ADVANCED AERODYNAMICS & STRUCTURES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held July 20, 1998
TO THE SHAREHOLDERS OF
ADVANCED AERODYNAMICS & STRUCTURES, INC.:
You are cordially invited to attend the Annual Meeting of Shareholders
of Advanced Aerodynamics & Structures, Inc. ("AASI" or the "Company") , which
will be held in the Earhart Room, Marriott Hotel, 4700 Airport Plaza Drive, Long
Beach, California 90815, on Monday, July 20, 1998, at 10:00 a.m. Pacific time,
to consider and act upon the following matters:
1. The election of directors;
2. Approval of the Company's 1998 Stock Option Plan;
3. Ratification of the selection of Ernst & Young LLP to serve as
auditors of the Company for the fiscal year ending December
31, 1998; and
4. Such other business as may properly come before the Meeting or
any adjournments of the Meeting.
Only holders of record of Common Stock of the Company at the close of
business on May 31, 1998 will be entitled to notice of and to vote at the Annual
Meeting and any adjournments of the Annual Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. YOU ARE INVITED TO ATTEND THE
MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO
ATTEND THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY AND VOTE YOUR
SHARES IN PERSON.
By Order of the Board of Directors
Carl Chen, Ph.D.
Chairman of the Board,
President and Chief Executive Officer
3501 Lakewood Blvd.
Long Beach, California 90808
(562) 938-8618
June 1, 1998
PROXY STATEMENT
ADVANCED AERODYNAMICS & STRUCTURES, INC.
3501 Lakewood Boulevard
Long Beach, California 90808
--------------------
ANNUAL MEETING OF SHAREHOLDERS
To Be Held July 20, 1998
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Advanced Aerodynamics & Structures,
Inc., a Delaware corporation (the Company) for use at the Annual Meeting of
Shareholders to be held in the Earhart Room, Marriott Hotel, 4700 Airport Plaza
Drive, Long Beach, California 90815, on Monday, July 20, 1998, at 10:00 a.m.
Pacific time, and at any and all adjournments thereof (the Annual Meeting), for
the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders. Accompanying this Proxy Statement is the Board of Directors' Proxy
for the Annual Meeting, which you may use to indicate your vote as to the
proposals described in this Proxy Statement.
All Proxies which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will be
voted in favor of the proposals described in this Proxy Statement unless
otherwise directed. A Shareholder may revoke his or her Proxy at any time before
it is voted either by filing with the Secretary of the Company, at its principal
executive offices, a written notice of revocation or a duly executed proxy
bearing a later date or by attending the Annual Meeting and expressing a desire
to vote his or her shares in person.
The close of business on May 31, 1998 has been fixed as the record date
for the determination of Shareholders entitled to notice of and to vote at the
Annual Meeting or any adjournment of the Annual Meeting. As of the record date,
the Company had outstanding: 6,999,676 shares of Class A Common Stock, par value
$.0001 per share; 1,900,324 shares of Class B Common Stock, par value $.0001 per
share; 4,000,000 shares of Class E-1 Common Stock, par value $.0001 per share;
and 4,000,000 shares of Class E-2 Common Stock, par value $.0001 per share. The
Class A Common Stock, Class B Common Stock, Class E-1 Common Stock and Class E-2
Common Stock are substantially identical, except that the holders of Class A
Common Stock have the right to cast one vote, and the holders of Class B Common
Stock, Class E-1 Common Stock, and Class E-2 Common Stock have the right to cast
five votes, for each share held of record on all matters submitted to a vote of
the holders of Common Stock, including the election of directors. The Class A
Common Stock, Class B Common Stock, Class E-1 Common Stock and Class E-2 Common
Stock vote together as a single class on all matters on which stockholders may
vote, including the election of directors, except when voting by class is
required by applicable law. Holders of the Class A Common Stock, Class B Common
Stock, Class E-1 Common Stock and Class E-2 Common Stock have equal ratable
rights to dividends from funds legally available therefor, when, as and if
declared by the Board of Directors and are entitled to share ratably, as a
single class, in all of the assets of the Company available for distribution to
the holders of shares of Common Stock upon the liquidation, dissolution or
winding up of the affairs of the Company. Except as described herein, no
preemptive, subscription, or conversion rights pertain to the Common Stock and
no redemption or sinking fund provisions exist for the benefit thereof.
The Company's principal executive offices are located 3501 Lakewood
Blvd., Long Beach, California 90808. This Proxy Statement and the accompanying
proxy will be mailed to Shareholders on or about June 1, 1998.
1
ELECTION OF DIRECTORS
In accordance with the Certificate of Incorporation and Bylaws of the
Company, the Board of Directors consists of not less than three nor more than
seven members, the exact number to be determined by the Board of Directors. At
each annual meeting of the Shareholders of the Company, directors are elected
for a one year term. The Board of Directors is currently set at six members. The
Board of Directors proposes the election of the nominees named below.
Shareholders are entitled to cumulate their votes for directors. This
means that a shareholder may give one nominee as many votes as are equal to the
number of Directors to be elected, multiplied by the number of shares owned by
such shareholder, or to distribute his or her votes as the shareholder sees fit
among two or more nominees on the same principle, up to the total number of
nominees to be elected. The six nominees receiving the highest number of votes
at the Annual Meeting from the holders of Common Stock will be elected.
Unless marked otherwise, proxies received will be voted FOR the
election of the each of the nominees named below, and the votes will be
distributed equally among the nominees. If any such person is unable or
unwilling to serve as a nominee for the office of director at the date of the
Annual Meeting or any postponement or adjournment thereof, the proxies may be
voted for a substitute nominee, designated by the proxy holders or by the
present Board of Directors to fill such vacancy. The Board of Directors has no
reason to believe that any such nominee will be unwilling or unable to serve if
elected a director.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE ELECTION OF THE DIRECTORS NOMINATED HEREIN.
The Board of Directors proposes the election of the following nominees
as members of the Board of Directors:
Carl Chen, Ph.D.
Gene Comfort
C.M. Cheng
Steve Gorlin
James A. Lovell
S. B. Lai, Ph.D.
If elected, the nominees are expected to serve until the 1999 Annual
Meeting of Shareholders.
Information with Respect to Each Nominee and Executive Officers.
The following table sets forth certain information with respect to each
nominee and executive officer of the Company as of March 31, 1998.
Name Age Position
Carl Leei Chen, Ph.D. 51 Chairman of the Board, President, Chief
Executive Officer, Director and Director
Nominee
Gene Comfort 54 Executive Vice President, General Manager,
Director and Director Nominee
C.M. Cheng 51 Consultant to the Company, Director and
Director Nominee
Steve Gorlin 60 Director and Director Nominee
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Name Age Position
James A. Lovell 69 Director and Director Nominee
S. B. Lai, Ph.D. 46 Director and Director Nominee
Other Officers:
William V. Leeds 54 Senior Vice President - Operations
David M. Turner, CPA 62 Chief Financial Officer
Arthur Ruff 64 Vice President - Manufacturing
Directors serve until the next annual meeting or until their successors
are elected or appointed. All officers are appointed by and serve at the
discretion of the Board of Directors, other than Dr. Chen, who has an employment
agreement with the Company. See Management - Employment Agreement. There are no
family relationships between any directors or officers of the Company.
