By: /s/ Keith S. Cowan
-----------------------------------
Keith S. Cowan
Accepted and Agreed as of the 20 day of March, 1997.
/s/ Michael W. Warner
- ------------------------------
Michael W. Warner
<PAGE> 4
PROMISSORY NOTE
$80,000 0VERLAND PARK, KANSAS
MARCH 20, 1997
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, the undersigned, MICHAEL W. WARNER, an individual (the
"Maker"), promises to pay to the order of AIRPORT SYSTEMS INTERNATIONAL, INC., a
Kansas corporation (the "Payee"), the principal sum of Eighty Thousand Dollars
($80,000), plus interest at the rate specified below. The unpaid principal from
time to time outstanding shall bear interest prior to maturity at an annual rate
of interest equal to six and three-eighths percent (6.375%) per annum and all
interest accrued on the outstanding principal balance of this Promissory Note
shall be due and payable in arrears as provided below.
The Maker agrees to pay the entire amount due hereunder, including
principal and interest, on or before March 20, 2001, on which date all unpaid
principal and interest due hereunder shall be paid in full. Notwithstanding the
foregoing, the principal balance of this Promissory Note shall be reduced by the
amount of bonus compensation, determined in Payee's sole discretion, earned by
Maker in respect of the performance of Maker's employment during Payee's fiscal
year ended April 30, 1997. Thereafter, the remaining outstanding principal
balance of this Promissory Note and all interest accrued and unpaid hereunder
shall be reduced, and considered paid in full, in equivalent one-fourth amounts
on each successive anniversary date of this Promissory Note, beginning March 20,
1998, until March 20, 2001, on which date all unpaid principal and interest
hereunder shall be reduced to zero, in consideration for the Maker's continued
employment for each respective annual period. In the event of the Maker's death
any and all outstanding principal and interest under this note shall be
considered paid in full.
Notwithstanding anything to the contrary contained herein, if,
following a Change of Control, as defined below, the Payee terminates Maker's
employment other than for Cause, as defined below, the unpaid principal balance
of this Promissory Note, including all interest accrued and unpaid hereon, shall
be reduced to zero, and the Covenant Not to Compete set forth in the letter
agreement by and between Maker and Payee, dated even date herewith (the "Letter
of Agreement"), shall no longer be operative and shall have no force and effect.
As used in this Promissory Note, Change of Control means a consolidation,
merger or similar transaction involving the Payee which has one or more of the
following results: (i) the Payee is not the surviving entity; (ii) a single
person or entity or a group of persons and/or entities acting in concert (an
"Acquiring Entity") acquire a majority amount or more of the Payee's common
stock, followed by a change in a majority of the membership of the Board of
Directors of the Payee, other than as a result of death or voluntary resignation
of any member or members of the Board, within six months from the date the
Acquiring Entity acquires a majority amount or more of the Payee's common stock;
(iii) there is a sale or transfer of all or substantially all of the Payee's
assets; or (iv) the Payee is dissolved or liquidated.
As used herein termination for "Cause" means termination of Maker's
employment because of (i) any willful material violation by Maker of any law or
regulation applicable to the business of
<PAGE> 5
the Payee or Maker's conviction for, or guilty plea to, a felony or a crime
involving moral turpitude, or any willful perpetration by Maker of a common law
fraud; (ii) Maker's commission of an act involving gross negligence in the
conduct of Maker's duties to the Payee under the Letter Agreement, or any other
employment or consulting agreement with the Payee; (iii) Maker's commission of
an act of personal dishonesty which involves personal profit in connection with
the Payee; (iv) any material breach by Maker of any provision of the Letter of
Agreement or any other employment or consulting agreement with the Payee or the
continued failure or refusal of Maker to perform the material duties required of
Maker as an employee of the Payee; or (v) any other misconduct by Maker which is
materially injurious to the financial condition or business reputation of, or is
otherwise materially injurious to, the Payee.
All principal and interest shall be payable in arrears. Interest hereon
shall be calculated on the basis of a 360-day year applied to the actual number
of days elapsed until all accrued and unpaid interest is paid in full. All
payments of principal and interest hereon shall be payable in lawful currency of
the United States of America.
If any payment of principal and/or interest is not actually received by
Payee on or before the respective date due, Maker agrees to pay Payee a late
charge equal to the highest lawful rate per annum on that delinquent amount
until paid to the extent permitted by applicable law. All interest due and
payable hereunder which is not paid when due for any reason shall be cumulated
and accrue interest at the rate hereunder.
Prepayment of the principal of this Promissory Note is permitted
without premium or penalty of any kind, and shall be applied to the outstanding
principal balance in reverse order of maturity. Interest is payable only on the
anniversary date of this Promissory Note.
This Promissory Note is given in consideration of a loan by Payee to
Maker in the principal amount of this Promissory Note.
This Promissory Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
The holder of this Promissory Note and all successors thereof shall
have all the rights of a holder in due course as provided by the Kansas Uniform
Commercial Code and the other laws of the state of Kansas. Maker hereby waives
demand, presentment, protest, notice of protest and/or dishonor and all other
notices or requirements that might otherwise be required by law. Maker promises
to pay on demand all costs of collection, including reasonable attorney's fees
and court costs, paid or incurred by Payee in enforcing this Promissory Note
upon Maker's default hereunder.
The occurrence of any of the following shall constitute an "Event of
Default" under this Promissory Note:
a. the failure of Maker to make any payment when due under this
Promissory Note (time is of the essence);
2
<PAGE> 6
b. the institution of proceedings by or against the Maker under
any state insolvency laws, federal bankruptcy law or similar
debtor relief laws then in effect;
c. the entry of a judgment against Maker which remains
unsatisfied for more than sixty (60) days; and
d. the termination of Maker's employment with the Company for any
reason, except as stated above.
Upon an Event of Default, Payee may, at Payee's option and without
notice, declare all principal and interest which remains due under this
Promissory Note at the time of default to be due and payable immediately;
provided, however, if Maker's employment with the Company is terminated for any
reason other than as described above, all principal and interest due under this
Promissory Note shall become due and payable without notice on the date which is
six (6) months from the date of such termination. Payee may waive any default
before or after it occurs and may restore this Promissory Note in full effect
without impairing the right to declare it due for a subsequent default.
IN WITNESS WHEREOF, this Promissory Note has been executed by Maker as
of the date first above written.
MAKER:
/s/ Michael W. Warner
-----------------------------------
Michael W. Warner
3
<PAGE> 1
INCENTIVE STOCK OPTION AGREEMENT
FOR
OPTIONEE OF 1991 STOCK OPTION PLAN
This Agreement is made as of the 13th day of February, 1997, between
AIRPORT SYSTEMS INTERNATIONAL, INC., a Kansas corporation (the "Company"), and
KARL GEMPERLI, an individual Consultant to the Company or any Subsidiary
("Optionee").
1. BACKGROUND. In order to attract and retain the best available personnel
for positions of substantial responsibility in the Company or any Subsidiary and
to promote the success of the Company's business, the Company has adopted the
Restated 1991 Stock Option Plan (the "Plan"), a copy of which is attached hereto
as Exhibit A. Pursuant to the Plan certain Employees and Consultants of the
Company or any Subsidiary may be designated by the Board of Directors of the
Company to receive an option to purchase shares of Common Stock of the Company
("Common Stock"). Capitalized terms used herein and otherwise not defined have
the meaning ascribed to them in the Plan.
2. GRANT OF OPTION. Subject to the provisions of paragraph 2(b) hereof, the
Company hereby grants to Optionee an option to purchase up to an aggregate of
15,000 Shares of Common Stock of the Company (the "Option Shares"), in
accordance with the vesting schedule set forth in Section 3 hereof (the
"Option"); provided however, that the Option is subject to the terms of the Plan
and the Stock Transfer Restriction Agreement for Exercise of Stock Option
attached hereto as Exhibit A ("Stock Restriction Agreement"), the provisions of
which are incorporated herein by reference and the terms of which shall control
in the event of any conflict with the terms hereof. The Option hereby granted is
an Incentive Stock Option.
3. VESTING OF SHARES. The option to purchase shares of Common Stock shall
cumulatively vest and be exercisable for 5,000 shares of Common Stock on each of
February 13, 1998, February 13, 1999 and February 13, 2000; provided, however,
that the unvested portions of the Options shall vest and be exercisable
immediately prior to any of the following transactions: (i) the closing of the
Company's sale of all or substantially all of its assets or (ii) the acquisition
of the Company by another entity by means of a merger or consolidation resulting
in the exchange of the outstanding shares of Company's capital stock for
securities or consideration issued or caused to be issued by the acquiring
entity or its subsidiary or (iii) the acquisition from one or more of the
shareholders of the Company of more than fifty percent (50%) of the Common Stock
by a single person or group of persons acting together (collectively, a "Change
in Control Transaction"); provided further, however, that if the Change in
Control Transaction is with any person who is a holder of Common Stock on the
date hereof, or an entity under the control of such person through stock
ownership or otherwise, the unvested portion of the options shall not vest and
the options shall remain in effect to vest in accordance with the vesting
schedule set forth in this Section 3.
