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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-16473
SSE TELECOM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1466297
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 710, 8230 LEESBURG PIKE 22182
VIENNA, VIRGINIA (Zip Code)
(Address of principal executive office)
</TABLE>
Registrant's telephone number, including area code:
(703) 442-4503
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Par Value $0.01
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not 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-K or any amendments to
this Form 10-K. [X]
The aggregate market value of voting Common Stock held by non-affiliates of
the Registrant, based upon the closing sale price of Common Stock on December
12, 1997 as reported on the Nasdaq National Market, was approximately
$22,994,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes. On December 12, 1997, there were 5,730,919 shares of the Registrant's
Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the Annual Meeting of Stockholders (the
"Proxy Statement") are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
SSE Telecom, Inc.'s ("SSE Telecom") principal business is the manufacture
and sale of satellite telecommunication equipment through its wholly owned
subsidiaries, SSE Technologies Inc. ("SSE Technologies"), and SSE Datacom, Inc.
("SSE Data").
The Company designs, manufactures and markets satellite communications
products and systems for the transmission of voice, data, fax and video. The
Company's strategic business focus is to grow the business of SSE Telecom by
meeting the needs of customers in the satellite communications marketplace. The
Company is a customer and market oriented firm with an installed base of over
35,000 transceivers or modems in satellite earth stations located in over 110
different countries. The Company sells its products directly to international
telecommunication system integrators as well as to certain sophisticated end
users.
The executive offices of the Company are in the Washington D.C.
metropolitan area at Suite 710, 8230 Leesburg Pike, Vienna, Virginia 22182. The
operations of SSE Technologies and the administrative offices of the Company are
headquartered in Fremont, California. The SSE Data operations are located in
Fremont, California and Phoenix, Arizona.
SATELLITE COMMUNICATION INDUSTRY OVERVIEW
Growing international demand for telecommunications capacity, technical
innovation and deregulation trends continue to contribute to the substantial
growth in the world-wide satellite communications market. The growth is fueled
by users requirements for information, particularly in developing countries.
Satellite communication systems are often a preferred medium for communications
over a large geographic area and have specific advantages over traditional
terrestrial networks in many applications. The industry is driven by a high
launch rate of geostationary communications satellites for international
applications.
The Company is a participant in a very competitive market, often with
certain competitors being customers as well. Substantial users of the Company's
products include international telecommunication systems integrators and service
providers, private communication networks and foreign and domestic government
agencies. Major application trends in business networks, government usage,
training and distance learning continue to fuel demand for earth station
equipment. Broadcast television also contributes to demand particularly in some
regions of the world. Continued requirements for telephone circuits
internationally drive the demand particularly in the market segments addressed
by the Company. Satellite systems are very well suited for quick installation of
telephonic service in remote geographic regions and interface well with other
transmission media.
The equipment portion of the satellite communications market is generally
segmented into earth station and components submarkets. The earth station market
is further divided into large, medium, small, very small aperture terminal
(VSAT), and mobile segments. Generally speaking, these segments are based on the
type of application and the size of antenna that is employed in that
application. The Company's primary product focus is on the small and VSAT
segments of the market. A satellite earth station system generally consists of
three primary components: (1) transceivers (2) modems and (3) antennas.
PRODUCTS
The Company manufactures and sells two of the three key components for
earth stations, transceivers and modems. These products are complex assemblies
of devices and components designed to perform multiple-circuit functions in a
single package. The Company's products, particularly transceivers, have a
significant engineering content and require skilled technical labor for assembly
and test. In addition to selling separate components, SSE Technologies designs
and markets a full range of integrated satellite hardware, including
rack-mounted converters. SSE Technologies also selectively provides systems
integration services to certain sophisticated end users of satellite earth
station products.
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TRANSCEIVERS
Transceivers manufactured by the Company contain microwave downconverters,
upconverters, frequency synthesizers and power amplifiers. SSE Technologies
designs and manufactures, or procures from qualified outside vendors, all of
these individual subassemblies of the transceiver. The transceivers are designed
for worldwide use in satellite earth stations such as those using standards set
by Intelsat and Eutelsat. SSE Technologies manufactures a variety of
transceivers at X, C and Ku-Band frequencies. Most of these products are
standard elements of communications systems and, as such, are competitively
priced. Transceiver options support many different types of specific
applications and, therefore, prices may vary over a wide range. Specific power
and frequency requirements may be adjusted to individual customer requirements.
Management believes its products have features and performance characteristics
in frequency and power options that offer advantages above those of competitors.
RACKMOUNT CONVERTERS
SSE Technologies also offers a line of rack-mounted up/downconverters
operating in the C, X and Ku-bands, as well as its Tri-band converters which
operate in all three frequency bands. The Tri-band converters can be installed
in a variety of transportable containers, mobile shelters or fixed locations,
and can operate with various antenna configurations at various power levels.
MODEMS
SSE Data manufacturers a broad range of modems from a low cost, low data
rate closed network modem to a fully featured IBS/IDR high speed modem. In
addition to satellite modems, SSE Data manufactures a satellite network monitor
and control system product.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company has two primary competitive advantages that it seeks to
capitalize upon, its installed customer base and customer relationships, and the
breadth and depth of its product groups. The Company offers over 20 different
products, including STAR satellite radios, modems, rack converters, and
T-Series. The Company is focused on three primary product areas: (1) radio
frequency ("RF") products which include C and Ku-band transceivers and
converters, (2) digital products, primarily satellite modems, and (3) system
product offerings for Federal government applications. In addition, the Company
intends to release a satellite modem/transceiver, Starlink, in early 1998. The
Company directs its marketing activities and programs toward international
systems integrators of telecommunications equipment and to direct relationships
with certain substantial international companies or government agencies who
provide their own systems installations. The Company markets and supports its
products through a distribution system comprised of a direct sales force,
supplemented in international markets by independent sales representatives.
Sales promotion is accomplished by direct mail, participation in domestic and
international trade shows, advertising in industry and trade publications,
telemarketing, and through the World Wide Web.
The Company provides a full range of technical support, training and repair
services for its products. In addition, customers receive direct support from
customer service representatives throughout the order entry, manufacturing and
delivery scheduling processes to ensure that customer equipment specifications
and scheduling needs are addressed. Warranty and repair service is administered
by the same representatives, thus enhancing the continuity of customer support.
Creating and maintaining long-term customer relationships has been a cornerstone
of the Company's overall strategy. Active and energetic sales and support
contacts ensure that the Company remains aware of the changing needs and
concerns of the customers. This translates into feedback to the product
improvement and development processes providing a direct link between market
demands and Company products. Support services are provided to the customers by
Field Engineers, Customer Service Representatives, System Engineers and Sales
Support personnel. Through this base of dedicated support personnel the customer
can extend access to virtually all of the expertise available in the Company.
Most support services are provided through direct contact via telephone and fax;
technical and training support is also provided in the field at customer sites
when appropriate. Customers may also receive
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training at the Company facilities. Technical and service support is now offered
directly by personnel based in Europe and Thailand which ensures that the
majority of the Company's worldwide customers can contact a representative
during business hours.
The rapidly evolving international markets continue to be an important
source of revenue for the Company. The Company has an installed base of products
in over 110 countries. Direct export revenues accounted for 45% of the Company's
revenues in 1997, 56% of the Company's revenues in 1996 and 48% of the Company's
revenues in 1995. No individual geographic region represented a significant
portion of revenues. The Company's customer base is diverse with the U.S.
Government accounting for 11% of total 1997 revenue.
MANUFACTURING
The Company manufactures its products in Fremont, California. This facility
is certified ISO 9001 compliant. The primary manufacturing focus during 1997 was
the manufacture of STAR transceivers, the development and introduction of two
new modem products, and the continued development of the Starlink
modem/transceiver. STAR, introduced in late 1996, is the latest design in a
series of advanced satellite transceiver products, utilizing Monolithic
Microwave Integrated Circuit (MMIC) technology.
COMPETITION
The overall market for the products and services which the Company provides
is highly competitive. There are a dozen or more other firms which compete with
the Company with one or more competitive product offerings, although none of
these competitors dominate the industry. Certain of the Company's competitors
have greater financial and personnel resources. This competition has caused the
Company to lower its average selling prices on some of its base business. To the
extent that the Company's products are not proprietary or patentable, they may
be subject to duplication and exploitation by its competition. The Company has
several principal competitors, each of whom produce some products which are
similar to the type produced by the Company. The Company believes that no single
competitor offers the diversity or depth of the RF products, notably
transceivers, that are manufactured by SSE Technologies.
Management believes competition in the industry is principally based upon
price, performance, and support. However, in most cases with significant
customers, technical expertise, the ability to deliver products on a timely
basis and the quality of the products and services provided over a sustained
period of time are key competitive factors.
Management believes that it has a significant current share of the point to
point segment (for example, two way rural telephony) of the satellite earth
station marketplace, via its complete transceiver and modem product lines.
Companies competing in the satellite communications market today are
generally affected by three primary influences:
1. Increasing emphasis on smaller earth station applications, due to
compression and other technologies.
2. Increased price competition, from many small new entrants.
3. Pressure to provide full services and solutions to customers.
The shift of emphasis to smaller earth stations is accelerating as
technology brings the capabilities of larger systems to smaller earth stations.
This results in high potential for competition because there are lower barriers
to entry in the smaller equipment manufacturing market. Price competition has
also increased substantially as the combination of new competitors, lower cost
of manufacture of the equipment and the growing modularity of earth station
components and subsystems forces companies to compete aggressively on price.
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RESEARCH AND DEVELOPMENT AND SUSTAINING ENGINEERING
The Research and Development group supports all aspects of the product life
cycle: new product development, adding or enhancing features on existing
products, and sustaining engineering on mature products. The Company has added
several new modem products as a result of its fiscal year 1997 developments and
expects to release its new Starlink product line in early 1998. The Company now
has a wide variety of products in its product family as a result of the
investment made in research and development. Research and development expenses
were approximately $5.1 million or 11% of sales during fiscal 1997, $4.2 million
in fiscal 1996, and $3.0 million in fiscal 1995. The increase in research and
development expenditures principally relates to (1) the Company's development of
advanced digital modem products (2) increased integrated system products and
content and (3) sustaining engineering for the STAR product line. The Company
plans to continue its commitment to research and development in fiscal 1998.