Dr. Carl L. Chen is the founder of the Company and has been its
President and a director since the Company's incorporation in January 1990 and
the Chief Executive Officer of the Company since December 1994. From January
1992 to October 1995, Dr. Chen served as President, and since January 1992 has
been a minority stockholder, of Union China Investment and Development Group,
Inc. (Union China), a company located in Monterey Park, California, which was
formed to invest in commercial real estate. Union China confirmed a plan of
reorganization pursuant to Chapter 11 of the Federal bankruptcy laws in August
1995. The bankruptcy case for Union China was closed in May 1996 pursuant to a
Final Decree and Order Closing Case entered by the Bankruptcy Court for the
Central District of California. Since January 1992, Dr. Chen has served as the
President of California Aerospace Technology, Inc., a consulting company for the
satellite industry, located in Monterey Park, California. Dr. Chen was Chairman
of SIDA Corporation, a high technology trading company located in Monterey Park,
California, from 1989 to May 1996. Prior to founding the Company in 1990, Dr.
Chen was a Satellite System Engineering Manager at Hughes Space and
Communications, Inc. for 15 years. Dr. Chen has a Ph.D. in Engineering from the
California Institute of Technology and Masters Degrees in Control Engineering
and Aerospace Engineering from UCLA and West Virginia University, respectively.
Dr. Chen is a graduate of the Owner/President Management program at the Graduate
School of Business Administration of Harvard University.
Gene Comfort has been the Executive Vice President and General Manager
of the Company since September 1995 and a director since May 1996. From July
1993 to September 1995, Mr. Comfort was the Vice President-Marketing of the
Company, and he was the Director of Marketing of the Company from April 1991 to
July 1993. Mr. Comfort has been involved in the aircraft industry for over 25
years in a variety of marketing, sales and management positions. Mr. Comfort is
a single and multi engine rated pilot.
C.M. Cheng is a consultant to the Company and has served as a director
of the Company since June 1996. Since April 1996, Mr. Cheng has been a Vice
President of Eurotai International, Ltd., a private company located in Taipei,
Taiwan, which distributes health food products. From 1984 to April 1996, Mr.
Cheng served as a Vice President, Director of the Office of the President, and
Manager of Corporate Planning with Taiwan Yeu Tyan Machinery, Mfg. Co. Ltd., a
public company located in Taipei, Taiwan, which manufactures automobiles and
heavy equipment. From 1980 to 1983, Mr. Cheng was an Associate Professor of
Economics and Management at Taiwan National Sun-Yet-Sen University. Mr. Cheng is
the director of Harpa Limited, a corporation organized under the laws of the
Cayman Islands (Harpa), a principal stockholder of the Company. See Certain
Relationships and Related Transactions and Principal Shareholders.
3
Steve Gorlin has served as a director of the Company since July 1996.
Over the past twenty-five years, Mr. Gorlin has founded several biotechnology
and pharmaceutical companies, including Hycor Biomedical, Inc., Theragenics
Corporation, CytRx Corporation, and Medicis Corporation, which are public
companies, and SeaLite Sciences, Inc., which is a private company. Mr. Gorlin
founded, and served as Chairman of the Board of, EntreMed Inc., a public
company, from its inception in 1991 until December 1995 (EntreMed was privately
held during his tenure). He founded, and is a member of the Board of Directors
of, Perma-Fix Environmental Services, Inc., a public company involved in the
disposal of hazardous waste. Mr. Gorlin also established the Touch Foundation, a
non-profit organization for the blind. He is a single and multi-engine pilot.
James A. Lovell Jr. is the former spacecraft commander of the Apollo 13
mission. He currently is the President of Lovell Communications, a business
devoted to disseminating information about the United States Space Program.
Prior to that he was Executive Vice President of Centel Corporation. Mr. Lovell
is a Fellow in the Society of Experimental Test Pilots and a member of the
Golden Eagles. He has been granted many honors and awards, including the
Presidential Medal for Freedom, the French Legion of Honor and the Congressional
Space Medal of Honor. In 1994 he and Jeff Kluger wrote Lost Moon, the story of
the Apollo 13 mission.
S. B. Lai has served as director of the Company since October 1997. Mr.
Lai is currently a Professor with the Graduate School of Business
Administration, National Chengchi University, Republic of China; the Secretary
General, Chinese Management Association, Republic of China; a third term
Republic of China National Assemblyman, Republic of China; and is Judge and
Committeeman of the National Quality Award. Over the past five years, Mr. Lai
has also served as a Director of the Ta-Yeh University, Republic of China;
Secretary General of the Chinese Management Association, Republic of China; and
is a consulting committeeman for the Ministry of Economic Affairs and the
Ministry of Education Affairs of the Republic of China. Mr. Lai received a BSME
and MBA from National Cheng-Kung University and a MSISE and Ph.D from the
University of Southern California.
William V. Leeds served as the Senior Vice President of the Company
from 1991 to September 1994 and acted as a consultant to the Company on an
as-needed basis since that time and rejoined the company as an officer in
January of 1997. He was one of the key employees responsible for obtaining the
Type Certificate for the JETCRUZER 450. From October 1994 until January 1997,
Mr. Leeds has served as the General Manager of Aerostar Corporation, a private
company located in the State of Washington engaged in the development and sale
of small aircraft. From February 1986 to January 1990, Mr. Leeds was the General
Manager of Quiet Nacelle Corp., a private company which retrofits aircraft
engine nacelles for noise reduction. Mr. Leeds has an Aeronautical Engineering
Degree from Northrop Institute of Technology and is an FAA Structure Designated
Engineering Representative (DER). He is a single engine, instrument rated pilot.
David M. Turner, CPA joined the Company in January 1997. Prior to that,
from 1994, he served as the Chief Financial Officer of Taitron Incorporated, a
publicly held company that distributes discrete semiconductors. From 1991 to
1994, Mr. Turner was President and sole owner of Maynard Enterprises,
Incorporated, a privately held consulting business working primarily in the
health care industry. From 1988 to 1991, Mr. Turner was the Chief Financial
Officer and Corporate Vice President of Finance of the Greater Southeast
Management Company, a Washington D.C. company that operated an inner city health
care system, which included two hospitals, three nursing homes and several
subsidiary health care companies in the Mid Atlantic area. During the same
period, Mr. Turner was President and a Director of Greater Southeast Asset
Management Company, the asset-holding subsidiary of the Greater Southeast
Healthcare System. Mr. Turner received a Master of Business of Administration
from the University of Cincinnati.
Arthur Ruff ("Auts") joined the Company in January 1998 as Vice
President-Manufacturing. Prior to joining the Company, from 1996, he served as
Vice President of Operations for Troll Technology, a manufacturer of television
transmission and control systems for helicopters and ground equipment. From 1994
to 1996, Mr. Ruff was Director of Operations for Vemco Corporation, manufacturer
of precision high-pressure regulators. From 1992 to 1994, he worked as an
Independent Manufacturing Industry Consultant, specializing
4
in the redesign, revitalization, and turnaround of non-performing operations.
Other aerospace and aircraft experience includes: Director of Manufacturing,
Cessna Aircraft Company; Manager of Manufacturing Operations, Martin Marietta
Missle Systems; and Director of Operations, Sargent Fletcher Company. Mr. Ruff
is a licensed pilot and has an MBA in Industrial Management from the University
of Denver and a BS in Industrial Technology from the University of Maryland. He
is a registered Professional Engineer, Certified Manufacturing Engineer and a
member of the Society of Manufacturing Engineers.
The Board of Directors held three meetings in 1997 and all Directors
were present at each meeting. The Board of Directors has a Compensation
Committee, which makes recommendations to the Board concerning salaries and
incentive compensation for officers and employees of the Company. The members of
the Compensation Committee are Messrs. Lai, Gorlin and Lovell. The Board of
Directors also has an Audit Committee which reviews the results and scope of the
audit and other accounting related matters. The members of the Audit Committee
are currently Messrs. Lai and Lovell. Both committees held three meetings during
1997.