<PAGE> 2
4. EXERCISE OF OPTION.
(a) An Option shall be deemed to be exercised when the Optionee or other
authorized person gives to the Company written notice of such exercise and full
payment for the Option Shares with respect to which the Option is exercised has
been received by the Company. As a condition to the exercise of an Option, the
Company will require the Optionee to execute a Stock Restriction Agreement.
(b) Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Option Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Option Shares, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificates promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date of the stock certificate is issued, except
as provided in Section 12 of the Plan.
(c) Exercise of an Option in any manner shall result in a decrease in the
number of Option Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Option Shares as to
which the Option is exercised.
5. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Option Shares to
be issued pursuant to exercise of an Option shall be Five Dollars and Fifty
Cents ($5.50), which is equal to the closing price per share of the Common Stock
on the date hereof as listed on the NASDAQ National Market System as reported in
The Wall Street Journal.
(b) FORM OF CONSIDERATION. The consideration to be paid for the Option
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board of Directors and may consist entirely of cash,
check, other shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Option Shares as to which
said option shall be exercised, or any combination of such methods of payment,
or such other consideration and method of payment for the issuance of Option
Shares to the extent permitted under the laws of the state of incorporation of
the Company. In making its determination as to the type of consideration to
accept, the Board of Directors shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
(c) FAIR MARKET VALUE. The fair market value of shares of Common Stock
delivered to the Company as payment of the purchase price upon exercise of an
Option shall be determined by the Board in its discretion; provided, however,
that where there is a public market for the Common Stock, the fair market value
per share of Common
2
<PAGE> 3
Stock shall be the mean of the bid and asked prices (or the closing
price per share if the Common Stock is listed on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market System) of
the Common Stock for the date of grant, as reported in The Wall Street
Journal (or, if not so reported, as otherwise reported by the NASDAQ System)
or, if the Common Stock is listed on a stock exchange, the fair market value
per share shall be the closing price on such exchange on the date of grant of
the Option, as reported in The Wall Street Journal.
6. TERM OF OPTION.
(a) GENERAL RULE. Except as provided in Section 6(b) and Section 6(c)
hereof and in Section 10 and Section 12 of the Plan, the term of each
Option granted pursuant to Section 2 hereof shall be ten (10) years from the
date hereof.
(b) EMPLOYMENT OF OPTIONEE TERMINATED. Notwithstanding anything provided to
the contrary in the Plan, if Optionee's employment with the Company or
any Subsidiary is terminated by the Company or any Subsidiary (i) for fraud
or dishonesty of Optionee in connection with fulfillment of his duties and
responsibilities as an employee of the Company or any Subsidiary, including
without limitation, embezzlement of Company or Subsidiary funds; or (ii)
because employee is charged with a felony under any applicable criminal code
or statute, or (iii) if Optionee quits the employment of the Company or any
Subsidiary, then all unexercised Options, whether vested or unvested, shall
terminate immediately upon such termination of employment. If Optionee's
employment with the Company or any subsidiary is terminated for a reason
other than those described in the preceding sentence the unvested portion of
the Option shall terminate immediately and the entire portion of the Option
which was vested prior to termination of Employee's employment, to the extent
that it was exercisable at the date of termination of Employee's employment,
shall be exercisable for sixty (60) days following Employee's termination
date. To the extent that the Option was not exercisable on the Employee's
termination date, or if the Option is not exercised (to the extent it was
entitled to be exercised), within the 60 day period, the Option shall
terminate.
(c) BREACH OF NON-DISCLOSURE COVENANT NOT TO COMPETE. Notwithstanding
anything provided to the contrary in the Plan, if Optionee breaches any
applicable nondisclosure covenant or covenant not to compete set forth in any
employment agreement between Optionee and the Company or a Subsidiary, or
otherwise applicable to Optionee under the law of the jurisdiction where
Optionee is employed, then all unexercised Options, whether vested or
unvested, shall immediately terminate.
7. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
3
<PAGE> 4
8. Conditions Upon Issuance of Option Shares.
(a) Option Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of
such Option Shares pursuant thereto shall comply with all relevant provisions
of law, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Common Stock may then be listed, and shall be further
subject to the reasonable approval of counsel for the Company with respect to
such compliance.
(b) As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time
of any such exercise that the Option Shares are being purchased only for
investment and without any present intention to sell or distribute such
Option Shares if, in the reasonable opinion of counsel for the Company, such
a representation is required by any of the aforementioned relevant provisions
of law.
(c) As a condition to the issuance of Option Shares, the Optionee shall (a)
remit to the Company at the time of any exercise of the Option any
taxes required to be withheld by the Company under federal, state or local
laws as a result of the exercise of the Option, and/or (b) instruct the
Company to withhold in accordance with applicable law from any compensation
payable to the Optionee the taxes required to be held by the Company under
federal, state or local laws result of the exercise of the Option. The
determination of the amount of any such withholding shall be made by the
Company in its sole discretion.
(d) All Option Shares issued pursuant to the exercise of the Option shall
be subject to the terms and provisions of the Stock Restriction
Agreement, an example of which is attached hereto as Exhibit B.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date first above written.
OPTIONEE
/s/ Karl Gemperli
-------------------------
Name: Karl Gemperli
4
<PAGE> 5
AIRPORT SYSTEMS INTERNATIONAL, INC.
a Kansas corporation
By:
---------------------------------------
Keith S. Cowan, President
Exhibits
A. Restated 1991 Stock Option Plan
B. Stock Transfer Restriction Agreement
5
<PAGE> 6
EXHIBIT A
AIRPORT SYSTEMS INTERNATIONAL, INC.
1991 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or the
Board of Directors of the Company, if no Committee is appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Airport Systems International, Inc., a Kansas
corporation.
(e) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(f) "Consultant" shall mean any person who is engaged by the Company or any
subsidiary to render consulting services and is compensated for such consulting
services or any other person determined by the Board to have performed services
for or on behalf of the Company which merits the grant of an Option, and any
director of the Company whether compensated for such services or not; provided
that if and in the event the Company registers any class of any equity security
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the term Consultant shall thereafter not include directors who
are not compensated for their services or are paid only a director's fee by the
Company.
(g) "Continuous Status as an Employee or Consultant" shall mean the absence
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of sick leave, military leave, or any other leave of
absence approved by the Board; provided that such leave is for a period of not
more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
<PAGE> 7
(i) "Incentive Stock Option" shall mean an Option intended to qualify as an
incentive stock option within the meaning of Section 422A of the Code.
(j) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant to the Plan.
(1) "Optioned Stock" shall mean the Common Stock subject to an Option.
(m) "Optionee" shall mean an Employee or Consultant who receives an Option.
(n) "Parent" shall mean a "parent corporation", whether now or hereafter
existing, as defined in Section 425(e) of the Code.
(o) "Plan" shall mean this 1991 Stock Option Plan.
(p) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 120,000 shares of Common Stock. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. Notwithstanding any other provision of the Plan, shares
issued under the Plan and later repurchased by the Company shall become
available for future grant or sale under the Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the Board of Directors of
the Company.
(i) Subject to subparagraph (ii), the Board of Directors may appoint
a Committee consisting of not less than two members of the Board of
Directors to administer the Plan on behalf of the Board of Directors,
subject to such terms and conditions as the Board of Directors may
prescribe. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board of Directors. Members of the Board who are
either eligible for Options or have been granted Options may vote on any
matters affecting the administration of the Plan or the grant of any
Options pursuant to the Plan, except that no such member shall act upon the
granting of an Option to himself, but any such member may be counted in
determining the existence of
-2-
<PAGE> 8
a quorum at any meeting of the Board during which action is taken with
respect to the granting of Options to him.
(ii) Notwithstanding the foregoing subparagraph (i), if and in any
event the Company registers any class of any equity security pursuant to
Section 12 of the Exchange Act, from the effective date of such
registration (the "Effective Date") until six months after the
termination of such registration (the "Termination Date"), any grants of
options to officers or directors shall only be made by the Board of
Directors; provided, however, that if a majority of the Board of Directors
is eligible to participate in this Plan or any other stock option or other
stock plan of the Company or any of its affiliates, or has been eligible at
any time within the preceding year, any grants of options to directors must
be made by, or only in accordance with the recommendation of, a Committee
consisting of three or more persons, who may but need not be directors or
employees of the Company, appointed by the Board of Directors and having
full authority to act in the matter, none of whom is eligible to
participate in this Plan or any other stock option or other stock plan of
the Company or any of its affiliates, or has been eligible at any time
within the preceding year. Any Committee administering the Plan with
respect to grants to officers who are not also directors shall conform to
the requirements of the preceding sentence. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board of Directors.
(iii) Subject to the foregoing subparagraphs (i) and (ii), from time
to time the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however
caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(b) Powers of the Board. Subject to the provisions of the Plan, the Board
shall have the authority, in its discretion: (i) to grant Incentive Stock
Options or Nonstatutory Stock Options; (ii) to determine upon review of relevant
information and in accordance with Section 8(b) of the Plan, the fair market
value of the Common Stock, (iii) to determine the exercise price per share of
Options to be granted, which exercise price shall be determined in accordance
with Section 8(a) of the Plan; (iv) to determine the Employees or Consultants to
whom, and the time or times at which, Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option, consistent with the provisions of Section 5 of the
Plan; (ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Board; and (x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
-3-
<PAGE> 9
5. Eligibility
(a) Options may be granted only to Employees and Consultants. Incentive
Stock Options may be granted only to Employees. An Employee or Consultant who
has been granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options.