Research and development expenses are expected to continue at current levels in
future periods but may vary as a percentage of sales.
PERSONNEL
As of September 27, 1997, the Company employed a total of 235 people. The
Company's employees are not represented by a labor organization nor is the
Company party to any collective bargaining agreement. The Company has never
experienced an employee strike or work stoppage. The Company considers its
relations with its employees to be good.
BACKLOG
SSE Telecom, Inc. had a backlog of firm orders of $11,027,000 at September
27, 1997, and management expects all of the orders to be delivered within fiscal
1998. The current backlog compares to a backlog of $8,872,000 at September 28,
1996, and $7,600,000 at September 30, 1995. The backlog is generally
representative of the historical product and customer mix. Backlog as of
December 12, 1997 was approximately $10,063,000.
The Company does not believe that backlog is necessarily indicative of
future revenue, due to various uncertainties. Timing differences from year to
year as to the receipt of large orders and changes in factory production make
meaningful year to year comparisons of backlog difficult.
FOREIGN CURRENCY
All contracts with foreign customers are negotiated in United States
dollars.
ITEM 2. PROPERTIES
SSE Technologies occupies two facilities: 37,000 square feet at 47823
Westinghouse Drive, Fremont, California and approximately 11,000 square feet at
47436 Fremont Boulevard, Fremont, California. Both facilities are leased with
the lease on the first facility expiring in June 2001, and the lease on the
second facility expiring in July 1998. SSE Data is located at 5025 East
Washington, Phoenix, Arizona, with approximately 7,000 square feet under lease,
expiring in October 2000. The Company maintains its executive offices and
regional sales support functions at its 4,000 square foot office in the
Washington, D.C. metropolitan area under a lease expiring in October 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation and is not aware of any
threatened litigation which would have a material adverse effect on the Company
or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company has one series of common stock, $.01 par value common stock,
the holders of which have full voting rights. At December 12, 1997, there were
approximately 150 holders of record of the Company's common stock. This number
is based upon the number of stockholders of record as reported by the American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
The Company's common stock is listed on the National Association of
Securities Dealers, Inc. Automated Quotation System (NASDAQ) under the trading
symbol "SSET" and is listed in the Wall Street Journal and in other newspapers.
The following table sets forth representative high and low closing prices in the
NASDAQ system for the specified periods. At December 12, 1997, the closing bid
for the Company's common stock as quoted on NASDAQ was $5 1/4.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C> <C> <C>
1997
First Quarter......................................... $9 3/8 $7 1/4
Second Quarter........................................ 8 3/4 7 1/4
Third Quarter......................................... 7 1/2 5 9/16
Fourth Quarter........................................ 6 5/8 4 5/8
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C> <C> <C>
1996
First Quarter........................................ $10 1/4 $6 7/8
Second Quarter....................................... 11 1/8 8 1/2
Third Quarter........................................ 14 7/8 9 1/8
Fourth Quarter....................................... 11 1/8 8 3/8
</TABLE>
The Company follows the policy of reinvesting all earnings to finance
expansion of its business. No change in this policy is contemplated in the
foreseeable future. The board of directors has not declared dividends in the
last five years and does not have present plans to declare dividends in the
foreseeable future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------------
SUMMARY OF OPERATIONS 1997 1996 1995 1994 1993
- ----------------------------------------- ------- ------- ------- ------- -------
(DOLLARS AND SHARES IN THOUSANDS EXCEPT FOR PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $45,764 $46,220 $33,569 $30,173 $29,321
Cost of revenue........................ 36,431 33,697 22,952 19,997 19,041
Gross margin............................. 9,333 12,523 10,617 10,176 10,280
Expenses:
Research and development............... 5,071 4,179 2,958 2,543 2,201
Marketing, general and
administrative...................... 9,512 7,721 5,829 4,733 4,513
Write-off of acquired in-process R&D... -- 1,404 -- -- --
Acquisition related asset writedown.... -- 1,105 -- -- --
Restructuring.......................... 850 -- -- -- --
Operating (loss) income.................. (6,100) (1,886) 1,830 2,900 3,566
Net (gain) on sale of investments...... (3,730) (2,584) -- (1,227) --
Net interest expense................... 524 479 223 147 --
Other expense.......................... 14 -- 94 586 579
Income (loss) before income taxes........ (2,908) 219 1,513 3,394 2,987
Provision (benefit) for income taxes... (1,018) 88 414 1,224 1,078
Net income (loss)...................... $(1,890) $ 131 $ 1,099 $ 2,170 $ 1,909
Net income (loss) per share:
Primary................................ $ (0.32) $ 0.02 $ 0.20 $ 0.40 $ 0.37
Cash dividends paid.................... $ -- $ -- $ -- $ -- $ --
Shares used in computing net income
(loss) per share.................... 5,820 5,595 5,587 5,467 5,113
BALANCE SHEET:
Total current assets................... $28,547 $27,214 $21,874 $21,652 $10,680
Total assets........................... 47,557 55,263 37,823 25,034 13,310
Total current liabilities.............. 14,823 11,238 4,222 3,890 4,871
Total long-term liabilities............ 9,191 12,737 14,044 9,781 854
Stockholders' equity................... 23,543 31,288 19,557 11,363 7,585
</TABLE>
The table above sets forth selected consolidated financial data of SSE Telecom,
Inc. and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Fiscal 1997 was a challenging year for SSE Telecom. The Company's financial
results were adversely impacted by lower than anticipated throughput and a
defective component in certain of its satellite earth station products. In
addition, the Company restructured its modem manufacturing operations by closing
the Scottsdale, Arizona facility and consolidating it in Fremont, California
with the transceiver product lines. As part of the restructuring the Company
relocated its digital engineering group to a new facility in Phoenix, Arizona.
The Company made significant progress in the development of two new modem
products, the SM3000 and SM4000. The SM3000 was introduced and began shipping in
the fourth quarter of 1997. The SM4000 hardware is in production and the final
software routines are being completed with the first shipments expected in the
second quarter of fiscal 1998.
The Company also made significant progress in its new Starlink product
line. This modem/transceiver combination is also scheduled to begin shipping in
early 1998.
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During the fiscal year the Company repurchased approximately 167,600 shares
of its own stock at various times and prices in the market. The average price of
treasury stock acquired in fiscal year 1997 was $7.64 per share.
The Company ended the year with $11.0 million in backlog. This was a 24.3%
increase from 1996 year end of $8.9 million, and a 45.1% increase over the 1995
balance of $7.6 million.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1997, 1996 AND 1995
REVENUE: Sales were $45.8 million for fiscal 1997 as compared to $46.2
million in fiscal 1996 and $33.6 million in fiscal 1995, representing a
year-to-year decrease of less than one percent in 1997 compared to an increase
of 37.7% in 1996. The slight decline in revenue for fiscal 1997 as compared to
fiscal 1996 resulted from declines in the average selling prices in the
Company's transceiver products, partially offset by higher revenues generated by
the Company's modem products. The growth in fiscal 1996 was attributable to the
inclusion of digital modem product lines acquired from Fairchild Data
Corporation as well as increased sales of the Company's transceiver products.
SSE Data sales were $8 million in fiscal 1996.
GROSS MARGIN: The gross margin was $9.3 million or 20.4% of sales in
fiscal 1997, compared to $12.5 million or 27.1% and $10.6 million or 31.6% of
sales in fiscal 1996 and fiscal 1995, respectively. The gross margin dollar and
percentage decrease in 1997 was due to a defective component in certain of the
Company's satellite transceivers for which the Company recorded a $1.8 million
special warranty charge, the impact of the restructuring of the modem
manufacturing operations, and increased competition resulting in declines in the
average selling price of the Company's products. The gross margin percentage
decline in fiscal 1996 was caused by several factors as well: competitive price
reductions, product mix shifts toward lower power transceiver models that carry
lower margins and the significantly higher manufacturing startup costs
associated with the new STAR line of transceivers. The Company expects the gross
margin percentage to return to past levels as the new product lines come into
full production in 1998. However, there can be no assurance that competitive
pressure on average selling prices will not reduce gross margin in the future,
that the product mix will continue at its current levels, or that full
manufacturing efficiencies will be achieved upon reaching full production
levels.
OPERATING EXPENSES: Research and development spending grew by 21.3% to
$5.1 million in fiscal 1997, from $4.2 million in fiscal 1996, and from $3.0
million in fiscal 1995. Research and development expenses as a percentage of
sales were 11.1%, 9.0% and 8.8% in fiscal 1997, 1996 and 1995, respectively. The
increase in research and development expense relates to the Company's continued
sustaining engineering and improved manufacturability efforts on the Star
product line, development of advanced digital modem products, and increased
system content in various products. The Company plans to continue its commitment
to research and development in fiscal 1998. Research and development expenses
are expected to remain stable in absolute dollars in near term future periods,
but may vary as a percentage of sales.
Marketing, general and administrative expenses were $9.5 million or 20.8%
of sales in fiscal 1997, compared to $7.7 million or 16.7% of sales in fiscal
1996, and $5.8 million or 17.4% of sales in fiscal 1995. The increase in fiscal
1997 in absolute dollars and as a percentage of sales was due to increases in
bad debts primarily attributable to the non payment of receivables from one of
the Company's representatives who is refusing to pay because the Company
canceled its sales representation agreement, certain compensation and severance
costs associated with the Company's former president, and higher commission
expenses. The increase in expense in fiscal 1996, as compared with the prior
fiscal year, was primarily related to the increased costs associated with larger
sales and sales support staffs, commission expenses resulting from higher sales
levels, and sales and marketing programs to launch new products and to enter
into new markets worldwide. The Company's investment in its marketing, general
and administrative functions may vary as a percentage of sales in the future.