The Company has agreed to nominate a designee of the Underwriter of its
recent public offering who is reasonably acceptable to the Company for election
to the Company's Board of Directors, if so requested by the Underwriter, for a
period of five years from December 6, 1996.
APPROVAL OF THE COMPANY'S
1998 STOCK OPTION PLAN
There will be presented to the Annual Meeting a proposal to ratify the
1998 Stock Option Plan. The Board of Directors and management recommend that
stockholders vote FOR approval of the 1998 Stock Option Plan.
On March 2, 1998, the Board of Directors authorized the adoption of the
1998 Stock Option Plan. The proposal to ratify the 1998 Stock Option Plan is
recommended by the Board of Directors because it considers it to be in the best
interests of the Company and its stockholders. The Stock Option Plan is designed
to serve as an incentive to directors, officers, and key employees and
contractors to focus their services on achieving superior earnings performance
and increasing the value of the stockholders' proprietary interest in the
Company. A maximum of 500,000 aggregate shares are reserved for issuance under
the Stock Option Plan. The Stock Option Plan vests broad discretionary power in
the Plan Committee, including the power to (i) select eligible optionees to be
granted stock options, (ii)) set the option exercise price (subject to certain
restrictions), (iii) establish the duration of each option (not to exceed ten
years), (iv) specify the method of exercise, and (v) designate the medium and
time of payment. The Stock Option Plan will terminate on March 1, 2008 unless
sooner terminated by the Board. No options may be granted after termination of
the Stock Option Plan, although Options outstanding at the time of termination
will continue to be exercisable in accordance with their terms. The issuance of
shares of Common Stock upon the exercise of options granted under the Stock
Option Plan will dilute the voting power of current stockholders. The extent of
dilution will depend on the number of options exercised and difference between
the option exercise price and the market price for the Common Stock at the time
of exercise.
The foregoing summary of the Stock Option Plan is qualified in its
entirety by the terms of the plan, which is available for review at the
principal office of the Company. The Board of Directors believes that any effect
the Stock Option Plan will have in diluting the voting power of current
stockholders will be exceeded by the effect of the plan to attract and retain
the services of experienced and knowledgeable directors, officers, employees and
other eligible service-providers who will contribute to the profitability and
value of the current stockholders' holdings in the Company.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has authorized the firm of Ernst & Young LLP,
independent public accountants, to serve as auditors for the fiscal year ending
December 31, 1998. A representative of Ernst & Young LLP, will be present
5
at the Annual Meeting and will have the opportunity to make a statement if he or
she desires to do so. Further, the representative of Ernst & Young LLP will be
available to respond to appropriate questions.
MANAGEMENT
Executive Compensation
The following tables set forth certain information as to the Company's
Chief Executive Officer and each of the Company's four most highly compensated
executive officers whose total annual salary and bonus for the fiscal year
ending December 31, 1997 exceeded $100,000:
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
------------------------------------------------
Other
Name and Principal Position Year Salary Bonus Compensation
- ---------------------------------------------------------------------------------------
Carl L. Chen, Ph.D. 1997 $200,000 $0 $39,248(5)
Chairman and Chief Executive 1996 $304,099 $0 $242,763(2)
Officer 1995 $53,000(3) $0 $242,000(2)
Gene Comfort 1997 $150,000 $0 $0
Executive Vice President 1996 $136,276 $0 $33,000(4)
1995 $90,000 $0 $0
William V. Leeds 1997 $110,769 $0 $0
Senior Vice President 1996 $0 $0 $0
1995 $0 $0 $0
(1) The compensation described in this table does not include medical
insurance, retirement benefits and other benefits which are available
generally to all employees of the Company and certain perquisites and
other personal benefits, the value of which did not exceed the lesser
of $50,000 or 10% of the executive officer's compensation in the table.
(2) Represents the approximate fair market value of 135,416 shares of Class
B Common Stock, 270,832 shares of Class E-1 Common Stock, and 270,832
shares of Class E-2 Common Stock issued to Dr. Chen in June 1996 and
earned by him under the New Management Agreement during 1995. See
Certain Relationships and Related Transactions.
(3) Pursuant to the New Management Agreement which became effective on
January 29, 1995 (the "New Management Agreement"), Dr. Chen was
entitled to receive a salary of $323,000 in 1995. This amount was
accrued and unpaid as of December 31, 1995. In May 1996, Dr. Chen
agreed to convert $300,000 of such accrued amount into 16,724 shares of
Class B Common Stock, 33,448 shares of Class E-1 Common Stock and
33,448 shares of Class E-2 Common Stock and to receive the remainder in
cash. See Certain Transactions and Note 7 of Notes to Financial
Statements. $30,000 of the amount stated reflects the approximate fair
value of such shares. In May 1996, the New Management Agreement was
terminated, and Dr. Chen's annual salary was changed to $200,000 per
year. See Employment Agreement.
6
(4) Represents the approximate fair market value of 17,460 shares of Class
B Common Stock, 34,919 shares of Class E-1 Common Stock, and 34,919
shares of Class E-2 Common Stock issued to Mr. Comfort in May 1996 in
exchange for services rendered.
(5) Represents premium for life insurance paid by the Company on behalf of
Dr. Chen.
OPTION GRANTS IN LAST FISCAL YEAR
Percentage of Total
Options Granted to
Number of Shares Employees and
Underlying Options Directors in Fiscal Exercise or Base
Name Granted Year Price Per Share Expiration Date
- --------------------------------------------------------------------------------------------------------------------
Dr. Carl Chen 100,000 31.75 $5.00 May 26, 2007
James A. Lovell, Jr. 25,000 7.94 $5.00 March 3, 2007
S. B. Lai 25,000 7.94 $5.00 March 3, 2007
William V. Leeds 45,000 14.29 $5.00 March 3, 2007
David Turner 30,000 9.52 $5.00 March 3, 2007
(1) None of the reported options were in-the-money at the end of the fiscal
year as a result of the closing price of the Common Stock as reported
on the NASDAQ System on December 31, 1997 ($2.5625/share) being less
than the exercise price of those options ($5.00/share).
Employment Agreement
The Company entered into an eight-year employment agreement (the Chen
Employment Agreement) with Dr. Carl Chen, the Company's, Chairman, Chief
Executive Officer and President, commencing in May 1996. The Chen Employment
Agreement provides that, in consideration for Dr. Chen's services, he is to be
paid an annual salary of $200,000. He will receive increases in salary and
bonuses as deemed appropriate by the Board of Directors. The Company will
maintain life insurance coverage on Dr. Chen, and Dr. Chen may name the
beneficiary of such policy. The Chen Employment Agreement also provides that he
will not compete with the Company during the term of the Agreement and for
eighteen months thereafter and that, if Dr. Chen's employment is terminated by
the Company without cause (as defined therein), he will receive up to eighteen
months' salary as severance, payable monthly commencing on the thirtieth day
following such termination without cause.
Compensation of Directors
Non-employee directors receive $1,000 for each Board of Directors
meeting attended. The Company pays all out-of-pocket expenses of attendance.
7
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 31, 1998 by (i)
each person who is known by the Company to own beneficially more than 5% of any
class of the Company's outstanding voting securities, (ii) each of the Company's
directors and executive officers, and (iii) all officers and directors of the
Company as a group.