(b) To the extent that the aggregate fair market value of Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionee during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such Incentive Stock Options shall be
treated as Nonstatutory Stock Options.
(c) Section 5(b) of the Plan shall apply only to an Incentive Stock Option
evidenced by an "Incentive Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall qualify as an
incentive stock option. Section 5(b) of the Plan shall not apply to any Option
evidenced by a "Nonstatutory Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall be a
Nonstatutory Stock Option.
(d) The Plan shall not confer upon any Optionee any right with respect to
continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his right or the Company's right to terminate
his employment or consulting relationship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in Section 18 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 14 of the
Plan.
7. Term of Option. The term of each Incentive Stock Option shall be ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Incentive Stock Option Agreement. The term of each Option that
is not an Incentive Stock Option shall be determined by the Board and set forth
in the Option Agreement. However, in the case of an Incentive Stock Option
granted to an Optionee who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter time as may be provided in the Incentive Stock Option Agreement.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be such price as is determined by
the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
-4-
<PAGE> 10
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the fair market value per Share on the date of
grant.
(B) granted to any Employee, the per Share exercise price shall
be no less than 100% of the fair market value per Share on the date of
grant.
(ii) In the case of an Option granted on or after the effective date
of registration of any class of equity security of the Company pursuant to
Section 12 of the Exchange Act and prior to six months after the
termination of such registration, the per Share exercise price shall be no
less than 100% of the fair market value per Share on the date of grant.
(b) Fair Market Value. The fair market value shall be determined by the
Board in its discretion; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share shall be the mean of the
bid and asked prices (or the closing price per share if the Common Stock listed
on that National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System) of the Common Stock for the date of grant, as
reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by the NASDAQ System) or, in the event the Common Stock is listed on a
stock exchange, the fair market value per Share shall be the closing price on
such exchange on the date of grant of the Option, as reported in The Wall Street
Journal.
(c) Form of Consideration. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of cash, check, other Shares of
Common Stock having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said option shall be
exercised, or any combination of such methods of payment, or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Sections 152, 153 and 157 of the Delaware General Corporation
Law. In making its determination as to the type of consideration to accept, the
Board shall consider if acceptance of such consideration may be reasonably
expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise in the form required by the Nonstatutory or Incentive Stock Option
Agreement has been given to the
-5-
<PAGE> 11
Company in accordance with the terms of the Option by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment may, as
authorized by the Board, consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Under the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a dividend
or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for purchase under the Option, by the number of Shares as to which the
Option is exercised.
10. Certain Events Affecting Exercisability of Incentive Stock Options.
(a) Termination of Status as an Employee or Consultant. With respect to
Incentive Stock Options, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant (as the case may be), such Optionee may, but
only within sixty (60) days (or such other period of time not exceeding three
(3) months as is determined by the Board, with such determination being made at
the time of grant of the Option) after such event of termination of an
Optionee's Continuous Status as an Employee or Consultant (as the case may be)
(but in no event later than the date of expiration of the term of such Incentive
Stock Option as set forth in the Incentive Stock Option Agreement), exercise his
Incentive Stock Option to the extent that he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to exercise the
Incentive Stock Option at the date of such termination, or if he does not
exercise such Incentive Stock Option (which he was entitled to exercise) within
the time specified herein, the Incentive Stock Option shall terminate.
(b) Disability of Optionee. With respect to Incentive Stock Options,
notwithstanding the provision of Section 10(a) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant (as
the case may be) as a result of his total and permanent disability (as defined
in Section 22(e)(3) of the Code), he may, but only within six (6) months (or
such other period of time not exceeding twelve (12) months as is determined by
the Board, with such determination being made at the time of grant of the
Incentive Stock Option) from the date of termination (but in no event later than
the date of expiration of the term of such Incentive Stock Option as set forth
in the Incentive Stock Option Agreement), exercise his Incentive Stock Option to
the extent he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise the Incentive Stock Option at
the date of termination, or if he does not exercise such Incentive Stock Option
(which he was entitled to exercise) within the time specified herein, the
Incentive Stock Option shall terminate.
(c) Death of Optionee. With respect to Incentive Stock Options, in the
event of the death of an Optionee:
-6-
<PAGE> 12
(i) who is at the time of his death an Employee or Consultant of the
Company and who shall have been in Continuous Status as an Employee or
Consultant since the date of grant of the Incentive Stock Option, the
Incentive Stock Option may be exercised, at any time within nine (9) months
following the date of death (but in no event later than the date of
expiration of the term of such Incentive Stock Option as set forth in the
Incentive Stock Option Agreement), by the Optionee's estate or by a person
who acquired the right to exercise the Incentive Stock Option by bequest or
inheritance, but only to the extent of the right to exercise that would
have accrued had the Optionee continued living and remained in Continuous
Status as an Employee or Consultant six (6) months after the date of death,
subject to the limitation set forth in Section 5(b); or
(ii) which occurs within thirty (30) days (or such other period of
time not exceeding three (3) months as is determined by the Board, with
such determination being made at the time of grant of the Incentive Stock
Option) after the termination of Continuous Status as an Employee or
Consultant, the Incentive Stock Option may be exercised, at any time within
nine (9) months following the date of death (but in no event later than the
date of expiration of the term of such Incentive Stock Option as set forth
in the Incentive Stock Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the Incentive Stock Option by
bequest or inheritance, but only to the extent of the right to exercise
that had accrued at the date of termination.
11. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
12. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
-7-
<PAGE> 13
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. Unless the
option agreement granting an Option to an Optionee specifically provides
otherwise, in the event that such successor corporation refuses to assume the
Option or to substitute an equivalent option, the Board shall, in lieu of such
assumption or substitution, provide for the Optionee to have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable. The Board shall give
written notice to each holder of an Option of the pendency of the sale of
substantially all of the assets of the Company, a merger involving the Company
or the dissolution or liquidation of the Company not less than ten days prior to
such transaction. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
13. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting such
Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable; provided
that, the following revisions or amendments shall require approval of the
shareholders of the Company in the manner described in Section 18 of the Plan:
(i) any increase in the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 12 of the Plan;
(ii) any change in the designation of the class of persons eligible
to be granted Options; or
(iii) if the Company has a class of equity securities registered under
Section 14 of the Exchange Act at the time of such revision or amendment,
any material increase in the benefit accruing to participants under the
Plan.
(b) Shareholder Approval. If any amendment requiring shareholder approval
under Section 14(a) of the Plan is made subsequent to the first registration of
any class of equity
-8-
<PAGE> 14
securities by the Company under Section 12 of the Exchange Act, such shareholder
approval shall be solicited as described in Section 18 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
17. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
18. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel,
-9-
<PAGE> 15
that such a lesser degree of shareholder approval will comply with all
applicable laws and will not adversely affect the qualification of the Plan
under Section 422A of the Code.
(b) If and in the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself or of
any amendment thereto is solicited at any time otherwise than in the manner
described in Section 18(b) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the Plan
substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment
were then being solicited) by the rules and regulations in effect under
Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the Securities and Exchange
Commission four copies of the written information referred to in subsection
(i) hereof not later than the date on which such information is first sent
or given to shareholders.
19. Gender Reference. The words "he", "him" or "his" shall be deemed to
include the feminine and neuter gender of such words.
Adopted by the Board of Directors of Airport Systems International, Inc. on
December 3, 1991.
/s/ Thomas Blackburn
---------------------------
Thomas Blackburn, Secretary
-10-
<PAGE> 16
EXHIBIT B
AIRPORT SYSTEMS INTERNATIONAL, INC.
STOCK TRANSFER RESTRICTION AGREEMENT
FOR EXERCISE OF STOCK OPTION
THIS AGREEMENT is made between _________________________ (the "Purchaser")
and AIRPORT SYSTEMS INTERNATIONAL, INC. (the "Company"), as of ________________.
RECITAL
Pursuant to the exercise of a stock option granted to the Purchaser dated
as of April 12, 1993 by and between the Company and the Purchaser (the "Option
Agreement"), the Purchaser has elected to purchase 3,000 shares of Company
common stock, par value $.01 per share ("Common Stock"), which have become
vested under the vesting schedule set forth in Section 3 of the Option Agreement
(the "Shares"). Purchaser has made full payment for the Shares in the manner
provided by Section 5 of the Option Agreement.
1. CERTAIN RESTRICTIONS. The Shares are subject to the terms and provisions
of this Agreement. The Company shall not be required (a) to transfer on its
books any Shares which shall have been sold or transferred in violation of any
of the provisions set forth in this Agreement, or (b) to treat as the owner of
such Shares or to accord the right to vote as such owner or to pay dividends to
any transferee to whom such Shares shall have been so transferred.