Restructuring expenses associated with the consolidation of the company's
manufacturing facilities was $850,000 and consisted of a write down for certain
intangibles acquired as part of the purchase of the assets of Fairchild Data
Corporation in fiscal 1996, severance for employees which was paid in early
fiscal 1998, and
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other various costs incurred in transferring the manufacturing capability in
Scottsdale, Arizona and consolidating it with the transceiver product lines in
Fremont, California.
GAIN ON SALES OF INVESTMENTS: During fiscal 1997, the Company sold 176,937
shares of its total 802,717 shares of Echostar Communication Corporation
("Echostar") common stock. The Echostar stock was acquired in December 1994 in
exchange for the Company's 91.2% interest in Directsat Corporation, a direct
broadcast satellite licensee. The Company realized a pre-tax gain of
approximately $3.7 million, net of commission and transaction expenses, on the
sale of the shares in 1997. The proceeds generated from these sales were used
for repayment of convertible debentures payable to Echostar, purchase of
treasury stock, and to fund general working capital requirements. As of
September 27, 1997, the Company held a total of 625,780 Echostar shares and
plans to continue to sell shares in an orderly fashion.
NET INTEREST EXPENSE: Net interest expense was $524,000, $479,000 and
$223,000 in fiscal 1997, 1996 and 1995, respectively. The increase in interest
expense during fiscal 1997 reflects higher levels of borrowing throughout the
year. During fiscal 1997, 1996, and 1995 the Company had earned interest income
which lowered net interest expense.
PROVISION FOR INCOME TAXES: The Company's effective income tax (benefit)
rate was (35.0%), 40.0% and 27.4% in fiscal 1997, fiscal 1996 and fiscal 1995,
respectively. The increase in tax rate in fiscal 1996 from 1995 was mainly
attributable to the non-deductible nature of the cost associated with warrants
issued to Echostar and lower tax benefits from foreign sales and research and
development credit. The income tax benefit for fiscal 1997 relates principally
to the federal tax effect of the current year loss.
LIQUIDITY AND CAPITAL RESOURCES: At September 27, 1997, the Company had
working capital of $13.7 million, including cash and cash equivalents of
$408,000 compared to working capital at September 28, 1996 of $16.0 million,
including cash and cash equivalents of $1.2 million.
Net cash used in operating activities was $3.4 million in 1997 compared to
net cash used from operating activities of $6.0 million in 1996 and net cash
provided by operating activities of $4.6 million in 1995. Cash flow from
operations was negative in 1997 principally due to the loss from operations and
increases in inventory, offset by increases to accounts payable and the impact
of non-cash charges in 1997 for depreciation and amortization, a special
warranty charge and consolidation of the Company's manufacturing operations.
The Company's investing activities provided $2.7 million in fiscal 1997 as
compared to $257,000 used in fiscal 1996 and cash used of $6.1 million in fiscal
1995. The cash provided in fiscal 1997 resulted from the sale of Echostar common
stock net of increases in capital equipment purchases.
The Company's financing activities in fiscal 1997 included the expenditure
of $1.3 million to purchase an additional 167,600 shares of the Company's common
stock. The Company repaid $675,000 of principal on the Company's 6 1/2%
convertible subordinated debentures payable to Echostar. The Company financed a
portion of its operating cash requirements with the borrowing of $1.6 million in
bank line of credit and the three year term loan.
During fiscal 1997, the Company continued its investment in Media4 Inc.
("Media4") along with Alcatel Telspace as an equal co-investor. Media4 is a
privately held developer of products for distribution of multimedia information
over wireless networks to personal computers. This emerging market is
complementary to the Company's business and the Company offers Media4 products
through its own international distribution channels. During 1997, the Company
purchased an additional $96,000 of common stock and converted $175,000 of
convertible debentures with Media4 to equity in Media4.
At September 27, 1997, the Company's principal sources of liquidity
consisted of $408,000 in cash and cash equivalents. The Company was operating
under a temporary line of credit which was available through November. On
October 21, 1997, the Company entered into a new credit facility with a new bank
which allows for a line of credit of $5.0 million for operations and a $900,000
three year term loan with a provision for another $500,000 three year term loan
subject to collateral availability. At September 27, 1997, $4.1 million was
outstanding under the previous operating line of credit and $863,000 was
outstanding under a three year equipment loan. On October 21, 1997, the new
operating line of credit repaid those amounts. The new
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operating line of credit and equipment term loan expiration dates are February
1, 1999 and September 30, 2000, respectively. In addition, the Company has a
$700,000 capital lease line of credit, with an outstanding balance of $447,000
at September 27, 1997.
A principal source of capital, the value of the Company's holding of
Echostar common stock, is subject to the volatility of the stock price. On
September 27, 1997 the Company held 625,780 shares of Echostar stock with a
value of $13 million and an unrealized gain of approximately $8 million
reported, net of tax, in stockholders' equity.
The Company believes that its current cash position, funds generated from
operations, funds available from its equity holdings in Echostar common stock
and its lines of credit and term loans will be adequate to meet its requirements
for working capital, capital expenditures, debt services and external investment
for the foreseeable future. Due to certain constraints on the ability to sell
Echostar shares and potential volatility of the value of the stock, there could
be a significant reduction in funding available from the liquidation of Echostar
stock.
FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS: Information contained in
this Annual Report contains "forward-looking" statements within the meaning of
the Private Securities Litigation Reform Act of 1995, many of which can be
identified by the use of forward-looking terminology such as "may", "will",
"believe", "expect", "anticipate", "estimate", "plan", "intend", or "continue"
or the negative thereof or other variations thereon or comparable terminology.
There are a number of important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Numerous factors, such as economic and competitive conditions,
incoming order levels, timing of product shipments, product margins, new product
development, and reliance on key consumers in international sales could cause
actual results to differ from those described in these statements and
prospective investors and stockholders should carefully consider these factors
in evaluating these forward-looking statements. Particular factors that may
affect future financial results are:
1. Sales of the Company's products are concentrated in a small number
of customers. For fiscal 1997, the largest five customers accounted for 38%
of sales. The loss of any existing customer, a significant reduction in the
level of sales to any existing customer, or the failure of the Company to
gain additional customers could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, a substantial portion of shipments historically have occurred
near the end of each quarter. Accordingly, the Company's results are
difficult to predict and delays in product delivery or closing of a sale
can cause revenues and net income to fluctuate significantly from
anticipated levels and from quarter to quarter.
2. The market for the Company's products are very competitive and the
Company expects that competition will increase. The Company believes that
its ability to compete successfully will depend on a number of factors both
within and outside its control, including price, quality, delivery, product
performance and features; timing of new product introductions by the
Company and its competitors; and customer service and support. Price
pressure is expected to continue in the satellite transceiver and modem
market in the foreseeable future. As a result, the Company expects to
continue to experience declining average sales prices for its products. The
Company's future gross margin is dependent upon its ability to reduce costs
in line with or faster than declines in sales prices.
3. The Company's manufacturing operations are highly dependent upon
the delivery of quality materials by outside suppliers in a timely manner.
From time to time the Company has experienced delivery delays from key
suppliers which impacted sales. In addition, as was experienced in 1997,
certain vendor supplied materials occasionally have quality issues which
impact sales and customer support costs. There can be no assurance that the
Company will not experience material supply problems or component issues in
the future.
9
<PAGE> 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
SSE Telecom, Inc.