Name and Address of Common Stock Percent of
Title of Class Beneficial Owner(1) Beneficially Owned(2) Ownership
- -------------------------------------------------------------------------------
Class A Common Stock Dr. Carl L. Chen(3) 25,000 .35%
Class B Common Stock 826,751 43.5%
Class E-1 Common Stock 1,653,503 41.34%
Class E-2 Common Stock 1,653,503 41.34%
Class A Common Stock Gene Comfort(4) 5,000 0%
Class B Common Stock 60,001 3.15%
Class E-1 Common Stock 120,000 3.00%
Class E-2 Common Stock 120,000 3.00%
Class A Common Stock C.M. Cheng(4)(5) 5,000 0%
Class B Common Stock 1,013,572 53.33%
Class E-1 Common Stock 2,027,144 50.67%
Class E-2 Common Stock 2,027,144 50.67%
Class A Common Stock Steve Gorlin(6) 20,000 .28%
Class A Common Stock James A. Lovell Jr.(4) 6,000 0%
Class A Common Stock S.B. Lai, Ph.D.(8) 0 0%
Class A Common Stock David Turner(9) 6,100 0%
Class A Common Stock All executive officers 67,100 .95%
Class B Common Stock and directors as a 1,900,324 100%
Class E-1 Common Stock group (6 persons) 3,800,647 95.02%
Class E-2 Common Stock 3,800,647 95.02%
Class B Common Stock Harpa Limited(7) 1,013,572 53.33%
Class E-1 Common Stock 2,027,144 50.67%
Class E-2 Common Stock 2,027,144 50.67%
Class B Common Stock Shih Jen Yeh(7) 1,013,572 53.33%
Class E-1 Common Stock 2,027,144 50.67%
Class E-2 Common Stock 2,027,144 50.67%
Class B Common Stock Chyao Chi Yeh(7) 1,013,572 53.33%
Class E-1 Common Stock 2,027,144 50.67%
Class E-2 Common Stock 2,027,144 50.67%
Class A Common Stock Fidelity Management
Research Company(10) 513,000 7.28%
- ---------------------
(1) Except as otherwise indicated, the address of each principal
stockholder is c/o the Company at 3501 Lakewood Blvd., Long Beach,
California 90808. The Company believes that all persons named have sole
voting power and sole investment power, subject to community property
laws where applicable.
(2) The Common Stock of the Company is divided into four classes. Each
share of Class B Common Stock, Class E-1 Common Stock and Class E-2
Common Stock is entitled to five votes per share, and Class A Common
Stock is entitled to one vote per share. The shares of Class E Common
Stock are subject to redemption by the Company if the Company does not
achieve certain income or market price levels.
(3) Includes 200,000 shares of Class E-2 Common Stock held by Julie C.
Chen, as trustee of the Eric F. Chen Trust under Declaration of Trust
dated August 31, 1996, for the benefit of Eric F. Chen, Dr. Chen's son.
Julie Chen is Dr. Chen's sister-in-law. Dr. Chen disclaims beneficial
ownership of the 200,000 shares held by the Trust for the benefit of
his son. Excludes 75,000 shares of Class A Common Stock issuable upon
the exercise of options not exercisable within 60 days and includes
options for 25,000 shares of Class A Common Stock which are currently
exercisable.
(4) Excludes 20,000 shares of Class A Common Stock issuable upon the
exercise of options which are not exercisable within 60 days and
includes options for 5,000 shares of Class A Common Stock which are
currently exercisable.
8
(5) Includes 5,217,860 shares of Common Stock held by Harpa Limited, a
Cayman Island corporation (Harpa). C.M. Cheng is a director of Harpa
and has sole voting and investment control over the shares of Common
Stock held by Harpa and thus may be deemed to beneficially own such
shares. Mr. Cheng disclaims beneficial ownership of such shares. The
address of Harpa is c/o Coutts Co. (Cayman) Ltd., Coutts House, P.O.
Box 707, West Bay Road, Grand Cayman, Cayman Islands.
(6) Common Stock beneficially owned is Class A Common Stock which was
contained in 15,000 Units purchased by Mr. Gorlin in March and April
1997. Excludes 20,000 shares of Class A Common Stock issuable upon the
exercise of options not exercisable within 60 days and includes options
for 5,000 shares of Class A Common Stock issuable upon the exercise of
options which are currently exercisable.
(7) The voting stock of Harpa is currently held equally by Shih Jen Yeh and
Chyao Chi Yeh, who are children of Song Gen Yeh, the former Chairman
and principal stockholder of the Company. See Certain Transactions. The
address of Mr. Shih Jen Yeh and Mr. Chyao Chi Yeh is 14th Floor, No.
55, Section 2, Chung-Cheng Road, Shih-Lin District, Taipei, Taiwan.
(8) Excludes 25,000 shares of Class A Common Stock issuable upon the
exercise of options which are not exercisable within 60 days.
(9) Excludes 24,000 shares of Class A Common Stock issuable upon the
exercise of options which are not exercisable within 60 days and
includes 6,000 shares of Class A Common Stock issuable upon the
exercise of options.
(10) The address for Fidelity Management Research Company is 82 Devonshire
Street, Boston, Massachusetts 02109.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As of April 30, 1997, all Form 3 reports required to be filed pursuant
to Rule 16(a) of the Securities Exchange Act of 1934, as amended during fiscal
1997 had been filed (other than S.B. Lai), and the Company is not aware of any
failures to file a required form.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From January 1990 through December 1993, Mr. Song Gen Yeh, who was at
that time a principal stockholder and director of the Company, advanced funds to
the Company in the aggregate amount of $10,478,000. In December 1993, the
Company entered into an agreement with Mr. Yeh to repay such advances through
the issuance of 584,074 shares of Class B Common Stock, 1,168,148 shares of
Class E-1 Common Stock, and 1,168,148 shares of Class E-2 Common Stock of the
Company. Such shares were issued to Mr. Yeh in June 1996. From 1994 through
1995, Mr. Yeh provided additional advances to the Company aggregating $250,000.
In June 1996, such advances were repaid by the Company through the issuance of
13,937 shares of Class B Common Stock, 27,873 shares of Class E-1 Common Stock,
and 27,873 shares of Class E-2 Common Stock. Such shares were subsequently
transferred to Harpa Limited (Harpa), a Cayman Islands corporation the voting
stock of which is controlled by two of Mr. Yeh's children. C.M. Cheng, a
director of the Company, is the Director of Harpa and, as such, has the power to
vote the shares of the Company's Common Stock held by Harpa. See Principal
Stockholders.
In January 1990, the Company entered into a five-year agreement (the
Management Agreement) with SIDA Corporation (SIDA). Dr. Carl L. Chen, the
Chairman, Chief Executive Officer and President of the Company, was, at that
time, a principal stockholder of SIDA, and the other two stockholders of SIDA
were also, at that time, stockholders of the Company. The Management Agreement
provided for annual payments to SIDA of $140,000 for management services
consisting essentially of those customarily performed by the President of a
company. The SIDA agreement expired by its terms in January 1995. As of June 30,
1996, SIDA was owed $259,000 of unpaid management fees. This amount, together
with accrued interest of $64,000 through August 30, 1996, was paid from the
proceeds of a Bridge Financing in September 1996. In October 1993 and February
1994, the Company obtained loans from SIDA in the aggregate principal amount of
$110,000, bearing interest at 12%. These loans, together with accrued interest
of $31,000, were repaid from the proceeds of the Bridge Financing in September
1996.