2. PURCHASER'S INVESTMENT REPRESENTATIONS. In connection with the purchase
of the Shares, the Purchaser hereby represents and warrants to the Company the
following:
(a) INVESTMENT INTENT; CAPACITY TO PROTECT INTERESTS. The Purchaser is
purchasing the Shares solely for his own account for investment and not
with a view to or for sale in connection with any distribution of the
Shares or any portion thereof and not with any present intention of
selling, offering to sell or otherwise disposing of or distributing the
Shares or any portion thereof in any transaction other than a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Act"). The Purchaser also represents that the entire legal and beneficial
interest of the Shares is being purchased, and will be held, for the
Purchaser's account only, and neither in whole or in part for any other
person. Purchaser either has a pre-existing business or personal
relationship with the Company or any of its officers, directors or
controlling persons or by reason of Purchaser's business or financial
experience or the business or financial experience of Purchaser's
professional advisors who are unaffiliated with and who are not compensated
by the Company or any affiliate or selling agent of the Company,
<PAGE> 17
directly or indirectly, could be reasonably assumed to have the capacity to
evaluate the merits and risks of an investment in the Company and to protect
Purchaser's own interests in connection with this transaction.
(b) RESIDENCE. The Purchaser's principal residence is at the address set
forth beneath Purchaser's signature on this Agreement.
(c) INFORMATION CONCERNING COMPANY. The Purchaser has heretofore discussed
the Company and its plans, operations and financial condition with the Company's
officers and has heretofore received all such information as the Purchaser has
deemed necessary and appropriate to enable the Purchaser to evaluate the
financial risk inherent in making an investment in the Shares, and the Purchaser
has received satisfactory and complete information concerning the business and
financial condition of the Company in response to all inquiries in respect
thereof.
(d) ECONOMIC RISK. The Purchaser realizes that the purchase of the Shares
will be a highly speculative investment and involves a high degree of risk, and
the Purchaser is able, without impairing his financial condition, to hold the
Shares for an indefinite period of time and to suffer a complete loss on the
Purchaser's investment.
(e) RESTRICTED SECURITIES. The Purchaser understands and acknowledges that:
(i) the sale of the Shares has not been registered under the Act,
the Shares must be held indefinitely unless subsequently registered under
the Act or an exemption from such registration is available, and the
Company is under no obligation to register the Shares;
(ii) the share certificate representing the Shares will be stamped
with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR
PURSUANT TO ANY STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS SUCH ARE FIRST REGISTERED PURSUANT TO THE
APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR UNLESS THE CORPORATION
RECEIVES A WRITTEN OPINION OF COUNSEL WHICH OPINION AND COUNSEL ARE
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED; and
(iii) the Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
3
<PAGE> 18
(f) DISPOSITION UNDER RULE 144. The Purchaser understands that the Shares
are restricted securities within the meaning of Rule 144 promulgated under the
Act; that the exemption from registration under Rule 144 will not be available
in any event for at least two years from the date of payment for the Shares, and
then will not be available unless (i) a public trading market then exists for
the Common Stock of the Company, (ii) adequate information concerning the
Company is then available to the public, and (iii) other terms and conditions of
Rule 144 are complied with; and that any sale of the Shares may be made only in
limited amounts in accordance with such terms and conditions.
(g) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting his
representations set forth above, the Purchaser further agrees that he shall in
no event make any disposition of all or any portion of the Shares unless and
until:
(i)(A) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in
accordance with said registration Statement; or, (B)(1) the Purchaser shall
have notified the Company of the proposed disposition and shall have
furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, (2) the Purchaser shall have
furnished the Company with an opinion of the Purchaser's counsel to the
effect that such disposition will not require registration of such shares
under the Act, and (3) such opinion of the Purchaser's counsel shall have
been concurred in by counsel for the Company and the Company shall have
advised the Purchaser of such concurrence; and,
(ii) The Purchaser shall have complied with the provisions of this
Agreement.
3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
4. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, assigns,
heirs and legal representatives. This Agreement is not assignable by any party
hereto without the prior written consent of the other party.
5. NOTICES. All notices required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, or sent by express mail service that provides for confirmation of
delivery, telecopy, facsimile or other electronic transmission to the extent
receipt is confirmed, or mailed first class, postage prepaid, registered or
certified mail, addressed to the Purchaser at the address set forth beneath
Purchaser's signature on this Agreement and to the Company as follows:
4
<PAGE> 19
Airport Systems International, Inc.
11300 West 89th Street
Overland Park, Kansas 66214
Attention: President
Facsimile No.: (913) 492-0870
with a copy to:
David D. Gatchell
Sonnenschein Nath & Rosenthal
4520 Main Street, Suite 1100
Kansas City, Missouri 64111
Facsimile No.: (816) 531-7545
6. WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived with respect
to a party, only by a written instrument duly executed and acknowledged with the
same formality as this Agreement, and signed by the person waiving such right.
Delay on the part of any party to exercise any right, power or privilege
hereunder shall not operate as a waiver thereof, nor shall any waiver on the
part of any party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
7. WITHHOLDING TAX. If the Company is required to withhold taxes upon
transfer of the Shares, the Company may condition such transfer upon receipt
from the Purchaser of an amount equal to all applicable federal, state and local
withholding taxes, which amount shall be determined in the Company's sole
discretion.
8. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Kansas.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
AIRPORT SYSTEMS INTERNATIONAL, INC.
By:
------------------------------------
Name: Keith S. Cowan
Title: President
5
<PAGE> 20
"PURCHASER"
--------------------------------------
PURCHASER'S RESIDENCE ADDRESS
--------------------------------------
--------------------------------------
6
<PAGE> 1
EXHIBIT 11
AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NET INCOME (LOSS) PER SHARE COMPUTATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
------- -------
1997 1996
------- -------
<S> <C> <C>
PRIMARY
- ---------------------------------------------
Net income (loss) applicable to common stockholders $ 599 $ (212)
======= =======
Weighted average number of common
shares outstanding during the periods 2,230 2,192
Add - dilutive common equivalent shares
(determined using the "treasury stock method")
representing shares issuable upon the exercise
of stock options 170 --
------- -------
Weighted average number of shares used
in calculation of primary net income (loss) per share 2,400 2,192
======= =======
Net income (loss) per common share - primary $ 0.25 $ (0.10)
======= =======
FULLY DILUTED
- ---------------------------------------------
Net income (loss) applicable to common stockholders $ 599 $ (212)
======= =======
Weighted average number of shares used in calculating
primary net income per common share computation 2,400 2,192
Add (deduct) incremental shares representing:
Shares issuable upon exercise of stock options
included in primary calculation above (170) --
Shares issuable upon exercise of stock options
based on period-end market price 170 --
------- -------
Weighted average number of shares used in
calculation of fully diluted net income (loss) per share 2,400 2,192
======= =======
Net income (loss) per common share - fully diluted $ 0.25 $ (0.10)
======= =======
</TABLE>
page 21
<PAGE> 1
Operating Summary
- - Earnings recovery attained to $0.25 per share.
- - Net sales increase 41% to $20.1 million.
- - Fourth quarter income doubles to $0.21 per share.
- - Contract awards reached a new high of $33 million.
- - Indonesian award represents largest single project.
- - Satellite-based navigation system nears FAA certification.
- - Balance sheet remains strong.
About Airport Systems International
Airport Systems International, Inc. (Airport Systems or the "Company")designs,
manufactures, markets and installs ground-based equipment ("navaids") and
airfield signage to aid the in-flight navigation and ground movement of
aircraft. The Company's products are used worldwide to guide the navigation of
aircraft under all visibility conditions in various phases of a flight.
The Company's navaids consist of four principal types of equipment:
- - Instrument landing systems ("ILS").
- - Very high frequency omni-range transmitters ("VOR").
- - Distance measuring equipment ("DME").
- - Local area differential global positioning system ground station ("LADGPS").
This equipment serves as the ground-based components of the dominant aircraft
navigation systems used today by both general aviation aircraft and commercial
air carriers. The Company's airfield signage is used to identify runways and
taxiways with unique design features for safety and reliability. All of the
Company's equipment is subject to strict regulatory specifications and
certification procedures.
Airport Systems also provides a full range of related services including site
surveys and selection, turnkey installation, maintenance and training.
Contents
<TABLE>
<S> <C>
Operating Summary Inside Front
Financial Highlights 1
Letter to Stockholders 2
Selected Financial Data 7
Management's Discussion and Analysis 8
Consolidated Financial Statements 11
Notes to Consolidated Financial Statements 15
Report of Independent Auditors 20
Stockholder Information/Directors and Officers Inside Back
</TABLE>
<PAGE> 2
Airport Systems International, Inc. 1
Financial Highlights
<TABLE>
<CAPTION>
For the years ended April 30,
Amounts in thousands, except per share data 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
RESULTS OF OPERATIONS
Net sales $ 20,098 $ 14,227
Operating income (loss) 1,064 (288)
Income (loss) before income taxes 960 (320)
Income tax provision (benefit) 361 (108)
Net income (loss) 599 (212)
Net income (loss) per share $ 0.25 $ (0.10)
Weighted average shares outstanding 2,400 2,192
</TABLE>
<TABLE>
<CAPTION>
April 30,
Amounts in thousands 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEET DATA
Working capital $ 7,716 $ 6,792
Total assets 18,593 12,878
Long-term debt 1,202 1,221
Stockholders' equity 9,536 8,930
</TABLE>
(Throughout this annual report, 1999, 1998, 1997, 1996 and 1995 are used to
refer, respectively, to the Company's fiscal years that ended on April 30 in
those same calendar periods.)