We have audited the accompanying consolidated balance sheets of SSE
Telecom, Inc. as of September 27, 1997 and September 28, 1996, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
each of the three years in the period ended September 27, 1997. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These consolidated financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We have 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SSE Telecom, Inc. at September 27, 1997, and September 28, 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 27, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
December 4, 1997
10
<PAGE> 12
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 408 $ 1,241
Accounts receivable
(net of allowance for doubtful accounts of $622 and $420 in
1997 and 1996, respectively)................................. 10,096 10,927
Related party accounts receivable............................... 965 114
Inventories..................................................... 12,888 12,024
Deferred tax assets............................................. 3,067 1,963
Other current assets............................................ 1,123 945
------- -------
Total current assets.................................... 28,547 27,214
Property, equipment, and leasehold improvements, at cost
Equipment....................................................... 9,055 7,795
Furniture, fixtures and leasehold improvements.................. 3,349 2,947
------- -------
12,404 10,742
Less accumulated depreciation and amortization.................... 8,063 6,835
------- -------
Net property, equipment, and leasehold improvements............... 4,341 3,907
Long-term investments............................................. 14,519 23,421
Other assets...................................................... 150 721
------- -------
Total assets............................................ $47,557 $55,263
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit.................................................. $ 4,095 $ 3,342
Accounts payable................................................ 3,833 3,855
Related party accounts payable.................................. 2,237 420
Accrued salaries and employee benefits.......................... 1,503 1,447
Warranty........................................................ 1,745 995
Other accrued liabilities....................................... 755 184
Income taxes payable............................................ -- 672
Current portion of capital lease liability...................... 79 --
Current portion of convertible notes payable.................... 272 323
Current portion of term loan.................................... 304 --
------- -------
Total current liabilities............................... 14,823 11,238
Deferred tax liabilities........................................ 4,461 8,310
Convertible notes payable....................................... 3,803 4,427
Capital lease liability......................................... 368 --
Bank note payable............................................... 559 --
Commitments and contingencies (Notes 9 & 10)
Stockholders' equity
Common stock $.01 par value per share
(30,000,000 shares authorized; 5,955,187 and 5,911,671 shares
issued and in outstanding 1997 and 1996, respectively)....... 60 59
Additional paid in capital...................................... 12,486 12,276
Treasury stock (at cost, 224,643 shares and 57,043 shares in
1997 and 1996, respectively)................................. (1,782) (502)
Retained earnings............................................... 4,835 6,725
Net unrealized gain on available for sale investments........... 7,944 12,730
------- -------
Total stockholders' equity........................................ 23,543 31,288
------- -------
Total liabilities & stockholders' equity................ $47,557 $55,263
======= =======
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
11
<PAGE> 13
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 28, 1996, AND SEPTEMBER 30, 1995
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenue....................................................... $45,764 $46,220 $33,569
Cost of revenue............................................... 36,431 33,697 22,952
------- ------- -------
Gross margin................................................ 9,333 12,523 10,617
Expense
Research and development.................................... 5,071 4,179 2,958
Marketing, general and administrative....................... 9,512 7,721 5,829
Write-off of acquired in-process R&D........................ -- 1,404 --
Acquisition related asset writedown......................... -- 1,105 --
Restructuring............................................... 850 -- --
------- ------- -------
Operating income (loss)....................................... (6,100) (1,886) 1,830
------- ------- -------
Gain on sale of investments, net of transaction expense....... (3,730) (2,584) --
Net interest expense.......................................... 524 479 223
Other expense................................................. 14 -- 94
------- ------- -------
Income (loss) before income taxes............................. (2,908) 219 1,513
Provision (benefit) for income taxes.......................... (1,018) 88 414
------- ------- -------
Net income (loss)............................................. $(1,890) $ 131 $ 1,099
======= ======= =======
Primary net income (loss) per share........................... $ (0.32) $ 0.02 $ 0.20
======= ======= =======
Shares used in computing primary net income (loss) per
share....................................................... 5,820 5,595 5,587
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
12
<PAGE> 14
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 28, 1996, AND SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Operating Activities:
Net income (loss)............................................ $(1,890) $ 131 $ 1,099
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization.............................. 1,372 1,149 633
Non-cash portion of consolidation charge................... 2,100 -- --
Non-cash portion of special warranty reserve............... 1,157 -- --
Acquisition related charges................................ -- 2,509 --
Gain on sale of long-term investments...................... (3,730) (2,584) --
Deferred income taxes...................................... (1,068) (1,329) --
Changes in operating assets and liabilities:
Accounts receivable........................................ (370) (2,238) 2,186
Inventories................................................ (1,764) (3,250) (371)
Other current assets....................................... 133 (579) (217)
Accounts payable........................................... 1,795 28 602
Accrued salaries and employee benefits..................... 56 358 6
Income taxes payable....................................... (983) 361 36
Other accrued liabilities.................................. (171) (551) 664
------- ------- --------
Net cash provided (used) by operating activities............. (3,363) (5,995) 4,638
------- ------- --------
Investing Activities:
Purchases of equipment..................................... (1,303) (2,392) (1,133)
Purchases of short-term investments........................ -- (8,794) (13,512)
Proceeds from sales of short-term investments.............. -- 13,145 9,171
Proceeds from sales of Echostar shares..................... 4,056 2,974 --
Acquisition of net assets of Fairchild Data................ -- (4,400) --
Investment in Media4....................................... (96) (700) (341)
Other assets............................................... -- (90) (268)
------- ------- --------
Net cash provided (used) by investing activities............. 2,657 (257) (6,083)
------- ------- --------
Financing Activities:
Borrowings under bank line of credit....................... 1,617 2,970 --
Borrowings under equipment line payable.................... -- 372 --
Payments on notes payable.................................. -- -- (1,168)
Payments on convertible notes payable...................... (675) (4,000) --
Proceeds from sale of common stock to Alcatel Telspace..... -- 6,729 --
Proceeds from other issuances of common stock net of tax
benefit................................................. 211 1,253 336
Repurchase of common stock................................. (1,280) (3,379) (428)
Payment of stockholders' notes receivable.................. -- -- 135
------- ------- --------
Net cash provided (used) by financing activities............. (127) 3,945 (1,125)
------- ------- --------
Net increase (decrease) in cash and cash equivalents......... (833) (2,307) (2,570)
Cash and cash equivalents beginning of period.............. 1,241 3,548 6,118
Cash and cash equivalents end of period.................... 408 1,241 3,548
------- ------- --------
Non-cash transactions
Conversion of Media4, Inc. convertible debenture into
equity..................................................... 175 -- --
Acquisition of net assets of Fairchild Data by issuance of
common stock and warrants.................................. -- 1,109 --
Directsat/Echostar Exchange.................................. -- -- 1,689
------- ------- --------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
13
<PAGE> 15
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 28, 1996, AND SEPTEMBER 30, 1995
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK TREASURY STOCK GAIN ON
------------------ ADDITIONAL ------------------- STOCKHOLDERS' AVAILABLE
NUMBER PAID-IN NUMBER NOTES RETAINED FOR SALE
OF SHARES AMOUNT CAPITAL OF SHARES AMOUNT RECEIVABLE EARNINGS INVESTMENTS
--------- ------ ---------- --------- ------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1994........ 5,460 $ 54 $ 6,410 79 $ (461) $(135) $ 5,495 --
Issuance of common stock upon
exercise of options and
warrants...................... 71 1 237 -- -- -- -- --
Tax benefit of stock option
exercises..................... -- -- 99 -- -- -- -- --
Repurchase of common stock...... -- -- -- 64 (428) -- -- --
Stockholders' notes
receivable.................... -- -- -- -- -- 135 -- --
Net unrealized gain on
available-for-sale
investments................... -- -- -- -- -- -- -- 7,051
Net income...................... -- -- -- -- -- -- 1,099 --
BALANCE, SEPTEMBER 30, 1995..... 5,531 55 6,746 143 (889) -- 6,594 7,051
Issuance of common stock upon
exercise of options and
warrants...................... 206 2 632 -- -- -- -- --
Issuance of common stock and
warrants upon acquisition of
Fairchild Data................ 100 1 1,108 -- -- -- -- --
Issuance of common stock and
warrants to Alcatel
Telspace...................... 75 1 2,961 (450) 3,767 -- -- --
Issuance of warrants to
Echostar...................... -- -- 208 -- -- -- -- --
Tax benefit of stock option
exercises..................... -- -- 621 -- -- -- -- --
Repurchase of common stock...... -- -- -- 364 (3,380) -- -- --
Change in net unrealized gain on
available-for-sale
investments................... -- -- -- -- -- -- -- 5,679
Net income...................... -- -- -- -- -- -- 131 --
BALANCE, SEPTEMBER 28, 1996..... 5,912 59 12,276 57 (502) 6,725 12,730
Issuance of common stock upon
exercise of options........... 43 1 180 -- -- -- -- --
Issuance of warrants to
Echostar...................... -- -- 30 -- -- -- -- --
Repurchase of common stock...... -- -- -- 168 (1,280) -- -- --
Change in net unrealized gain on
available-for-sale
investments................... -- -- -- -- -- -- -- (4,786)
Net income (loss)............... -- -- -- -- -- -- (1,890) --
BALANCE, SEPTEMBER 27, 1997..... 5,955 $ 60 $ 12,486 225 $(1,782) $ -- $ 4,835 $ 7,944
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, OCTOBER 1, 1994........ $11,363
Issuance of common stock upon
exercise of options and
warrants...................... 238
Tax benefit of stock option
exercises..................... 99
Repurchase of common stock...... (428)
Stockholders' notes
receivable.................... 135
Net unrealized gain on
available-for-sale
investments................... 7,051
Net income...................... 1,099
BALANCE, SEPTEMBER 30, 1995..... 19,557
Issuance of common stock upon
exercise of options and
warrants...................... 634
Issuance of common stock and
warrants upon acquisition of
Fairchild Data................ 1,109
Issuance of common stock and
warrants to Alcatel
Telspace...................... 6,729
Issuance of warrants to
Echostar...................... 208
Tax benefit of stock option
exercises..................... 621
Repurchase of common stock...... (3,380)
Change in net unrealized gain on
available-for-sale
investments................... 5,679
Net income...................... 131
BALANCE, SEPTEMBER 28, 1996..... 31,288
Issuance of common stock upon
exercise of options........... 181
Issuance of warrants to
Echostar...................... 30
Repurchase of common stock...... (1,280)
Change in net unrealized gain on
available-for-sale
investments................... (4,786)
Net income (loss)............... (1,890)
BALANCE, SEPTEMBER 27, 1997..... $23,543
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements
14
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and method of consolidation: The Company's principal business
is the manufacture and sale of satellite telecommunications equipment. The
Company conducts these operations through SSE Technologies, a wholly owned
subsidiary, and SSE Datacom ("SSE Data"), a wholly owned subsidiary formed in
connection with the asset purchase of Fairchild Data Corporation ("Fairchild
Data") in January 1996.
The Company consolidates its majority owned subsidiaries and all
intercompany amounts have been eliminated in consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with minimum yield risks and maturities of less than ninety days at
the date of purchase to be cash equivalents. Cash and cash equivalents are
stated at cost which approximates market value.
Revenue recognition: Revenue from product sales is recognized when goods
are shipped to customers. A warranty reserve for future costs related to product
warranties is established and maintained based on estimated costs to be incurred
for delivered products.
Inventories: Inventories consist of manufacturing raw materials,
work-in-process and finished goods. Inventories are valued at the lower of cost
or realizable current value. Cost is based on a method which approximates actual
cost on a first-in, first-out (FIFO) basis.
At September 27, 1997 and September 28, 1996 inventories consisted of:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................ $ 5,000 $ 5,693
Work-in-process.......................................... 5,703 6,016
Finished goods........................................... 2,185 315
------- -------
Total.......................................... $12,888 $12,024
======= =======
</TABLE>
Depreciation and amortization: Depreciation and amortization is provided
on a straight-line basis over estimated useful lives of the related assets
ranging from two to five years. Asset purchases under capitalized lease
arrangements are generally depreciated over the shorter of the assets estimated
useful life or the lease term. Leasehold improvements are amortized over the
term of the lease or their estimated useful lives, whichever is shorter.
Advertising expenses: The Company accounts for advertising costs as a
expense in the period in which they are incurred. Advertising expenses for
fiscal 1997, 1996, and 1995 were approximately $515,000, $365,000, and $300,000,
respectively.
Net income (loss) per share: Net income (loss) per share is computed based
on the weighted average number of common shares and, if applicable, dilutive
common equivalent shares outstanding during each period presented.