9
In February and July 1994, the Company received loans in an aggregate
principal amount of $565,000, bearing interest at a rate of 12%, from four
individuals who were at the time not affiliated with the Company. One of such
persons, C.M. Cheng, became a director of the Company in June 1996. These loans,
together with accrued interest of $161,000, were repaid with the proceeds of the
Bridge Financing in September 1996.
In December 1994, the Company entered into a New Management Agreement
(the New Management Agreement) with Dr. Chen which took effect in January 1995.
Pursuant to the New Management Agreement, Dr. Chen agreed to serve as the
Company's President and Chief Executive Officer. The New Management Agreement
had a term of 10 years and provided that Dr. Chen was to receive a signing bonus
of 139,365 shares of Class B Common Stock, 278,730 shares of Class E-1 Common
Stock, and 278,730 shares of Class E-2 Common Stock, an annual salary of
$350,000, and additional annual compensation payable in 147,727 shares of Class
B Common Stock, 295,454 shares of Class E-1 Common Stock, and 295,454 shares of
Class E-2 Common Stock. In May 1996, Dr. Chen agreed to terminate the New
Management Agreement. Pursuant to the New Management Agreement and in connection
with its termination, the Company issued a total of 577,823 shares of Class B
Common Stock, 1,155,647 shares of Class E-1 Common Stock, and 1,155,647 shares
of Class E-2 Common Stock to Dr. Chen. At June 30, 1996, $144,000 remained
accrued and unpaid under the New Management Agreement. This amount was paid to
Dr. Chen with the proceeds of the Bridge Financing in September 1996.
In May 1996 the Company entered into an Employment Agreement with Dr.
Chen pursuant to which he agreed to serve as its Chairman, Chief Executive
Officer and President. See Management Employment Agreement. As of August 31,
1996, compensation of $69,000 was accrued and unpaid under this Agreement. This
amount was paid from the proceeds of the Bridge Financing in September 1996.
From September 1995 through August 1996, Dr. Chen made loans bearing
interest at a rate of 12% to the Company in the aggregate principal amount of
$562,000. In May 1996, Dr. Chen agreed to convert $336,000 of these loans into
187,118 shares of Class B Common Stock, 374,236 shares of Class E-1 Common
Stock, and 374,236 shares of Class E-2 Common Stock. The remaining $226,000
principal amount of these loans, together with $36,000 of accrued interest, was
repaid with the proceeds of the Bridge Financing in September 1996.
In 1994 and 1995, the Company obtained loans from General Bank in the
aggregate principal amount of $900,000. This loan bore interest at the prime
rate plus 1.5% and had a maturity date of October 1996. Repayment of the loan
was guaranteed by the Small Business Administration, the California Export
Finance Office and Dr. Chen and was secured by substantially all the assets of
the Company. The total outstanding balance of the loan of approximately $915,000
(including accrued interest) was repaid from the proceeds of the Bridge
Financing in September 1996.
In May 1996, the Company issued 17,460 shares of Class B Common Stock,
34,919 shares of Class E-1 Common Stock, and 34,919 shares of Class E-2 Common
Stock to Gene Comfort, its Executive Vice President, as partial consideration
for marketing and general administrative services performed by Mr. Comfort for
the Company. In September 1996, $34,000 of accrued but unpaid salary was paid to
Mr. Comfort from the proceeds of the Bridge Financing.
In May 1997, Dr. Chen transferred 12,541 shares of Class B Common
Stock, 25,081 shares of Class E-1 Common Stock and 25,081 shares of Class E-2
Common Stock to Gene Comfort. Also in May 1997, Harpa Limited transferred 30,000
shares of Class B Common Stock, 60,000 shares of Class E-1 Common Stock and
60,000 shares of Class E-2 Common Stock to Gene Comfort.
The Company believes that each of the foregoing transactions was on
terms at least as favorable to the Company as those that could have been
obtained from nonaffiliated third parties.
PROPOSALS OF SHAREHOLDERS
A proper proposal submitted by a shareholder for presentation at the
Company's 1999 Annual Meeting and received at the Company's executive offices no
later than December 31, 1998, will be included in the Company's proxy statement
and form of proxy relating to the 1999 Annual Meeting.
10
OTHER MATTERS
The Board of Directors is not aware of any matter to be acted upon at
the Annual Meeting other than described in this Proxy Statement. Unless
otherwise directed, all shares represented by the persons named in the
accompanying proxy will be voted in favor of the proposals described in this
Proxy Statement. If any other matter properly comes before the meeting, however,
the proxy holders will vote thereon in accordance with their best judgment.
EXPENSES
The entire cost of soliciting proxies will be borne by the Company.
Solicitation may be made by mail. The Company will request brokerage houses,
nominees, custodians, fiduciaries and other like parties to forward soliciting
material to the beneficial owners of the Company's Common Stock held of record
by them and will reimburse such persons for their reasonable charges and
expenses in connection therewith.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report for the fiscal year ended December 31, 1997
is being mailed to Shareholders along with this Proxy Statement. The Annual
Report is not to be considered part of the soliciting material.
11
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __________)
Filed by Registrant:
Filed by a Party other than the Registrant:
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
__ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
__ $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
__ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
Title of each class of securities to which transaction applies: __________
Aggregate number of securities to which transaction applies: ___________
Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): ___________
Proposed maximum aggregate value of transaction: ____________
Total fee paid: _____________
__ Fee paid previously with preliminary materials.
__ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing. __________
Amount Previously Paid: ____________
Form, Schedule or Registration Statement No.:_________________
Filing Party: ______________________
Date Filed: ___________________
12
Addendum to Proxy
ADVANCED AERODYNAMICS & STRUCTURES, INC.
1998 STOCK OPTION PLAN
1. PURPOSE. This Stock Option Plan (the "Plan") a is intended to serve
as an incentive to, and to encourage stock ownership by, certain eligible
participants rendering services to Advanced Aerodynamics & Structures, Inc., a
Delaware corporation (the "Corporation"), and certain affiliates as set forth
below, so that they may acquire or increase their proprietary interest in the
Corporation.
2. ADMINISTRATION.
2.1 Committee. The Plan shall be administered by the Board of
Directors of the Corporation (the "Board of Directors") or a committee of three
or more members appointed by the Board of Directors (the "Committee") who are
Non-Employee Directors as defined in Rule 16b-3 promulgated under Section 16 of
the Securities Exchange Act of 1934 and an outside director as defined in
Treasury Regulation ss. 1.162-27(e)(3). The Committee shall select one of its
members as Chairman and shall appoint a Secretary, who need not be a member of
the Committee. The Committee shall hold meetings at such times and places as it
may determine and minutes of such meetings shall be recorded. Acts by a majority
of the Committee in a meeting at which a quorum is present and acts approved in
writing by a majority of the members of the Committee shall be valid acts of the
Committee.
2.2 Term. If the Board of Directors selects a Committee, the
members of the Committee shall serve on the Committee for the period of time
determined by the Board of Directors and shall be subject to removal by the
Board of Directors at any time. The Board of Directors may terminate the
function of the Committee at any time and resume all powers and authority
previously delegated to the Committee.
2.3 Authority. The Committee shall have sole discretion and
authority to grant options under the Plan to eligible participants rendering
services to the Corporation or any "parent" or "subsidiary" of the Corporation
("Parent or Subsidiary"), as defined in Section 424 of the Internal Revenue Code
of 1986, as amended (the "Code"), at such times, under such terms and in such
amounts as it may decide. For purposes of this Plan and any Stock Option
Agreement (as defined below), the term "Corporation" shall include any Parent or
Subsidiary, if applicable. Subject to the express provisions of the Plan, the
Committee shall have complete authority to interpret the Plan, to prescribe,
amend and rescind the rules and regulations relating to the Plan, to determine
the details and provisions of any Stock Option Agreement, to accelerate any
options granted under the Plan and to make all other determinations necessary or
advisable for the administration of the Plan.