<PAGE> 3
Airport Systems International, Inc. 2
Fellow Stockholders:
The recovery in profitability for 1997 headlined a year of significant
accomplishments for Airport Systems. A primary goal was to demonstrate the
profit potential we can realize by capitalizing on the demand that exists
worldwide for navaid equipment and systems. The $33 million in new contracts
signed during the year underscores the strength of our resources in competing
for this business. The awards included the largest single contract ever for
Airport Systems, a multi-location installation of equipment and related services
for the Republic of Indonesia valued at $17.7 million. Our selection as the
prime contractor for this program validated our qualifications for performing
similar turnkey projects in the future. Success in obtaining the work also
reinforced our position as the leading supplier of navigation systems to the
Asia/Pacific region, the fastest-growing aviation sector in the world.
Our challenge is to sustain the positive momentum established during 1997. At
the same time, we are mindful of the paramount goal of maximizing the value of
stockholders' investment in Airport Systems. Shortly after the close of 1997, we
announced the Board's decision to evaluate the various strategic alternatives
that could enhance stockholder value. Among the alternatives being explored are
joint ventures, mergers, acquisitions and strategic alliances. The outcome of
that initiative obviously cannot be predicted. We believe the appropriate focus
for this letter, therefore, should be a review of the key financial and
operational developments during 1997 as well as the factors that will drive the
Company's future growth.
Earnings Double In Fourth Quarter
The fourth quarter of 1997 featured records in bookings, sales and income.
Through the first nine months of the year, we had recorded solid year-to-year
gains versus the year-earlier results. The final period benefited from the start
of several new contracts, including the Indonesian project. As a result, we
recorded a 59% increase in net sales - from $4.6 million to $7.3 million - and a
110% increase in earnings per share from $0.10 to $0.21. For the year as a
whole, sales rose 41% to $20.1 million; and the bottom line rebounded from a
loss of $0.10 per share to net income of $0.25 per share. It is significant to
note that we ended 1997 with a backlog of $19.3 million, compared to a backlog
of $6.5 million a year ago. That improvement suggests a continuation of the
Company's positive financial performance into fiscal 1998. We also maintained a
strong financial position with $3.1 million in cash and cash equivalents, $7.7
million of working capital and a net worth of $9.5 million at the close of 1997.
Indonesian Contract Highlights
Competitive Leadership
As we indicated a year ago, we made the decision to continue mounting an
aggressive marketing program even with the slowdown in new contracts
industry-wide that was prevalent during early 1996. We were confident that the
inherent need
[The recovery in profitability for 1997 headlined a year of significant
accomplishments for Airport Systems. The $33 million in new contracts signed
during the year underscores the fundamental strength of our resources.]
[Photo above: CVOR installation in Bodrum, Turkey.]
<PAGE> 4
Airport Systems International, Inc. 3
to upgrade air navigation infrastructures around the world would lead to a
return to the long-term expansion in demand that our industry has historically
experienced. Our investment was rewarded with a number of important new
contracts during 1997, the largest of which was the contract with the Republic
of Indonesia for the delivery of 19 DVORs and 22 DMEs. The turnkey contract also
includes installation, flight inspection, training and other support services
over a two-year period. Funding for the contract was finalized in March 1997,
and we were able to start shipments of certain components immediately.
The completion of this contract will result in a significant enhancement to the
air navigation system within Indonesia. The contract also marks what we believe
will be a pattern of other new navaid awards internationally. Recent
developments point to visible headway on a number of major construction projects
which involve new airports or significant upgrades and expansion of existing
facilities. In Indonesia and the Asia/Pacific region alone, we believe the
potential market for navaid products over the next several years exceeds $200
million.
The Indonesian award reinforces the solid technological standing of Airport
Systems. Our position as a corporate organization focused entirely on navaids
provides a clear competitive advantage. Over the
<PAGE> 5
Airport Systems International, Inc. 4
past several years, we have worked hard to attain leadership in the industry
through advances in the engineering of our systems and in higher efficiency and
productivity. State-of-the-art technology gives us an important asset to use in
establishing international alliances and joint ventures. In Indonesia, this
resource has been a key part of our efforts to establish a joint venture with
two Indonesian-based firms, PT.Len (Persero) and PT. Elektrindo Nusantara, to
produce radio navigation, landing and runway visual aids. We believe our
relationship with these Indonesian-based firms was important to our selection as
the prime contractor on the Indonesian contract awarded to us in 1997. The issue
of technology transfer remains a key concern for many governments when awarding
large contracts, and our position as an independent supplier of navaids gives us
the flexibility to form similar alliances in other markets.
New Awards/Installations Underscore
Worldwide Presence
The aim of our marketing program remains pursuing opportunities within the
United States as well as internationally. Establishing Airport Systems as a
leading supplier of navaids to airports under the oversight of the Federal
Airport Administration ("FAA") is a vital credential for us both in the United
States and internationally. We were very gratified to have been selected by the
FAA in January 1997 to deliver and install 38 DMEs to upgrade the ground-based
navigational systems at various airports within the United States. This contract
marked our selection for each of the two major procurements of DMEs by the FAA
over the past five years. Progress on this project has included acceptance in
May 1997 of the first units on schedule and the order by the FAA for ten of the
20 additional units for which that agency has options.
A related contract received during 1997 involved ILS and DME equipment for
Phoenix Sky Harbor International Airport, the sixth largest airport in the
United States. The Phoenix award shows not only our technical competency but
also the cost and time advantages that an airport authority can realize by
working with Airport Systems. Our commercial, off-the-shelf ILS offered lower
costs and a guaranteed delivery priority that contrasted meaningfully with using
the Federal government's procurement process for the equipment. This is the same
option that other airport authorities, such as in Springfield, Illinois and
Concord, North Carolina, have followed in becoming customers of Airport Systems.
In 1997, we successfully installed 30 navaids in the United States and around
the world. Our installations outside the United States during 1997 included
locations in Lebanon, Korea, Thailand and Turkey, where we have already
established a presence through the successful completion of previous contracts.
We are seeking to increase the Company's market share in areas familiar to us,
but are also pursuing opportunities to broaden our geographic scope into
emerging markets, such as China, where we were awarded and
[Our investment in an aggressive marketing initiative was rewarded by the
largest contract ever for Airport Systems, a $17.7 million two-year project
for the Republic of Indonesia.]
[Photo above: DVOR installation in OaNang, Vietnam]
<PAGE> 6
Airport Systems International, Inc. 5
completed our first contract during the year. We also saw continuing success in
the Middle East with repeat orders from Lebanon and Turkey and the commissioning
of sites in Turkey and Syria.
Development Of Satellite Navigation
System Proceeding
We are continuing to march forward in the development of our satellite-based
landing system. The ground station is largely complete; flight tests have been
completed; and data from test flights has been submitted to the FAA. As part of
its review, the FAA has requested and will receive an evaluation system for use
in completing its certification. Based on that schedule, we expect our system to
be certified in the second or third quarter of 1998. The excitement of
satellite-based systems has diminished somewhat over the past few years as
airport authorities around the world have begun to recognize some of the
technological challenges yet to be overcome. The acknowledgment of these
difficulties has no doubt been a catalyst behind the resurgence that we have
experienced since 1996 in the procurements of conventional navaids by
international civil aviation authorities. As our record indicates, we are
pursuing all opportunities to market our traditional navaid products but remain
convinced that the future for air navigation rests on the technology of
satellite-based systems.
Growth Prospects Reviewed
We are very excited about the prospects for Airport Systems for 1998. Based on
the $19.3 million backlog at the start of the year, the opportunity is excellent
for sustained growth in sales and earnings for the year as a whole. Industry
trends support our optimism. Although the backlog may drop somewhat from the
exceptionally high starting point as the year progresses, we are encouraged by
the pace of bidding activity that has been present in the early part of 1998. We
believe that the Company is well positioned to win some of the additional large
navaid programs that we expect will be awarded over the next few years.
We want to conclude by thanking the employees of Airport Systems. The notable
results of 1997 and the favorable prospects for extending this momentum would
not have been possible without their tireless efforts, including many long days
- - and nights - at our facility and extended trips away from homes to
international locations.
We look forward to reporting to you on our ongoing progress during 1998.
Sincerely,
Keith S. Cowan
President and Chief Executive Officer
[There remains a significant worldwide need to upgrade and expand airports, and
their related navigation systems. The Company's longer term prospects are
enhanced by our ongoing development of a satellite-based navigation system for
commercial landings.]
[Photo above: ILS installation at Marco Island, Florida.]