Stock-based compensation: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"). The Combined Companies
adopted FAS 123 in 1996. The Combined Companies account for employee stock
options in accordance with Accounting Principles Board Opinion No. 25, and have
adopted the "disclosure only" alternative described in FAS 123.
Concentration of credit risk: The Company designs, develops, manufactures,
markets, and supports satellite telecommunication equipment and systems for
customers in diversified geographic locations. The Company performs ongoing
credit evaluations of its customers' financial condition and in some cases
requires
15
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a letter of credit or cash in advance for foreign customers. The Company has a
policy that requires a letter of credit or credit insurance for credit-worthy
customers that request sales under extended terms.
Market Risk: Sales of the Company's products are concentrated in a small
number of customers. For fiscal 1997, five customers accounted for 38% of sales.
The loss of any existing customer, a significant reduction in the level of sales
to any existing customer, or the failure of the Company to gain additional
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Such estimates relate to the useful
lives of fixed assets, allowances for doubtful accounts, inventory reserves,
accrued liabilities, and other reserves. Actual results could differ from those
estimates.
Effect of New Accounting Standards: The Financial Accounting Standards
Board has issued Statement of Financial Standards No. 128, "Earnings per Share"
(SFAS 128). SFAS 128 replaces primary earnings per share ("EPS") with basic EPS,
which excludes dilutive common stock equivalent shares, and requires
presentation of both basic and diluted EPS on the face of the statements of
operations.
Diluted EPS is computed similarly to the current fully diluted EPS. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997, and requires restatement of all prior period EPS data
presented, The computed basic net income (loss) per share is not materially
different from the net income (loss) per share as reported for the year ended
September 27, 1997 and September 28, 1996, respectively. The computed diluted
net income (loss) per share is not expected to differ materially from fully
diluted earnings (loss) per share.
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial statements.
SFAS 130 is effective for financial statements issued for fiscal years beginning
after December 15, 1997 and requires reclassification of earlier periods
presented. Had SFAS 130 been adopted in the current year, the impact on
comprehensive income would be an additional decrease in earnings of $2,362,000,
net of taxes.
Reclassification: Certain reclassifications have been made to the
Consolidated Financial Statements for prior periods in order to conform to the
fiscal 1997 presentation.
2. ASSET ACQUISITION OF FAIRCHILD DATA CORPORATION:
On January 29, 1996, the Company completed the acquisition of the business
of Fairchild Data Corporation ("Fairchild Data" or "SSE Data"), a subsidiary of
The Fairchild Corporation, via an asset purchase agreement. Accordingly, the
results of operations of SSE Data are included in the financial statements from
the date of acquisition. Acquired assets and liabilities were recorded at their
estimated fair values at the date of acquisition, and the aggregate purchase
price plus costs directly attributable to the completion of the acquisition have
been allocated to the assets and liabilities acquired.
The Company acquired substantially all the assets of Fairchild Data, at a
cost of approximately $5.5 million, consisting of approximately $4.4 million in
cash, 100,000 shares of the Company's common stock, and warrants to acquire
50,000 shares of the Company's common stock. An additional 100,000 contingent
shares of the Company's common stock was to be issued if certain earnings levels
were attained by SSE Data prior to January 1, 1997. Such earnings levels were
not achieved and, accordingly, such shares were not issued to the Fairchild
Corporation. The purchase price was allocated to the acquired assets and
liabilities based on an independent valuation. Amounts allocated to developed
technology, assembled workforce, trade name and distributor relationships are
amortized on a straight-line basis over periods of two to eight years. In the
third quarter of fiscal 1997, these amounts were written down an additional
$417,000 as part of the
16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restructuring charge (see Note 13). Amounts allocated to in-process research and
development of approximately $1.4 million were expensed along with $1.1 million
for the write off of duplicative assets at SSE Technologies, including network
software and several models of modem products, in the second quarter of fiscal
1996.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of Fairchild Data had
occurred at the beginning of fiscal 1996 and does not purport to be indicative
of results which may occur in the future.
<TABLE>
<CAPTION>
1996* 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenues................................................. $50,502 $46,573
Net income............................................... $ 1,314 $ 402
Net income per share..................................... $ 0.23 $ 0.07
</TABLE>
- ---------------
* The write off of acquired in-process research and development of $1.4 million
and the acquisition related asset writedown of $1.1 million, were not
considered in the above pro forma summary.
3. RELATIONSHIP WITH ALCATEL TELSPACE
In September 1996, Alcatel Telspace S. A. ("Alcatel Telspace"), a unit of
Alcatel Telecom of France, purchased 525,000 shares of the Company's common
stock. In addition Alcatel Telspace received a three year warrant to purchase up
to another 300,000 shares of the Company's common stock at the market price at
the time of exercise but not less than $11.00 per share. The Company received
aggregate proceeds of $6,751,500 in connection with this transaction. Alcatel
Telspace also purchased an additional 100,000 shares of common stock from two
members of the Company's senior management for $1,075,000 or $10.75 per share,
which was the fair market value of the Company's common stock at that time. As a
result, Alcatel Telspace owns approximately 10% of the Company's outstanding
common stock.
Alcatel Telspace and the Company also entered into an agreement outlined in
a Joint Product Policy to identify certain satellite telecommunications products
which may be jointly developed and marketed by each party. The intent of the
Joint Product Policy is to add additional products to each company's product or
systems offerings thereby potentially increasing market share. The two companies
have collaborated in the development of certain satellite communications
equipment in the past, although there can be no assurance that future products
or systems will be jointly developed. Alcatel Telspace is currently a primary
supplier of a key component in the Company's STAR satellite transceiver
products.
4. INVESTMENTS
The Company has classified all investments, except its common stock
investment in Media4, Inc. ("Media4") as available for sale. Available-for-sale
securities are stated at fair value with the unrealized gain and losses, net of
taxes, reported as a separate component of stockholders' equity. Realized gains
and losses, and declines in value judged to be other than temporary on
available-for-sale securities, are included in the consolidated statements of
income. The cost of securities sold is based on the average cost method.
Investments with maturities of less than one year at the balance sheet date
are classified as short-term investments. Investments with maturities greater
than one year at the balance sheet date are classified as long-term investments.
On December 30, 1994, the Company completed the exchange of its 91.2%
interest in Directsat Corporation, a direct broadcast satellite licensee, which
resulted in the receipt of 912,717 shares of Echostar Communications Corporation
("Echostar"), Class A common stock. The Company sold 176,937 shares and 110,000
shares at net realized gains before taxes of $3,730,000 and $2,792,000 in fiscal
1997 and fiscal 1996, respectively. As of September 27, 1997, the Company had
625,780 shares remaining with the closing price on that date of $21 3/8.
17
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 16, 1995, the Company and Alcatel Telspace agreed to invest equally
in Media4. Media4 is a privately held developer of products for distribution of
multimedia information over wireless networks to personal computers. This
emerging market is complimentary to the Company's business and SSE Telecom
intends to offer Media4 products through its own international distribution
channels. During fiscal 1997, the Company converted $175,000 of debentures in
Media4 to common stock and invested an additional $96,000 in Media4. At
September 27, 1997, the Company had invested approximately $965,000 in Media4
common stock and held $175,000 in Media4 convertible 7% debentures. The
convertible debt is due in four years. The Company continues to monitor the
progress of Media4 relative to its product and market development. As of
September 27, 1997, the Company believes Media4 has made good progress on the
development of its business plan and has released its first product,
MediaStream, a multimedia network product that delivers compressed digital
video, audio, computer software, and textural data via satellite to personal
computer.
The following is a summary of available-for-sale securities, at September
27, 1997:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Convertible debenture -- Media4........... $ 175 $ -- $-- $ 175
Common stock -- Echostar.................. 1,158 12,221 -- 13,379
------ ------- --- -------
Total available-for-sale securities....... $1,333 $ 12,221 $-- $13,554
====== ======= === =======
</TABLE>
The following is a reconciliation of the investment categories and their
balance sheet classifications at September 27, 1997:
<TABLE>
<CAPTION>
CASH AND LONG-TERM
CASH EQUIVALENTS INVESTMENTS TOTAL
---------------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and money market funds.................... $408 $ -- $ 408
Available-for-sale securities.................. -- 13,554 13,554
Non-marketable equity investments.............. -- 965 965
---- ------- -------
$408 $14,519 $14,927
==== ======= =======
</TABLE>
The following is a summary of available-for-sale securities, at September
28, 1996:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Convertible debenture -- Media4........... $ 350 $ -- $-- $ 350
Common stock -- Echostar.................. 1,507 20,869 22,376
------ ------- --- -------
Total available-for-sale securities....... $1,857 $ 20,869 $-- $22,726
====== ======= === =======
</TABLE>
The following is a reconciliation of the investment categories and their
balance sheet classifications at September 28, 1996:
<TABLE>
<CAPTION>
CASH AND LONG-TERM
CASH EQUIVALENTS INVESTMENTS TOTAL
---------------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and money market funds.................... $1,241 $ -- $ 1,241
Available-for-sale securities.................. -- 22,726 22,726
Non-marketable equity investments.............. -- 695 695
------ ------- -------
$1,241 $23,421 $24,662
====== ======= =======
</TABLE>
18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment, the design,
manufacturing and sale of satellite telecommunication equipment. The Company had
exports of approximately 45% of revenues in 1997, 56% of revenues in 1996, and
48% of revenues in 1995. Export revenues are primarily to Western Europe, South
America, Asia Pacific, Mexico, and Canada. In 1997, the U.S. Government
accounted for 11% of the Company's total sales dollars, with no other customer
accounting for more than 10% during the year. Nortel Dasa accounted for 13% of
the Company's sales in 1996 and 1995, respectively. All of the export sales each
year were denominated in U.S. dollars.