2.4 Type of Option. The Committee shall have full authority
and discretion to determine, and shall specify, whether the eligible individual
will be granted options intended to qualify as incentive options under Section
422 of the Code ("Incentive Options") or options which are not intended to
qualify under Section 422 of the Code ("Non-Qualified Options"); provided,
however, that Incentive Options shall only be granted to employees of the
Corporation, or a Parent or Subsidiary thereof, and shall be subject to the
special limitations set forth herein attributable to Incentive Options.
1
2.5 Interpretation. The interpretation and construction by the
Committee of any provisions of the Plan or of any option granted under the Plan
shall be final and binding on all parties having an interest in this Plan or any
option granted hereunder. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
option granted under the Plan.
3. ELIGIBILITY.
3.1 General. All directors, officers, employees of and certain
persons rendering services to the Corporation, or any Parent or Subsidiary,
relative to the Corporation's, or any Parent's or Subsidiaries', management,
operation or development shall be eligible to receive options under the Plan.
The selection of recipients of options shall be within the sole and absolute
discretion of the Committee. No person shall be granted an option under this
Plan unless such person has executed the grant representation letter set forth
on Exhibit "A," as such Exhibit may be amended by the Committee from time to
time and no person shall be granted an Incentive Option under this Plan unless
such person is an employee of the Corporation, or a Parent or Subsidiary, on the
date of grant. No employee shall be granted more than 50,000 options in any
one year period.
3.2 Termination of Eligibility.
3.2.1 If an optionee ceases to be employed by the
Corporation, or its Parent or Subsidiary, is no longer an officer or member of
the Board of Directors of the Corporation or no longer performs services for the
Corporation, or its Parent or Subsidiary for any reason (other than for "cause,"
as hereinafter defined, or such optionee's death), any option granted hereunder
to such optionee shall expire three months after the date the occurrence giving
rise to such termination of eligibility (or 1 year in the event an optionee is
"disabled," as defined in Section 22(e)(3) of the Code) or upon the date it
expires by its terms, whichever is earlier. Any option that has not vested in
the optionee as of the date of such termination shall immediately expire and
shall be null and void. The Committee shall, in its sole and absolute
discretion, decide whether an authorized leave of absence or absence for
military or governmental service, or absence for any other reason, shall
constitute termination of eligibility for purposes of this Section.
3.2.2 If an optionee ceases to be employed by the
Corporation, or its Parent or Subsidiary, is no longer an officer or member of
the Board of Directors of the Corporation, or no longer performs services for
the Corporation, or its Parent or Subsidiary and such termination is as
2
a result of "cause," as hereinafter defined, then all options granted hereunder
to such optionee shall expire on the date of the occurrence giving rise to such
termination of eligibility or upon the date it expires by its terms, whichever
is earlier, and such optionee shall have no rights with respect to any
unexercised options. For purposes of this Plan, "cause" shall mean an optionee's
personal dishonesty, misconduct, breach of fiduciary duty, incompetence,
intentional failure to perform stated obligations, willful violation of any law,
rule, regulation or final cease and desist order, or any material breach of any
provision of this Plan, any Stock Option Agreement or any employment agreement.
3.3 Death of Optionee and Transfer of Option. In the event an
optionee shall die, an option may be exercised (subject to the condition that no
option shall be exercisable after its expiration and only to the extent that the
optionee's right to exercise such option had accrued at the time of the
optionee's death) at any time within six months after the optionee's death by
the executors or administrators of the optionee or by any person or persons who
shall have acquired the option directly from the optionee by bequest or
inheritance. Any option that has not vested in the optionee as of the date of
death or termination of employment, whichever is earlier, shall immediately
expire and shall be null and void. No option shall be transferable by the
optionee other than by will or the laws of intestate succession.
3.4 Limitation on Options. No person shall be granted any
Incentive Option to the extent that the aggregate fair market value of the Stock
(as defined below) to which such options are exercisable for the first time by
the optionee during any calendar year (under all plans of the Corporation as
determined under Section 422(d) of the Code) exceeds $100,000.
4. IDENTIFICATION OF STOCK. The Stock, as defined herein, subject to
the options shall be shares of the Corporation's authorized but unissued or
acquired or reacquired common stock (the "Stock"). The aggregate number of
shares subject to outstanding options shall not exceed 500,000 shares of Stock
(subject to adjustment as provided in Section 6). If any option granted
hereunder shall expire or terminate for any reason without having been exercised
in full, the unpurchased shares subject thereto shall again be available for
purposes of this Plan.
5. TERMS AND CONDITIONS OF OPTIONS. Any option granted pursuant to the
Plan shall be evidenced by an agreement ("Stock Option Agreement") in such form
as the Committee shall from time to time determine, which agreement shall comply
with and be subject to the following terms and conditions:
5.1 Number of Shares. Each option shall state the number of
shares of Stock to which it pertains.
5.2 Option Exercise Price. Each option shall state the option
exercise price, which shall be determined by the Committee; provided, however,
that (i) the exercise price of any Incentive
3
Option shall not be less than the fair market value of the Stock, as determined
by the Committee, on the date of grant of such option, (ii) the exercise price
of any Incentive Option granted to an employee who owns more than 10% of the
total combined voting power of all classes of the Corporation's stock, as
determined for purposes of Section 422 of the Code, shall not be less than 110%
of the fair market value of the Stock, as determined by the Committee, on the
date of grant of such option, and (iii) the exercise price of any Non-Qualified
Option shall not be less than 100% of the fair market value of the Stock, as
determined by the Committee, on the date of grant of such option.
5.3 Term of Option. The term of an option granted hereunder
shall be determined by the Committee at the time of grant, but shall not exceed
ten years from the date of the grant. The term of any Incentive Option granted
to an employee who owns more than 10% of the total combined voting power of all
classes of the Corporation's stock, as determined for purposes of Section 422 of
the Code, shall in no event exceed five years from the date of grant. All
options shall be subject to early termination as set forth in this Plan. In no
event shall any option be exercisable after the expiration of its term.
5.4 Method of Exercise. An option shall be exercised by
written notice to the Corporation by the optionee (or successor in the event of
death) and execution by the optionee of an exercise representation letter in the
form set forth on Exhibit "B," as such Exhibit may be amended by the Committee
from time to time. Such written notice shall state the number of shares with
respect to which the option is being exercised and designate a time, during
normal business hours of the Corporation, for the delivery thereof ("Exercise
Date"), which time shall be at least 30 days after the giving of such notice
unless an earlier date shall have been mutually agreed upon. At the time
specified in the written notice, the Corporation shall deliver to the optionee
at the principal office of the Corporation, or such other appropriate place as
may be determined by the Committee, a certificate or certificates for such
shares. Notwithstanding the foregoing, the Corporation may postpone delivery of
any certificate or certificates after notice of exercise for such reasonable
period as may be required to comply with any applicable listing requirements of
any securities exchange. In the event an option shall be exercisable by any
person other than the optionee, the required notice under this Section shall be
accompanied by appropriate proof of the right of such person to exercise the
option.