<PAGE> 7
Airport Systems International, Inc. 6
Selected Financial Data
(In thousands except per share data)
<TABLE>
<CAPTION>
Year ended April 30,
1997 1996
- ----------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Sales $ 20,098 $ 14,227
Cost of products sold 14,055 10,064
-----------------------
Gross margin 6,043 4,163
Operating expenses 4,979 4,451
Interest expense 110 135
Other income, net 6 103
-----------------------
Income (loss) before income taxes 960 (320)
Income tax provision (benefit) 361 (108)
-----------------------
Net income (loss) $ 599 $ (212)
=======================
Net income (loss) per common and common equivalent share $ .25 $ (.10)
=======================
Weighted average common and common equivalent shares
outstanding - primary and fully diluted 2,400 2,192
=======================
BALANCE SHEET DATA:
Working capital $ 7,716 $ 6,792
Total assets 18,593 12,878
Current portion of long-term debt 18 16
Long-term debt, less current portion 1,202 1,221
Stockholders' equity 9,536 8,930
</TABLE>
<PAGE> 8
Airport Systems International, Inc. 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain statement of
operations data:
<TABLE>
<CAPTION>
Year Ended Year Ended
April 30, 1997 April 30, 1996
- ----------------------------------------------------------------------------------------------
<S> <C>
(Dollars in Thousands)
Sales $ 20,098 100.0% $ 14,227 100.0%
Cost of products sold 14,055 69.9% 10,064 70.7%
-----------------------------------------------
Gross margin 6,043 30.1% 4,163 29.3%
Selling, general and administrative expenses 4,023 20.0% 3,460 24.3%
Research and development expenses 956 4.8% 991 7.0%
-----------------------------------------------
Operating income (loss) 1,064 5.3% (288) (2.0%)
Interest expense (110) (.5%) (135) (0.9%)
Other income, net 6 _ 103 0.7%
-----------------------------------------------
Income (loss) before income taxes 960 4.8% (320) (2.2%)
Income tax provision (benefit) 361 1.8% (108) (0.7%)
-----------------------------------------------
Net income (loss) $ 599 3.0% $ (212) (1.5%)
===============================================
</TABLE>
Sales in 1997 were $20.1 million, or 41% higher than sales in 1996. Of the $20.1
million, approximately $10.9 million, or 54%, represented deliveries to four
customers. The increase in sales, compared to 1996, was due to an increase in
the number of units shipped as a result of higher beginning year backlog and
increased bookings during the current fiscal year.
Gross margin was $6.0 million, or 30% of sales, up approximately 45% from $4.2
million, or 29% of sales, in 1996. Gross margin and gross margin as a percent of
sales increased due to increased sales and reduced manufacturing costs.
Selling, general and administrative (SG&A) expenses increased $563,000, or 16%,
in 1997, reflecting an increase in costs attributable to the related increase in
sales; but since certain of these costs are fixed in nature, SG&A expenses, as a
percent of sales, decreased to 20% in 1997 from approximately 24% in 1996.
Research and development expenses remained relatively unchanged in 1997 versus
1996 ($956,000 and $991,000, respectively) and consisted of continued work on
the Company's satellite-based landing system, a local area differential global
positioning system ground station (LADGPS), as well as enhancements for existing
products. Research and development activities are expected to remain at or near
the 1997 levels as the Company continues product line enhancements and new
product development programs, in particular the development of LADGPS, the
ground component required for aircraft use of satellite-based navigation systems
to achieve precision approach accuracy and integrity standards.
Other income decreased $97,000 in 1997, due primarily to $83,000 paid in 1997 to
a former sales representative as settlement of a lawsuit over litigated
commissions. The remaining difference is due to decreased interest income from
lower average cash and investment balances as compared to 1996.
The Company recorded an effective income tax provision of approximately 38% in
1997 compared to a benefit for income taxes of approximately 34% for 1996. Tax
benefits associated with the Company's foreign sales corporation reduced the
Company's effective tax rate in 1997, as further described in Note 6 to the
consolidated financial statements.
As a result of the above, net income for 1997 improved to $599,000 or 3% of
sales, compared to a net loss of $212,000, or 1.5% of sales, in 1996.
<PAGE> 9
Airport Systems International, Inc. 8
Backlog
The following table sets forth the domestic and international backlog as of the
dates indicated:
<TABLE>
<CAPTION>
(Dollars In Thousands) April 30, 1997 April 30, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic $ 2,987 15.5% $ 1,183 18.3%
International 16,332 84.5% 5,295 81.7%
--------------------------------------------------------
TOTAL $19,319 100.0% $ 6,478 100.0%
========================================================
</TABLE>
The Company's backlog increased $12.8 million or 198% to $19.3 million at April
30, 1997, compared to $6.5 million at April 30, 1996. Approximately 68% of the
backlog at April 30, 1997 was represented by a contract from the Republic of
Indonesia, and 10% of the backlog relates to a contract with the Federal
Aviation Administration. Approximately $13.5 million of the backlog at April 30,
1997 is expected to be completed and shipped in 1998, and the remainder is
expected to be completed and shipped in 1999.
The increase in backlog, as compared to April 30, 1996, is the result of
approximately $33.0 million in contract awards during the fiscal year, in
particular, the award during the fourth quarter of a $17.7 million dollar
contract to provide navaids to the Republic of Indonesia. The increase in
bookings was also the result of investments the Company made in its marketing
efforts as well as enhancements to its existing products in 1996 and 1995. The
Company strengthened its marketing personnel and outside representative network
as well as continued to implement processes in its bidding strategy which insure
that bids are submitted only on projects likely to be awarded and for which the
Company is positioned to win. In addition, the Company also saw an increase in
bookings as a result of an increased level of contracts being awarded by civil
aviation authorities. A substantial number of bids remained active at year end,
but the Company is unable to determine when or if the related contracts will be
awarded. The Company plans to continue to strengthen its marketing group during
1998. The Company expects that these actions, combined with a planned increase
in marketing activities, will better position the Company to capture existing
programs and identify and market upcoming programs. Enhancements to its current
products include design changes which have offered new features to its customers
as well as reduced cost and increased producibility. The Company expects backlog
and bidding activities as well as contract awards to continue to fluctuate due
to the size and timing of contract programs.
Quarterly Results
The following table sets forth selected unaudited financial information for the
Company for the four fiscal quarters of the year ended April 30, 1997. This
unaudited information has been prepared on the same basis as the annual
financial statements contained elsewhere in this Annual Report and, in the
opinion of the Company, reflects all adjustments necessary for a fair
presentation thereof:
<TABLE>
<CAPTION>
(Dollars In thousands) July 31 October 31 January 31 April 30
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 5,155 $ 4,014 $ 3,635 $ 7,294
Gross margin 1,558 1,265 1,052 2,168
Operating income (loss) 230 78 (67) 823
Net income (loss) $ 135 $ 62 $ (98) $ 500
Gross margin % 30.2% 31.5% 28.9% 29.7%
</TABLE>
The Company has experienced quarterly fluctuations in operating results and
anticipates that these fluctuations will continue. The significant improvements
in the fourth quarter results are primarily attributable to the deliveries made
under the Indonesian contract. Fluctuations in quarterly sales are caused by a
number of factors, including the timing of contract awards, delivery schedules,
construction or funding delays, customers' budget cycles, changes in procurement
patterns and shifting political and economic factors of the Company's customers.
Profitability on contracts also will vary depending upon the product mix, the
geographical location of the customer, the market served and the pricing
strategies of it competitors.
<PAGE> 10
Airport Systems International, Inc. 9
Inflation
The effect of inflation on the Company has not been significant over the past
three years. However, an extended period of inflation could be expected to have
an impact on the Company's earnings by causing interest rates, as well as
material and labor rates, to increase faster than prices could be increased on
new contracts.
Liquidity and Capital Resources
Net cash of $2.1 million was provided by operations in 1997 compared to $1.7
million used in 1996. The increase was principally the result of an increase in
net income compared to the prior year as well as an increase in accrued expenses
and customer deposits, partially offset by increases in inventories and accounts
receivable resulting from increased sales.
Cash used in investing activities was $178,000 for 1997 compared to cash
provided of $1.8 million in 1996. The decrease is due primarily to a net
reduction of sales of short-term investments which provided cash of
approximately $1.9 million during 1996, the proceeds of which were used to fund
operations during that year.
Cash provided by financing activities was $590,000 in 1997 compared to $3,000
used in 1996. The increase is due primarily to an increase in net borrowings on
the Company's bank line of credit to partially fund the short-term working
capital needs during 1997.
The Company expects that it will meet ongoing requirements for working capital
and capital expenditures from a combination of cash expected to be generated
from operations, existing cash and cash equivalents, and available borrowing
under the existing line of credit facility. In May, 1997, the Company negotiated
an increase in its bank line of credit from $4 million to $6 million, primarily
to cover the issuance of additional standby letters of credit.
<PAGE> 11
Airport Systems International, Inc. 10
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
April 30
1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 3,122 $ 621
Accounts receivable, less allowances of $57 in 1997
and $49 in 1996 (Note 2)
7,533 4,722
Refundable income taxes - 201
Inventories (Note 2) 4,717 3,686
Prepaid expenses 186 289
----------------------
Total current assets 15,558 9,519
Property and equipment, at cost (Notes 2 and 3):
Land 224 224
Building and improvements 1,204 1,180
Equipment 1,609 1,626
----------------------
3,037 3,030
Accumulated depreciation and amortization (1,329) (1,136)
----------------------
1,708 1,894
Deferred income taxes (Note 6) - 15
Other assets 63 113
Cost in excess of net assets acquired 1,264 1,337
----------------------
Total assets $ 18,593 $ 12,878
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank (Note 2) $ 600 $ -
Accounts payable 2,511 1,279
Accrued expenses 1,931 1,166
Customer deposits 2,372 101
Income taxes payable 387 --
Deferred income taxes (Note 6) 23 165
Current portion of long-term debt (Note 3) 18 16
----------------------
Total current liabilities 7,842 2,727
Long-term debt, less current portion (Note 3) 1,202 1,221
Deferred income taxes 13 -
Stockholders' equity (Note 5):
Common stock, $.01 par value:
Authorized shares - 5,000,000
Issued and outstanding shares - 2,230,500 in 1997
and 2,207,750 in 1996 22 22
Additional paid-in capital 7,293 7,286
Retained earnings 2,221 1,622
----------------------
Total stockholders' equity 9,536 8,930
----------------------
Total liabilities and stockholders' equity $ 18,593 $ 12,878
======================
</TABLE>
See accompanying notes.