6. CREDIT FACILITIES AND CONVERTIBLE NOTES PAYABLE
At September 27, 1997, the Company was operating under a temporary credit
facility with outstanding borrowings if $4.1 million. On October 21, 1997, the
Company negotiated an ongoing credit facility with a new bank which was used to
fully repay the previous line of credit. This new facility allows for a $5.0
million operating line of credit. Borrowings under this new line of credit bear
interest at prime plus 0.75% (prime rate was 8.5% at October 21, 1997). The
Company is required under this line of credit to be in compliance with certain
financial covenants and the line of credit is secured by the assets of the
Company. This line of credit expires January 15, 1999.
The Company also had a three year term note outstanding at September 27,
1997. The total principal outstanding on this note was $863,000 with interest
payable at prime plus 0.25%. On October 21, 1997, this note was repaid in full
with the proceeds from a new three year $900,000 term loan from a new bank with
variable interest (charged at prime plus 1%). The Company also has available a
$500,000 three year term loan subject to collateral restrictions.
At September 27, 1997, the Company had an outstanding balance of $4.1
million related to its 6 1/2% convertible subordinated debentures due March 1,
2001, payable to Echostar. The debentures are convertible at the option of the
holder into the Company's common stock at a conversion price of $12.00 per share
at any time prior to maturity. During fiscal 1997 the Company repaid $675,000 of
debenture principal and paid $130,000 of debenture interest.
Neither these debentures or the common shares issuable on exercise of the
conversion right have or will be registered under the federal securities laws or
the securities laws of any state, and neither these debentures or any common
shares acquired on exercise of the conversion right may be transferred,
hypothecated, sold or assigned, except in compliance with the provisions of the
Securities Act of 1933, and any applicable state securities laws. Neither these
debentures or any such common shares may be sold, assigned, pledged,
hypothecated or otherwise transferred, except after notice to the Company and
with the Company's consent, and the Company need not consent to any such
proposed transfer unless, in the opinion of legal counsel satisfactory to the
Company, such transfer does not violate any applicable federal or state
securities laws. The Company has granted certain registration rights in respect
to common stock acquired on conversion of debentures upon exercise of warrants
by Echostar.
At September 27, 1997 and September 28, 1996, long term debt obligations,
excluding capital lease obligations disclosed in Note 9, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Bank note payable.......................................................... $ 863 $ --
6 1/2% convertible debenture............................................... 4,075 4,750
------ ------
$4,938 $4,750
Less: Current portion...................................................... 576 323
------ ------
Total long-term convertible notes payable.................................. $4,362 $4,427
====== ======
</TABLE>
19
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest paid in fiscal 1997, 1996, and 1995 was approximately $385,000,
$1,341,000, and $14,000, respectively.
The 6 1/2% convertible debentures are due in full in fiscal year 2001 and
minimum principal payments of $17,000 per each $250,000 debenture are due
annually from fiscal year 1997 through fiscal year 2000.
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Federal
Current..................................... $ 73 $ 1,198 $ 509
Deferred.................................... (1,091) (1,050) (140)
(1,018) 148 369
State
Current..................................... -- 219 45
Deferred.................................... -- (279) --
-- (60) 45
------- ------- ----
Total......................................... $(1,018) $ 88 $ 414
======= ======= ====
</TABLE>
Current taxes stated above for the year ended September 28, 1996, and
September 30, 1995 will be reduced by $621,000, and $99,000, respectively, due
to tax deductions arising from exercise of employee stock options. Such tax
savings have been reflected as an addition to Additional Paid in Capital.
The following table accounts for the differences between the actual tax
provision and the amounts obtained by applying the U.S. Federal income tax rate
of 34% to the income before income taxes:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Tax at the statutory US rate.................. $ (989) $ 74 $ 515
Tax-exempt FSC income......................... -- -- (101)
State taxes (net of federal benefit).......... -- (40) 30
Research and development credits.............. -- (30) (65)
Warrant conversion costs...................... -- 71 --
Other......................................... (29) 13 35
------- --- ----
$(1,018) $ 88 $ 414
======= === ====
</TABLE>
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 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Inventories................................. $ 1,200 $ 796 $ 239
Accruals and reserves....................... 1,388 558 340
Basis difference of acquired assets of
Fairchild Data.............................. 479 609 --
Total deferred tax assets..................... 3,067 1,963 579
Deferred tax liabilities:
Available-for-sale securities............... (4,277) (8,139) (4,502)
Tax over book depreciation.................. (184) (171) (116)
------- ------- -------
Net deferred taxes............................ $(1,394) $(6,347) $(4,039)
======= ======= =======
</TABLE>
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes paid were $1,053,000, $427,000, and $415,000 in 1997, 1996,
and 1995, respectively.
8. RETIREMENT PLAN
The Company maintains a 401(k) tax deferred plan that is available to all
eligible employees. Effective in fiscal year 1997 the Company matching amount
with respect to employees' contributions increased from a maximum of $500 to
$1,000, subject to a cap of 3% of the employees' salary, whichever is lower. The
Company's contribution to this plan totaled $137,000 in 1997 and $74,000 in
1996. The Company made no contributions to the plan in 1995. The Company does
not offer any post employment benefits.
9. CAPITAL LEASES
At September 27, 1997 equipment under capital leases amounted to $447,000.
Lease terms range from three to five years. These lease obligations were entered
into in September 1997 and as such there was no accumulated amortization on
these assets at September 27, 1997. These assets are financed under the
Company's $700,000 capital lease line. At September 27, 1997, $253,000 remained
available under the lease line.
The following is a schedule of future minimum lease payments under capital
leases as of September 27, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................... $115
1999........................................... 115
2000........................................... 115
2001........................................... 103
2002........................................... 102
----
Total minimum lease payments................... 550
Less amount representing interest.............. 103
----
447
Less current portion........................... 79
----
$368
====
</TABLE>
10. OPERATING LEASE COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment, as well as its
headquarters and manufacturing facilities under non-cancelable operating leases
which expire at various periods through 2002. At September 27, 1997, the future
minimum payment obligations under these leases were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................... $ 758
1999........................................... 601
2000........................................... 523
2001........................................... 304
2002 and thereafter............................ --
------
Total................................ $2,186
======
</TABLE>
The total rent expense under all operating leases was approximately
$1,103,000, $1,056,000, $498,000 for fiscal years 1997, 1996, and 1995,
respectively.
A special warranty cost of $1.8 million before tax is reflected in the
results of operations for the fiscal year ended September 27, 1997. This charge,
of which $1.2 million remains accrued as of September 27, 1997,
21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reflects costs incurred and estimated to be incurred for retrofitting certain of
the Company's satellite transceiver products. The problem stems from the
identification by one of the Company's vendors that a component sold to the
Company, and used in many of the transceivers produced prior to July 1997, was
found to be defective in certain cases. The warranty cost accrued is an
estimate, actual results could differ materially.
In the ordinary course of business, various lawsuits and claims are filed
against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's financial statements.
11. STOCKHOLDERS' EQUITY
Stock Option Incentive Plan: At the Company's June 2, 1997 Annual Meeting
of Shareholders approval was granted on the Company's 1997 Equity Participation
Plan, 1997 Directors' Stock Option Plan, and amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's common stock from 10,000,000 to 30,000,000. Under the 1997 Equity
Participation Plan, the Company may grant incentive stock options and
non-statutory stock options to employees, directors and consultants. The total
shares authorized under the 1997 Equity Participation Plan is 250,000. Options
may be granted to purchase common stock at an exercise price that may be no less
than 100% of the market value of the stock at the grant date and will expire
after ten years. The options generally become exercisable over four years from
date of grant. Additional Company stock option plans include a 1992 Incentive
Stock Option Plan and a 1988 non-qualified stock option plan for the employees
of SSE Technologies, Inc.
The 1997 Directors' Stock Option Plan gives management the ability to grant
stock options to directors that are not employees of the Company or any
subsidiary of the Company. The total shares authorized under the 1997 Directors'
Stock Option Plan is 50,000. Options may be granted to purchase common stock at
an exercise price that may be no less than 100% of the market value of the stock
at the grant date and will expire after ten years. The options generally become
exercisable over three years from date of grant.
In June, 1997, the Board of Directors authorized the repricing of options
granted to employees to purchase 113,750 shares of common stock effective as of
the close of business on June 2, 1997, to the then fair market value of $7.00
per share. Under the terms of the repricing, the repriced options maintain the
same vesting and expiration terms. No executive officers or members of the
Company's Board of Directors participated in the repricing.
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a summary of activity under the stock option plans:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------
WEIGHTED AVERAGE
AVAILABLE NUMBER OF EXERCISE PRICE
FOR GRANT SHARES PER SHARE
--------- --------- ----------------
<S> <C> <C> <C>
BALANCE AT OCTOBER 1, 1994..................... 38,000 361,983 $ 5.01
Additional share reservation................. 250,000 -- --
Options granted.............................. (40,000) 40,000 $ 7.53
Options exercised............................ -- (71,350) $ 3.33
Options canceled............................. 47,500 (47,500) $ 5.61
------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995.................. 295,500 283,133 $ 5.69
Options granted.............................. (284,500) 284,500 $ 9.28
Options exercised............................ -- (55,326) $ 4.52
Options canceled............................. 39,875 (39,875) $ 7.85
------------------------------------------------------------------------
BALANCE AT SEPTEMBER 28, 1996.................. 50,875 472,432 $ 7.81
Additional shares available to grant......... 287,333 -- --
Options granted.............................. (304,000) 304,000 $ 6.22
Options exercised............................ -- (43,516) $ 4.17
Options canceled............................. 124,230 (124,230) $ 8.99
------------------------------------------------------------------------
BALANCE AT SEPTEMBER 27, 1997.................. 158,438 608,686 $ 7.03
</TABLE>
The following table summarizes the information about options outstanding at
September 27, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
------------------------------------------------ -----------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF CONTRACTUAL LIFE EXERCISE NUMBER OF AVERAGE EXERCISE
RANGE OF EXERCISE PRICES SHARES (IN YEARS) PRICE SHARES PRICE
- ------------------------- -------------- ---------------- -------- -------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$3.75 - $6.00............ 155 3.10 $ 5.90 86 $ 5.82
$6.25 - $6.88............ 143 4.67 6.85 -- --
$7.00 - $7.25............ 143 3.81 7.06 22 7.00
$7.33 - $8.00............ 90 5.23 7.59 35 7.47
$8.38 - $10.80........... 78 3.77 8.97 30 9.17
--- ---- ----- --- -----
609 4.03 $ 7.03 173 $ 6.08
=== ==== ===== === =====
</TABLE>
In connection with all stock options, 767,124 shares of common stock were
reserved for issuance as of September 27, 1997. Options outstanding at September
27, 1997 will expire if not exercised at specific dates ranging from November
1997 to July 2007. At September 28, 1996, and September 30, 1995, options
exercisable were, 144,558, and 121,383, respectively.