5.5 Medium and Time of Payment. The option exercise price
shall be payable in full on or before the option Exercise Date in any one of the
following alternative forms:
5.5.1 Full payment in cash or certified bank or
cashier's check;
5.5.2 A Promissory Note (as defined below);
4
5.5.3 Full payment in shares of Stock other securities
of the Corporation having a fair market value on the Exercise Date in the amount
equal to the option exercise price;
5.5.4 A combination of the consideration set forth in
Sections 5.5.1, 5.5.2 and 5.5.3 equal to the option exercise price; or
5.5.5 Any other method of payment complying with the
provisions of Section 422 of the Code with respect to Incentive Options,
including, but not limited to, the delivery by optionee of an irrevocable
direction to a securities broker approved by the Corporation to sell the Stock
and to deliver all or part of the sales proceeds to the Corporation in payment
of all or part of the exercise price and any withholding taxes provided that the
terms of payment are established by the Committee at the time of grant and any
other method of payment established by the Committee with respect to
Non-Qualified Options.
5.6 Fair Market Value. The fair market value of a share of
Stock or other security of the Corporation on any relevant date shall be
determined in accordance with the following provisions:
5.6.1 If the Stock or other security of the Corporation
at the time is neither listed nor admitted to trading on any stock exchange nor
traded in the over-the-counter market, then the fair market value shall be
determined by the Committee after taking into account such factors as the
Committee shall deem appropriate.
5.6.2 If the Stock or other security of the Corporation
is not at the time listed or admitted to trading on any stock exchange but is
traded in the over-the-counter market, the fair market value shall be the mean
between the highest bid and lowest asked prices (or, if such information is
available, the closing selling price) of one share of Stock or other security of
the Corporation on the date in question in the over-the-counter market, as such
prices are reported by the National Association of Securities Dealers through
its NASDAQ system or any successor system. If there are no reported bid and
asked prices (or closing selling price) for the Stock or other security of the
Corporation on the date in question, then the mean between the highest bid price
and lowest asked price (or the closing selling price) on the last preceding date
for which such quotations exist shall be determinative of fair market value.
5.6.3 If the Stock or other security of the Corporation
is at the time listed or admitted to trading on any stock exchange, then the
fair market value shall be the closing selling price of one share of Stock or
other security of the Corporation on the date in question on the stock exchange
determined by the Committee to be the primary market for the Stock or other
security of the Corporation, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no reported sale of Stock or
other security of the Corporation on such exchange
5
on the date in question, then the fair market value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.
5.7 Promissory Note. Subject to the requirements of applicable
state or Federal law or margin requirements, payment of all or part of the
purchase price of the Stock may be made by delivery of a full recourse
promissory note ("Promissory Note"). The Promissory Note shall be executed by
the optionee, made payable to the Corporation and bear interest at such rate as
the Committee shall determine, but in no case less than the minimum rate which
will not cause under the Code (i) interest to be imputed, (ii) original issue
discount to exist, or (iii) any other similar results to occur. Unless otherwise
determined by the Committee, interest on the Note shall be payable in quarterly
installments on March 31, June 30, September 30 and December 31 of each year. A
Promissory Note shall contain such other terms and conditions as may be
determined by the Committee; provided, however, that the full principal amount
of the Promissory Note and all unpaid interest accrued thereon shall be due not
later than five years from the date of exercise. The Corporation may obtain from
the optionee a security interest in all shares of Stock issued to the optionee
under the Plan for the purpose of securing payment under the Promissory Note and
shall retain possession of the stock certificates representing such shares in
order to perfect its security interest.
5.8 Rights as a Shareholder. An optionee or successor shall
have no rights as a shareholder with respect to any Stock underlying any option
until the date of the issuance to such optionee of a certificate for such Stock.
No adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in Section 6.
5.9 Modification, Extension and Renewal of Options. Subject to
the terms and conditions of the Plan, the Committee may modify, extend or renew
outstanding options granted under the Plan, or accept the surrender of
outstanding options (to the extent not exercised) and authorize the granting of
new options in substitution therefor.
5.10 Other Provisions. The Stock Option Agreements shall
contain such other provisions, including without limitation, restrictions or
conditions upon the exercise of options, as the Committee shall deem advisable.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
6.1 Subdivision or Consolidation. Subject to any required
action by shareholders of the Corporation, the number of shares of Stock covered
by each outstanding option, and the exercise price thereof, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Corporation resulting from a subdivision or consolidation
of shares
6
or the payment of a stock dividend (but only on the Stock) or any other increase
or decrease in the number of such shares effected without receipt of
consideration by the Corporation. Any fraction of a share subject to option that
would otherwise result from an adjustment pursuant to this Section shall be
rounded downward to the next full number of shares without other compensation or
consideration to the holder of such option.
6.2 Capital Transactions. Upon a sale or exchange of all or
substantially all of the assets of the Corporation, a merger or consolidation in
which the Corporation is not the surviving corporation, a merger, reorganization
or consolidation in which the Corporation is the surviving corporation and
shareholders of the Corporation exchange their stock for securities or property,
a liquidation of the Corporation or similar transaction ("Capital Transaction"),
this Plan and each option issued under this Plan, whether vested or unvested,
shall terminate immediately prior to such Capital Transaction, unless such
options are assumed by a successor corporation in a merger or consolidation;
provided, however, that unless the outstanding options are assumed by a
successor corporation in a merger or consolidation, subject to terms approved by
the Committee, all optionees will have the right, during the 30 days prior to
such Capital Transaction, to exercise all vested options. Notwithstanding the
foregoing, in the event there is a merger or consolidation where the Corporation
is not the surviving corporation, all options granted under this Plan shall vest
30 days prior to such merger or consolidation unless such options are assumed by
the successor corporation in such merger or consolidation. The Committee may
(but shall not be obligated to) (i) accelerate the vesting of any option or (ii)
apply the foregoing provisions, including but not limited to termination of this
Plan and any options granted pursuant to the Plan, in the event there is a sale
of 51% or more of the stock of the Corporation in any two year period or a
transaction similar to a Capital Transaction.
6.3 Adjustments. To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such adjustments shall be made
by the Committee, whose determination in that respect shall be final, binding
and conclusive.
6.4 Ability to Adjust. The grant of an option pursuant to the
Plan shall not affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve, liquidate, sell or
transfer all or any part of its business or assets.
6.5 Notice of Adjustment. Whenever the Corporation shall take
any action resulting in any adjustment provided for in this Section, the
Corporation shall forthwith deliver notice of such action to each optionee,
which notice shall set forth the number of shares subject to the option and the
exercise price thereof resulting from such adjustment.
7
6.6 Limitation on Adjustments. Any adjustment, assumption or
substitution of an Incentive Option shall comply with Section 425 of the Code,
if applicable.
7. NONASSIGNABILITY. Options granted under this Plan may not be sold,
pledged, assigned or transferred in any manner other than by will or by the laws
of intestate succession, and may be exercised during the lifetime of an optionee
only by such optionee. Any transfer by the optionee of any option granted under
this Plan in violation of this Section shall void such option and any Stock
Option Agreement entered into by the optionee and the Corporation regarding such
transferred option shall be void and have no further force or effect. No option
shall be pledged or hypothecated in any way, nor shall any option be subject to
execution, attachment or similar process.
8. NO RIGHT OF EMPLOYMENT. Neither the grant nor exercise of any option
nor anything in this Plan shall impose upon the Corporation or any other
corporation any obligation to employ or continue to employ any optionee. The
right of the Corporation and any other corporation to terminate any employee
shall not be diminished or affected because an option has been granted to such
employee.