<PAGE> 12
Airport Systems International, Inc. 11
Consolidated Statements of Operations
(In thousands except per share data)
<TABLE>
<CAPTION>
Year ended April 30,
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 20,098 $ 14,227
Cost of products sold 14,055 10,064
-----------------------
Gross margin 6,043 4,163
Selling, general and administrative expenses 4,023 3,460
Research and development expenses 956 991
-----------------------
Operating income (loss) 1,064 (288)
Other income (expense):
Interest expense (110) (135)
Other income 92 105
Other expense (86) (2)
-----------------------
Income (loss) before income taxes 960 (320)
Income tax provision (benefit) (Note 6) 361 (108)
-----------------------
Net income (loss) $ 599 $ (212)
=======================
Net income (loss) per common and common equivalent share -
primary and fully diluted $ .25 $ (.10)
=======================
Weighted average common shares outstanding - primary and fully diluted 2,400 2,192
=======================
</TABLE>
See accompanying notes.
<PAGE> 13
Airport Systems International, Inc. 12
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at April 30, 1995 $22 $ 7,280 $ 1,834 $ 9,136
Net loss - - (212) (212)
Exercise of stock options - 6 - 6
--------------------------------------------------
Balance at April 30, 1996 22 7,286 1,622 8,930
Net income - - 599 599
Exercise of stock options - 7 - 7
--------------------------------------------------
Balance at April 30, 1997 $22 $ 7,293 $ 2,221 $ 9,536
==================================================
</TABLE>
See accompanying notes.
<PAGE> 14
Airport Systems International, Inc. 13
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands)
Year ended April 30,
1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 599 $ (212)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 486 522
Loss on sale of equipment 1 3
Provision of doubtful accounts 19 2
Deferred income taxes (114) 96
Changes in operating assets and liabilities:
Restricted cash -- 61
Accounts receivable (2,830) (481)
Refundable income taxes 201 (201)
Inventories (1,031) (1,008)
Prepaid expenses 103 (100)
Accounts payable 1,232 364
Accrued expenses and customer deposits 3,036 (708)
Income taxes payable 387 (69)
----------------------
Net cash provided by (used in) operating activities 2,089 (1,731)
INVESTING ACTIVITIES:
Proceeds from sale of short-term investments -- 2,431
Purchases of short-term investments -- (492)
Purchases of property and equipment (193) (140)
Proceeds from sale of property and equipment 15 --
----------------------
Net cash provided by (used in) investing activities (178) 1,799
FINANCING ACTIVITIES:
Principal payments on long-term debt (17) (9)
Borrowings on note payable to bank 1,605 --
Principal payments on note payable to bank (1,005) --
Proceeds from exercise of stock options 7 6
----------------------
Net cash provided by (used in) financing activities 590 (3)
Net increase in cash and cash equivalents 2,501 65
Cash and cash equivalents at beginning of year 621 556
----------------------
Cash and cash equivalents at end of year $ 3,122 $ 621
======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 121 $ 136
======================
Income taxes $ 49 $ 66
======================
</TABLE>
See accompanying notes.
<PAGE> 15
Airport Systems International, Inc. 14
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Airport Systems International, Inc. and Subsidiary (the Company) designs,
manufactures, markets and installs ground-based aircraft radio navigation
equipment and airfield signage, both of which are sold internationally and
domestically.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Airport Systems International, Inc. and its wholly owned subsidiary, ASII
International, Inc. (a foreign sales corporation). All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash and highly liquid investments with
original maturities of three months or less.
CONCENTRATION OF CREDIT RISK
The Company grants credit to customers who meet the Company's pre-established
credit requirements. The Company generally requires foreign customers to issue
letters of credit which secure payment of the accounts receivable balances.
Credit losses are provided for in the Company's consolidated financial
statements and have been within management's expectations.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash,
accounts receivable, accounts payable, note payable, and long-term debt, as
reported in the accompanying consolidated balance sheets, approximates fair
value.
REVENUE RECOGNITION
Generally, the Company generates revenues pursuant to contracts with its
customers, most of which are less than one year in duration. Revenue on the
Company's contracts is principally recognized using the percentage of
completion, units of delivery method.
INVENTORIES
Inventories are stated at the lower of cost, or market. Inventories valued using
the last-in, first-out (LIFO) method comprised 87% and 85% of consolidated
inventories at April 30, 1997 and 1996, respectively. Inventories not valued by
the LIFO method are valued using the first-in, first-out (FIFO) method. At April
30, 1997 and 1996, cost determined by using the LIFO method exceeded current
cost by approximately $453,000 and $313,000, respectively.
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
April 30,
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $3,128 $1,875
Work-in-process 1,306 1,562
Finished goods 283 249
-------------------
$4,717 $3,686
===================
</TABLE>
<PAGE> 16
Airport Systems International, Inc. 15
PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
----------------------------------------
<S> <C>
Building and improvements 30
Equipment 5
</TABLE>
INCOME TAXES
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109. The liability
method provides that deferred tax assets and liabilities are recorded based upon
the difference between the tax bases of assets and liabilities and their
carrying amount for financial reporting purposes, as measured by the enacted tax
rates which will be in effect when these differences are expected to reverse.
COST IN EXCESS OF NET ASSETS ACQUIRED
The cost in excess of net assets acquired relates to the acquisition of the
assets and operations of the airfield signage business in fiscal 1995 and is
being amortized on the straight-line method over 20 years.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense charged
to operations amounted to $26,300 and $68,300 for the years ended April 30, 1997
and 1996, respectively.
NET INCOME PER SHARE
Net income per common and common equivalent share is computed by dividing net
income applicable to common stock by the weighted average common and common
equivalent shares outstanding during each year. The dilutive effect of options
for the purchase of common stock is included in the per share computations in
1997. The options for the purchase of common stock were antidilutive in 1996 and
are excluded from the per share computations.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," which the Company is required to adopt during the quarter
ended January 31, 1998. The Company will be required to change its method of
computing earnings per share and to restate all prior periods. Under the new
rules for calculating primary earnings per share, the dilutive effect of stock
options will be excluded. Pro forma basic income per share, calculated in
accordance with SFAS No. 128, amounted to $.27 for the year ended April 30,
1997. The impact of SFAS No. 128 on the calculation of fully diluted income per
share was not material.
STOCK COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its stock options. Under APB No. 25, no
compensation expense is recognized when the exercise price of the Company's
stock options equals or exceeds the market price of the stock on the date of
grant. Compensation is recorded over an option's vesting period when the
exercise price of options granted is less than fair value on the date of grant.
LETTERS OF CREDIT
The Company has outstanding secured and unsecured letters of credit totaling
$2,497,000 and $1,452,000 at April 30, 1997 and 1996, respectively.
2. NOTE PAYABLE TO BANK
The Company has a line of credit agreement with a bank which expires September
1, 1997. The agreement allows for borrowings up to a maximum of $4,000,000, at
an interest rate of prime (8.50% at April 30, 1997), secured by accounts
receivable, inventory and equipment. Borrowings outstanding under the line of
credit totalled $600,000 at April 30, 1997. There were no outstanding borrowings
under the line of credit at April 30, 1996.
<PAGE> 17
Airport Systems International, Inc. 16
3. LONG-TERM DEBT
At April 30, 1997 and 1996, long-term debt consisted of a note payable amounting
to $1,220,000 and $1,237,000, respectively. The note payable bears interest,
adjustable May 2001 and 2006, at the prior five-year treasury index average plus
2.5% (7.94% at April 30, 1997), and is due in monthly installments of $9,486,
including interest, through June 2011 with a final payment of approximately
$788,200 due on that date. The note is secured by a first mortgage on real
property and improvements with a net book value of $1,161,000 at April 30, 1997.
The aggregate amount of principal to be paid on this note payable during each of
the next five years ending April 30 is as follows:
<TABLE>
<CAPTION>
Year (In Thousands)
-------------------------------
<S> <C>
1998 $18
1999 19
2000 21
2001 22
2002 24
</TABLE>
Pursuant to the provisions of the Company's long-term debt and line of credit
agreements, the Company is subject to certain restrictive covenants which, among
other things, require the maintenance of certain financial ratios and minimum
levels of tangible net worth.
4. OPERATING LEASES
The Company leases certain operating facilities and equipment under
noncancelable operating leases. Future minimum lease payments due under
noncancelable operating leases are $36,300 in 1998 and $24,200 in 1999. Rent
expense under all operating leases was $48,000 and $49,000 for the years ended
April 30, 1997 and 1996, respectively.