Stock-based compensation: As permitted under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" (FASB 123), the Company has elected to
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations in accounting
for its stock-based awards to employees. Under APB 25, the Company generally
recognizes no compensation expense with respect to such awards. Pro forma
information regarding net income and earnings per share is required by FASB 123
and has been determined as if the Company had accounted for awards to employees
under the fair value method of FASB 123. The fair value of options under the
Option Plan was estimated as of the date of grant using the Black-Scholes option
pricing model. The Black-Scholes model was originally developed for use in
estimating the fair value of traded options which do not have vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assumptions including expected stock price volatility. Because the Company's
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, the existing models, in management's opinion, do
not necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. The fair value of options granted in fiscal
years 1997 and 1996 was estimated at the date of grant assuming no expected
dividends and the following weighted average assumptions:
<TABLE>
<CAPTION>
FOR YEARS ENDED
-------------------------------
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
STOCK OPTIONS
Expected life (years)............................. 4.5 4.5
Expected stock price volatility................... .50 .50
Risk-free interest rate........................... 6.39% 5.63%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of options
is amortized against pro forma net income over the options' vesting period.
Because FASB 123 is applicable only to the Company's awards granted subsequent
to September 30, 1995, its pro forma effect will not be fully reflected until
approximately fiscal 2000. Had the Company accounted for stock-based awards to
employees under FASB 123, the Company's net loss would have been $2,326,000 and
$65,000 in 1997 and 1996, respectively, and net loss per share would have been
$0.40 and $0.01 in 1997 and 1996, respectively.
Calculated under FASB 123, the weighted average fair value of the options
granted during 1997 and 1996 was $3.44 and $4.56 per share, respectively.
Treasury shares: The Company acquired 167,600, 363,768, and 64,127 shares
of its Common stock on the open market in fiscal 1997, 1996, and 1995,
respectively. As of September 27, 1997, the Company had 224,643 shares of
treasury stock.
Warrants: During 1997, warrants to purchase 10,125 shares were issued. At
September 27, 1997, outstanding warrants for the purchase of the Company's
common stock were as follows:
<TABLE>
<CAPTION>
COMMON STOCK
SUBJECT TO WARRANT
EXERCISE OF EXERCISE PRICE EXERCISE
WARRANTS PER SHARE PERIOD ENDS
---------------- -------------- --------------
<S> <C> <C>
50,000..................................... $11.09 January 1999
15,000..................................... $ 6.25 July 1999
300,000...................................... $11.00 September 1999
17,625..................................... $12.00 February 2000
52,500..................................... $12.00 April 2000
</TABLE>
12. RELATED PARTY TRANSACTIONS
The Company has significant investments in Echostar and Media4, and also
debentures due to Echostar (see notes 3, 4 and 6).
The Company had shipments to Alcatel Telspace of $2.2 million and purchases
from Alcatel Telspace of $3.5 million, during fiscal 1997. As of September 27,
1997 the Company had trade receivables and payables with Alcatel Telspace of
$795,000 and $2,237,000, respectively. Sales and gross margins realized on
related party transactions have not been materially different from gross margins
realized on similar types of transactions with unaffiliated companies.
The Company purchased $156,000 of products for resale to Media4. At
September 27, 1997, the Company had receivables of $170,000 from Media4.
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There were no other significant sales or purchases from Media4 or Echostar
in fiscal 1997.
13. CONSOLIDATION AND OTHER CHARGES
In the third quarter of fiscal 1997, the Company approved a plan to
consolidate its manufacturing operation and transfer its satellite modem
manufacturing operation from its facility in Scottsdale, Arizona to the
Company's Fremont, California facility. A charge of $2.1 million before tax for
this consolidation was reflected in the results of operations for the three
month period ended June 28, 1997 and includes the following components: $900,000
in cost of revenue, $350,000 for bad debt expense included in marketing, general
and administrative, and $850,000 as restructuring charges. The restructuring
amount included $193,000 for employee severance of which the balance was paid in
early fiscal year 1998, $40,000 for the facility lease in Scottsdale, $100,000
reserve for certain liabilities, $100,000 for a write off on leasehold
improvements and capital assets, and $417,000 write down of intangibles
associated with the acquisition of Fairchild Data. The costs associated with
this consolidation are estimates and actual amounts may differ.
14. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL 1997 1ST 2ND 3RD 4TH
-------------------------------------------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales....................................... $12,295 $11,167 $ 9,790 $12,512
Gross margin................................ 3,289 3,019 (306) 3,331
Net income (loss)........................... 1,761 (439) (3,939) 727
Income (loss) per share:
Primary................................... 0.30 (0.07) (0.67) 0.12
</TABLE>
The results of operations for the third quarter in fiscal 1997 reflect the
effects of a $2.1 million charge for consolidation of manufacturing facilities
and a special warranty reserve of $1.8 million (refer to Notes 10 and 13 of the
Notes to Consolidated Financial Statements).
<TABLE>
<CAPTION>
FISCAL 1996 1ST 2ND 3RD 4TH
--------------------------------------------- ------ ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales........................................ $9,019 $12,931 $12,606 $11,664
Gross margin................................. 2,890 3,849 3,014 2,770
Net income (loss)............................ 493 (1,085) (498) 1,221
Income (loss) per share:
Primary.................................... 0.09 (0.20) (0.09) 0.22
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
25
<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All information required by Items 10, 11, 12, and 13 is incorporated herein
by reference to the Company's definitive proxy statement for its annual meeting
of stockholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements:
<TABLE>
<CAPTION>
REFERENCE PAGE
--------------
<S> <C>
COVERED BY REPORT OF INDEPENDENT AUDITORS
Report of Ernst & Young LLP, Independent Auditors......................... 10
Consolidated Balance Sheets -- September 27, 1997 and September 28,
1996.................................................................... 11
Consolidated Statements of Operations -- Fiscal Years Ended September 27,
1997, September 28, 1996, and September 30, 1995........................ 12
Consolidated Statements of Cash Flows -- Fiscal Years Ended September 27,
1997, September 28, 1996, and September 30, 1995........................ 13
Consolidated Statement of Stockholders' Equity -- Fiscal Years Ended
September 27, 1997, September 28, 1996, and September 30, 1995.......... 14
Notes to Consolidated Financial Statements................................ 15-24
NOT COVERED BY REPORT OF INDEPENDENT AUDITORS
Note 14 of Notes to Consolidated Financial Statements..................... 24
</TABLE>
2. Financial Statement Schedule: The following financial statement
schedule of SSE Telecom, Inc. for the fiscal years ended September 27,
1997, September 28, 1996, and September 30, 1995 is filed as part of
this Report and should be read in conjunction with the Consolidated
Financial Statements of SSE Telecom, Inc.
<TABLE>
<S> <C>
Schedule II Valuation and Qualifying Accounts............................ 29
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes thereto.
3. Exhibits included herein (numbered in accordance with Item 601 of
Regulation S-K)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
2.1 Plan and Agreement of Merger among Echostar Communications Corporation, Directsat
Corporation and SSE Telecom (Incorporated by reference to Exhibit 2.1 filed with
Form 8-K on March 29, 1994, #33-10965)
2.2 Asset Purchase Agreement among SSE Telecom, Inc., SSE Datacom, Inc., The Fairchild
Corporation, Fairchild Data Corporation, and VSI Corporation, dated January 28, 1996
(Incorporated by reference to Exhibit 2.2, 8-K January 28, 1996, #33-10965)
3.1 Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1
#33-10965 on Form S-8)
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
3.2 Certificate of Amendment to Certificate of Incorporation of Registrant (Incorporated
by reference to Exhibit 3.2 #33-10965 on Form S-8)
3.3 Bylaws of Registrant (Incorporated by reference to exhibit 3.3 #33-10965 on Form
S-8)
3.4 Certificate of Amendment to Certificate of Incorporation of Registrant (Incorporated
by reference to Exhibit 3.4, 10-K September 30, 1989 #33-10965)
4.1 Specimen Stock Certificate (Incorporated by reference to Exhibit 4.1, 10-K September
26, 1992 #33-10965)
4.2 Article 4 of the Articles of Incorporation of Registrant (Incorporated by reference
to Exhibit 4.2, #33-10965 on Form S-8)
4.3 Article 6 of the Bylaws of Registrant (Incorporated by reference to Exhibit 4.3,
#33-10965 on Form S-8)
4.4 Specimen Form of Debenture (Incorporated by reference to Exhibit 4.4 filed with Form
8-K on March 29, 1994, #33-10965)
4.5 Security Pledge and Limited Recourse Agreement (Incorporated by reference to Exhibit
4.5 filed with Form 8-K on March 29, 1994, #33-10965)
4.6 Warrant from SSE Telecom, Inc. to Fairchild Data Corporation dated January 28, 1996
(Incorporated by reference to Exhibit 4.6, 8-K January 28, 1996, #33-10965)
4.7 Warrant from SSE Telecom, Inc. to Alcatel Telspace, S.A., dated September 6, 1996
(Incorporated by reference to Exhibit 4.7, 8-K September 6, 1996, #33-10965)
9.2 Voting Agreement by and among SSE Telecom, Inc., Alcatel Telspace, S.A., and certain
stockholders of SSE Telecom, Inc., dated September 6, 1996 (Incorporated by
reference to Exhibit 9.2, 8-K September 6, 1996, #33-10965)
9.3 Stockholder Agreement by and among SSE Telecom, Inc., Alcatel Telspace, S.A., and
certain stockholders of SSE Telecom, Inc., dated September 6, 1996 (Incorporated by
reference to Exhibit 9.3, 8-K September 6, 1996, #33-10965)
10.14 Employment Agreement Frederick Toombs (Incorporated by reference to Exhibit 10.14,
10-K September 26, 1992, #33-10965)
10.14.1 Employment Agreement Amendment Frederick C. Toombs
10.16 Employment Agreement Daniel Moore (Incorporated by reference to Exhibit 10.16, 10-K
October 1, 1994, #33-10965)
10.16.1 Employment Agreement Daniel E. Moore
10.18 Non-Qualified Stock Option Agreement (Incorporated by reference, Exhibit 10.18, 10-K
for September 30, 1988, #33-10965)
10.18.1 1992 Stock Option Plan Agreement (Incorporated by reference, Exhibit 10.18.1, 10-K
for September 25, 1993, #33-10965)
10.18.2 1997 Equity Participation Plan (Incorporated by reference to Proxy Statement, Form
14A, April 15, 1997, #33-10965
10.18.3 Directors' Stock Option Plan (Incorporated by reference to Proxy Statement, Form
14A, April 15, 1997, #33-10965
10.19 SSE Telecom 401(k) Profit Sharing Plan and Trust (Incorporated by reference to
Exhibit 10.19, 10-K for September 25, 1988, #33-10965)
10.20 Lease regarding SSE Technologies' offices dated February 19, 1991 between Registrant
and Warm Springs Associates I Ltd. Partnership (Incorporated by reference to Exhibit
10.20, 10-K September 26, 1992, #33-10965)
10.20.1 Lease regarding SSE Technologies' offices dated February 19, 1991 between Registrant
and Warm Springs Associates II Ltd. Partnership (Incorporated by reference to
Exhibit 10.20.1, 10-K September 26, 1992, #33-10965)
10.20.2 Lease Amendment regarding SSE Technologies offices between Registrant and Warm
Springs Associated II Ltd. Partnership
10.20.3 Lease regarding SSE Technologies, Inc. offices between Registrant and Phylon
Communications, Inc.