9. TERM OF PLAN. This Plan is effective on the date the Plan is adopted
by the Board of Directors and options may be granted pursuant to the Plan from
time to time within a period of ten (10) years from such date, or the date of
any required shareholder approval required under the Plan, if earlier.
Termination of the Plan shall not affect any option theretofore granted.
10. AMENDMENT OF THE PLAN. The Board of Directors of the Corporation
may, subject to any required shareholder approval, suspend, discontinue or
terminate the Plan, or revise or amend it in any respect whatsoever with respect
to any shares of Stock at that time not subject to options.
11. APPLICATION OF FUNDS. The proceeds received by the Corporation from
the sale of Stock pursuant to options may be used for general corporate
purposes.
12. RESERVATION OF SHARES. The Corporation, during the term of this
Plan, shall at all times reserve and keep available such number of shares of
Stock as shall be sufficient to satisfy the requirements of the Plan.
13. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
not impose any obligation upon the optionee to exercise such option.
14. APPROVAL OF BOARD OF DIRECTORS AND SHAREHOLDERS. The Plan shall not
take effect until approved by the Board of Directors of the Corporation. This
Plan shall be approved by a vote of the shareholders within 12 months from the
date of approval by the Board of
8
Directors. In the event such shareholder vote is not obtained, all options
granted hereunder, whether vested or unvested, shall be null and void.
15. WITHHOLDING TAXES. Notwithstanding anything else to the contrary in
this Plan or any Stock Option Agreement, the exercise of any option shall be
conditioned upon payment by such optionee in cash, or other provisions
satisfactory to the Committee, of all local, state, federal or other withholding
taxes applicable, in the Committee's judgment, to the exercise or to later
disposition of shares acquired upon exercise of an option (including any
repurchase of an option or the Stock).
16. PARACHUTE PAYMENTS. Any outstanding option under the Plan may not
be accelerated to the extent any such acceleration of such option would, when
added to the present value of other payments in the nature of compensation which
becomes due and payable to the optionee would result in the payment to such
optionee of an excess parachute payment under Section 280G of the Code. The
existence of any such excess parachute payment shall be determined in the sole
and absolute discretion of the Committee.
17. SECURITIES LAWS COMPLIANCE. Notwithstanding anything contained
herein, the Corporation shall not be obligated to grant any option under this
Plan or to sell, issue or effect any transfer of any Stock unless such grant,
sale, issuance or transfer is at such time effectively (i) registered or exempt
from registration under the Act and (ii) qualified or exempt from qualification
under the California Corporate Securities Law of 1968 and any other applicable
state securities laws. As a condition to exercise of any option, each optionee
shall make such representations as may be deemed appropriate by counsel to the
Corporation for the Corporation to use any available exemption from registration
under the Act or any applicable state securities law.
18. RESTRICTIVE LEGENDS. The certificates representing the Stock issued
upon exercise of options granted pursuant to this Plan will bear any legends
required by applicable state or federal securities laws as determined by the
Committee.
19. NOTICES. Any notice to be given under the terms of the Plan shall
be addressed to the Corporation in care of its Secretary at its principal
office, and any notice to be given to an
9
optionee shall be addressed to such optionee at the address maintained by the
Corporation for such person or at such other address as the optionee may specify
in writing to the Corporation.
As adopted by the Board of Directors as of March 2, 1998.
ADVANCED AERODYNAMICS & STRUCTURES,
INC., a Delaware corporation
By:
Dr. Carl L. Chen, Chairman
10
EXHIBIT A
____________, 1998
`
Advanced Aerodynamics & Structures, Inc.
3060 Airport Way
Long Beach, CA 90806
Re: 1998 Stock Option Plan
To Whom It May Concern:
This letter is delivered to Advanced Aerodynamics & Structures, Inc., a
Delaware corporation (the "Corporation"), in connection with the grant to (the
"Optionee") of an option (the "Option") to purchase shares of common stock of
the Corporation (the "Stock") pursuant to the Advanced Aerodynamics &
Structures, Inc., 1998 Stock Option Plan dated March __, 1998 (the "Plan"). The
Optionee understands that the Corporation's receipt of this letter executed by
the Optionee is a condition to the Corporation's willingness to grant the Option
to the Optionee.
The Optionee acknowledges that the grant of the Option by the
Corporation is in lieu of any and all other promises of the Corporation to the
Optionee, whether written or oral, express or implied, regarding the grant of
options or other rights to acquire Stock. Accordingly, in anticipation of the
grant of the Option, the Optionee hereby relinquishes all rights to such other
rights, if any, to acquire stock of the Corporation.
In addition, the Optionee makes the following representations and
warranties:
1. The Optionee acknowledges receipt of a copy of the Plan and
Agreement. The Optionee has carefully reviewed the Plan and Agreement.
2. The Optionee acknowledges that an investment in the Corporation
represents a speculative investment and a high degree of risk. The Optionee
acknowledges that the Optionee has had the opportunity to obtain and review all
information from the Corporation necessary to make a reasonably informed
investment decision and that the Optionee has had all questions asked of the
Corporation answered to the reasonable satisfaction of the Optionee. The
Optionee is able to bear the economic risk of an investment in the Option and
the Stock.
Exhibit A - Page 1
3. The Optionee understands and acknowledges that the Stock may not be
sold without compliance with the registration requirements of federal and
applicable state securities laws unless an exemption from such laws is
available. The Optionee understands that the certificate representing the Stock
shall bear the legends set forth in the Plan.
4. The Optionee understands and acknowledges that the Option and the
Stock are subject to the terms and conditions of the Plan.
5. The Optionee understands and agrees that, at the time of exercise of
any part of the Option for Stock, the Optionee may be required to provide the
Corporation with additional representations, warranties and/or covenants similar
to those contained in this letter.
6. The Optionee will notify the Corporation immediately of any change
in the above information which occurs before the Option is exercised in full by
the Optionee.
The foregoing representations and warranties are given on
______________, 1998 at --------------------.
OPTIONEE:
-----------------------------
Exhibit A - Page 2
EXHIBIT B
____________, 1998
Advanced Aerodynamics & Structures, Inc.
3060 Airport Way
Long Beach, CA 90806
Re: 1998 Stock Option Plan
To Whom It May Concern:
I (the "Optionee") hereby exercise my right to purchase shares of
common stock (the "Stock") of Advanced Aerodynamics & Structures, Inc., a
Delaware corporation (the "Corporation"), pursuant to the Advanced Aerodynamics
& Structures, Inc. 1998 Stock Option Plan dated [26] (the "Plan") and the Stock
Option Agreement (the "Agreement") dated , 1998. As provided in such Plan, I
deliver herewith payment as set forth in the Plan in the amount of the aggregate
option exercise price. Please deliver to me at my address as set forth above
stock certificates representing the subject shares registered in my name (and
(spouse) , as (style of vesting)).
The Optionee hereby represents as follows:
1. The Optionee acknowledges receipt of a copy of the Plan and
Agreement. The Optionee has carefully reviewed the Plan and Agreement.
2. The Optionee is able to bear the economic risk of his investment in
the stock options of the Corporation and the Stock issuable upon exercise
thereof.
3. The Optionee acknowledges that an investment in the Corporation
represents a speculative investment and a high degree of risk. The Optionee
acknowledges that the Optionee has had the opportunity to obtain and review all
information from the Corporation necessary to make a reasonably informed
investment decision and that the Optionee has had all questions asked of the
Corporation answered to the reasonable satisfaction of the Optionee.
Exhibit B - Page 1
The foregoing representations and warranties are given on
______________, 1998 at --------------------.
OPTIONEE:
Exhibit B - Page 2