5. STOCK OPTIONS AND WARRANTS
The Company has elected to follow APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for employee stock options
instead of the fair value accounting method provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation." The effect of applying the fair value
method required by SFAS No. 123 to the Company's stock option awards results in
net income and net income per share that are not materially different from the
amounts reported in the accompanying consolidated statements of operations.
The Company has reserved 375,000 shares of common stock for issuance to
employees and consultants of the Company pursuant to the 1991 stock option plan
(the Plan) which the Company adopted in December 1991. According to the terms of
the Plan, both incentive stock options and nonqualified stock options to
purchase common stock of the Company may be granted to key employees of and
consultants to the Company, at the discretion of the Board of Directors.
Incentive stock options may not be granted at prices which are less than the
approximate fair market value on the date of grant. Non-qualified options may be
granted at prices determined appropriate by the Board of Directors of the
Company. Generally, these options become exercisable and vest over one to five
years and expire within 10 years of the date of grant. At April 30, 1997,
options to purchase 264,000 shares were vested and exercisable. Information with
respect to options granted under the Plan is as follows:
<TABLE>
<CAPTION>
Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
OUTSTANDING AT APRIL 30, 1995 314,250 $.34 - 8.75
Granted - -
Exercised (17,500) .34
Canceled - -
----------------------
OUTSTANDING AT APRIL 30, 1996 296,750 .34 - 8.75
Granted 15,000 5.50
Exercised (22,750) .34
Canceled - -
----------------------
OUTSTANDING AT APRIL 30, 1997 289,000 $.34 - 8.75
======================
</TABLE>
<PAGE> 18
Airport Systems International, Inc. 17
In connection with the Company's initial public offering, the Company issued a
warrant that allows the holder to purchase up to an aggregate of 75,000 shares
of common stock. The warrant is exercisable at a per share price of $12.30
through December 1998.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at April 30, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Current:
Warranty accrual $ 43 $ 36
Accrued expenses 186 101
Other 22 43
--------------------
251 180
Non-current:
Amortization of intangibles 55 62
--------------------
Total deferred tax assets 306 242
Deferred tax liabilities:
Current:
Basis differences in acquired assets (274) (345)
Non-current:
Basis differences in acquired assets (68) (47)
--------------------
Total deferred tax liabilities (342) (392)
--------------------
Net deferred tax liability $ (36) $(150)
====================
</TABLE>
The income tax provision (benefit) for the years ended April 30, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Current $475 $(204)
Deferred (114) 96
------------
Total $361 $(108)
============
</TABLE>
The income tax provision (benefit) differs from amounts computed at the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Provision at statutory rate $326 $(109)
State income taxes, net of federal income tax effect 42 -
Tax benefit from foreign sales corporation (23) -
Other 16 1
-------------
$361 $(108)
=============
</TABLE>
<PAGE> 19
Airport Systems International, Inc. 18
7. SEGMENT INFORMATION
The Company had sales to four customers which accounted for 54% of total sales
for the year ended April 30, 1997 and sales to two different customers which
accounted for 33% of total sales for the year ended April 30, 1996.
The Company's export sales to foreign customers by primary geographic region and
in total are set forth below:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Asia $12,638 $ 6,534
Africa and the Middle East 3,640 3,257
Europe 556 109
Canada 626 --
South America 292 293
Australia 7 28
Other 3 29
----------------------
$17,762 $10,250
----------------------
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan which covers
substantially all full-time employees who have attained age 21 and completed six
months of service. Each qualified employee is entitled to make voluntary
contributions to the plan. The Company contributes 50% of each employee's
contribution up to a maximum of 1% of the employee's base salary. Additionally,
the Company may make discretionary contributions to the plan. For the years
ended April 30, 1997 and 1996, Company contributions to the plan amounted to
approximately $30,000 and $27,000, respectively.
<PAGE> 20
Airport Systems International, Inc. 19
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Airport Systems International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Airport Systems
International, Inc. and subsidiary (the Company) as of April 30, 1997 and 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 consolidated financial position of Airport Systems
International, Inc. and subsidiary at April 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Kansas City, Missouri
June 20, 1997 /s/ Ernst & Young LLP
<PAGE> 21
Board of Directors
Walter H. Stowell, Jr.
Chairman of the Board
Retired Senior Vice President and General Manager
Equipment Division
Raytheon Company
Thomas C. Blackburn
Vice President
Kansas Venture Capital, Inc.
(private investments)
Thomas C. Cargin
Vice President - Finance and Administration, Secretary
Airport Systems International, Inc.
Keith S. Cowan
President and Chief Executive Officer
Airport Systems International, Inc.
Michael J. Meyer
Managing Director
Holden Capital Advisors
(private equity merchant banking)
Robert D. Taylor
President
Taylor Financial Corporation
(financial and management consulting)
Corporate Officers
Walter H. Stowell, Jr.
Chairman of the Board
Keith S. Cowan
President, Chief Executive Officer
Thomas C. Cargin
Vice President - Finance and
Administration, Secretary
Gregory C. Brand
Vice President - Field Operations and
Training
Karl B. Gemparli
Vice President - Manufacturing
Wayne S. Howard
Vice President - Indonesia Programs
John C. Roos
Vice President - Engineering
Michael M. Warner
Vice President - Business Development
John R. Wharton
Vice President - Sales
Stockholder Information
CORPORATE HEADQUARTERS
11300 West 89th Street
Overland Park, Kansas 66214
Telephone: (913) 495-2600
Fax: (913) 492-0870
GENERAL COUNSEL
Blackwell Sanders Matheny Weary & Lombardi, L.C.
Kansas City, Missouri
INDEPENDENT AUDITORS
Ernst & Young LLP
Kansas City, Missouri
REGISTRAR & TRANSFER AGENT
UMB Bank, N.A.
Post Office Box 410064
Kansas City, MO 64141-0064
Telephone: (816) 860-7761
For change of name, address, or to replace lost stock certificates, write or
call the Securities Transfer Division.
INVESTOR RELATIONS
For corporate information, please contact:
Mr. Thomas C. Cargin
Vice President - Finance and Administration, Secretary
Telephone: (913) 495-2614
STOCK TRADING
The Company's common stock trades on The Nasdaq Stock Market (National Market)
under the symbol ASII.
COMMON STOCK PRICE RANGE AND
DIVIDEND INFORMATION
The prices in the table below represent the high and low sales prices for
Airport Systems common stock as reported by the Nasdaq National Market. No
dividends have been declared. As of April 30, 1997, Airport Systems had
approximately 1,300 stockholders based on the number of holders of record and an
estimate of the number of individual participants represented by security
position listings.
<TABLE>
<CAPTION>
1997
High Low
- ---------------------------------------------------------------------
<S> <C> <C>
First Quarter $6 1/8 $5 1/2
Second Quarter 6 1/2 4 7/8
Third Quarter 6 3/8 4 7/8
Fourth Quarter 6 1/4 5 1/8
For the Year 6 1/2 4 7/8
</TABLE>
<TABLE>
<CAPTION>
1996
High Low
- --------------------------------------------------------------------
<S> <C> <C>
First Quarter $6 $4 3/4
Second Quarter 5 3
Third Quarter 4 1/2 2 3/4
Fourth Quarter 6 1/4 3 7/8
For the Year $6 1/4 $2 3/4
</TABLE>
FORM 10-K
Stockholders may receive a copy of Airport System's 1997 Annual Report to the
Securities and Exchange Commission on Form 10-K by writing to Mr. Thomas C.
Cargin, Vice President - Finance and Administration, at the corporate
headquarters.
ANNUAL MEETING
Stockholders are cordially invited to attend the 1997 Annual Meeting of
Stockholders, which will be held at The Doubletree Hotel at Corporate Woods;
10100 College Blvd.; Overland Park, Kansas commencing at 2:00 p.m. local time
on Tuesday, September 16, 1997.
<PAGE> 1
EXHIBIT 21
AIRPORT SYSTEMS INTERNATIONAL, INC.
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
- ---------- ------------
<S> <C>
ASII International, Inc. Barbados, W.I.
</TABLE>
Page 21
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-KSB)
of Airport Systems International, Inc. of our report dated June 20, 1997,
included in the 1997 Annual Report to Shareholders of Airport Systems
International, Inc.
Ernst and Young LLP
Kansas City, Missouri
July 28, 1997
Page 22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AIRPORT
SYSTEMS INTERNATIONAL, INC. ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED APRIL 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AS
EXHIBIT 13 OF THE AIRPORT SYSTEMS INTERNATIONAL, INC. FORM 10KSB.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,122
<SECURITIES> 0
<RECEIVABLES> 7,590
<ALLOWANCES> 57
<INVENTORY> 4,717
<CURRENT-ASSETS> 15,558
<PP&E> 3,037
<DEPRECIATION> 1,329
<TOTAL-ASSETS> 18,593
<CURRENT-LIABILITIES> 7,842
<BONDS> 1,202
0
0
<COMMON> 22
<OTHER-SE> 9,514
<TOTAL-LIABILITY-AND-EQUITY> 18,593
<SALES> 20,098
<TOTAL-REVENUES> 20,098
<CGS> 14,055
<TOTAL-COSTS> 19,034
<OTHER-EXPENSES> 86
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 960
<INCOME-TAX> 361
<INCOME-CONTINUING> 599
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 599
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