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.20.4 Lease regarding SSE Datacom, Inc. offices between Registrant and 5025 East
Washington Associates
10.20.5 Sublease Agreement regarding SSE Technologies, Inc. offices between Registrant and
Boehringer Mannheim
10.20.6 Lease Amendment regarding SSE Telecom, Inc. offices between Registrant and NVC
Limited Partnership
10.21 Agreement dated March 14, 1994, between SSE Telecom and Echostar Communications
Corporation (Incorporated by reference to Exhibit 10.21 filed with Form 8-K on March
29, 1994, #33-10965)
10.22 Sublease Agreement between SSE Datacom, Inc. and Fairchild Data Corporation, dated
January 28, 1996 (Incorporated by reference to Exhibit 10.22, 8-K January 28, 1996,
#33-10965)
10.23 Registration Agreement between SSE Telecom, Inc. and Fairchild Data Corporation,
dated January 28, 1996 (Incorporated by reference to Exhibit 10.23, 8-K January 28,
1996, #33-10965)
10.25 Stock Purchase and Investment Agreement by and between SSE Telecom, Inc., and
Alcatel Telspace, S.A., dated September 6, 1996 (Incorporated by reference to
Exhibit 10.25, 8-K September 6, 1996, #33-10965)
10.26 Registration Rights Agreement between SSE Telecom, Inc. and Alcatel Telspace, S.A.,
dated September 6, 1996 (Incorporated by reference to Exhibit 10.26, 8-K September
6, 1996, #33-10965)
10.28 Employment Agreement between Registrant and James D. Bletas
10.29 Employment Agreement between Registrant and Claudio Mariotta
11 Computation of Earnings per share (Page 39)
21.1 Subsidiaries of Registrant (Page 40)
23.1 Consent of Ernst & Young LLP, Independent Auditors (Page 41)
27 Financial Data Schedule (Page 42)
</TABLE>
(b) Reports on 8-K: The Company filed a current report on Form 8-K
reporting effective September 6, 1996, the purchase by Alcatel Telspace, S.A.,
of 525,000 shares of the common stock from the Company and the related purchase
of 100,000 shares of common stock from two of the members of the Company's
management. The report also described the issuance of a warrant and certain
related agreements.
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SSE TELECOM, Inc.
Dated: December 29, 1997 /s/ DANIEL E. MOORE
--------------------------------------
Daniel E. Moore
Chief Executive Officer
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 dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- -----------------
<C> <S> <C>
/s/ DANIEL E. MOORE Director & December 29, 1997
- ------------------------------------------ Chief Executive Officer
Daniel E. Moore
/s/ RUSS D. KINSCH Chief Financial Officer December 29, 1997
- ------------------------------------------
Russ D. Kinsch
/s/ JOSEPH T. PISULA Director December 29, 1997
- ------------------------------------------
Joseph T. Pisula
/s/ FREDERICK C. TOOMBS Director December 29, 1997
- ------------------------------------------
Frederick C. Toombs
/s/ ERIK H. VAN DER KAAY Director December 29, 1997
- ------------------------------------------
Erik H. van der Kaay
/s/ OLIN L. WETHINGTON Director December 29, 1997
- ------------------------------------------
Olin L. Wethington
Olin L. Wethington
/s/ LAWRENCE W. ROBERTS Director December 29, 1997
- ------------------------------------------
Lawrence W. Roberts
</TABLE>
29
<PAGE> 31
SCHEDULE II
SSE TELECOM
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS AT END
OF PERIOD CHARGED WRITE-OFFS OF PERIOD
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended September 27, 1997..................... $420 $ 447 $ (245) $622
==== ==== ===== ====
Year Ended September 28, 1996..................... $223 $ 300 $ (103) $420
==== ==== ===== ====
Year Ended September 30, 1995..................... $ 94 $ 143 $ (14) $223
==== ==== ===== ====
</TABLE>
30
<PAGE> 1
AGREEMENT
This agreement ("Agreement") is made and entered into effective as of the
21st day of May, 1997, by and among SSE TELECOM, INC., Delaware corporation
(herein "SSE Telecom"), SSE TECHNOLOGIES INC., a Delaware corporation (herein
"SSE Technologies", and together with SSE Telecom, herein the "Company"); and
FREDERICK C. TOOMBS (herein "Mr. Toombs").
In consideration of the covenants and agreements herein contained, and the
benefits to be derived herefrom, the parties, intending to be legally bound,
agree as follows:
1. Preliminary Provisions.
(a) Mr. Toombs and SSE Technologies are parties to that certain Employment
Agreement effective as of October 1, 1991, providing for the full time
employment of Mr. Toombs by SSE Technologies (the "Employment Agreement"). SSE
Technologies is a wholly-owned subsidiary of SSE Telecom, and pursuant to the
Employment Agreement, Mr. Toombs provides his full time and attention to the
business and affairs of SSE Technologies and to its parent, SSE Telecom, and
other subsidiaries and affiliated companies. Now, and for a period of years
prior hereto, Mr. Toombs has served as President of SSE Telecom, and has been
its senior executive officer.
(b) Mr. Toombs desires, over a period of months following the date of this
Agreement, to reduce the amount of his time and attention devoted to the affairs
of the Company, and the Company desires to secure Mr. Toombs' continued full
time employment for a limited period, and thereafter to obtain the benefit of
his experience by retaining Mr. Toombs as an employee, but in a consulting
capacity. To accomplish the foregoing purposes, the parties agree to the further
provisions of this Agreement.
(c) Concurrent with the entering into of this Agreement, Mr. Toombs hereby
resigns his positions as President of the Company and as an officer of all
subsidiaries of the Company, such resignations to be effective as of June 30,
1997, or on an earlier date if the Company so elects by notice to Mr. Toombs. If
the Company elects to accept any of such resignations as of an earlier date,
such date shall not be earlier than the giving of actual notice to Mr. Toombs.
2. Interim Full Time Employment.
(a) For the period from the date of this Agreement, and continuing until
terminated as herein in this Section 2 provided (the "Interim Period"), Mr.
Toombs shall continue as a full time employee of the Company pursuant to the
provisions of the Employment Agreement, and shall devote substantially his full
time and attention to the business of the Company, providing such services as
shall be requested of him from time to time, consistent with the duties as
described in Section 2 of the Employment Agreement. During the Interim Period,
the parties intend that Mr. Toombs shall principally focus his attention on the
items described in Section 4(a) below. The parties intend and expect that the
Interim Period shall extend for at least three (3) months, but not more than six
(6) months. The Company may fix the termination date of the Interim Period on
written notice to Mr. Toombs, which notice may be given at any time that the
Company shall determine, in its sole discretion, that the continued full time
services of Mr. Toombs are not required; provided, however, if the notice is
given by the Company at any time prior to September 30, 1997, the Interim Period
shall, nevertheless, be deemed to end as of September 30, 1997, and not prior
thereto. In the event of termination by the Company of Mr. Toombs' full time
employment prior to September 30, 1997, then for the period from such
termination through September 30, 1997, Mr. Toombs' duties shall be as provided
in Section 4(b) below.
(b) In consideration of the further covenants and agreements herein
contained, including the Company's agreement for the payment of compensation
during the consulting period, Mr. Toombs agrees that during the Interim Period
he will devote his full time and attention and best efforts to the business of
the Company, consistent with the duties as described in Section 2 of the
Employment Agreement, and will not terminate his employment for the Interim
Period, without the Company's consent, prior to September 30, 1997.
3. Employment During Consulting Period. Upon termination of Mr. Toombs'
full time employment on termination of the Interim Period as provided in Section
2 above, Mr. Toombs shall be employed by the
1
<PAGE> 2
Company providing the consulting and advisory services as provided in Section
4(b) below. Such twelve (12) month period is herein referred to as the
"Consulting Period".
4. Duties. Mr. Toombs shall:
(a) During the Interim Period, devote his full time and attention to the
business of the Company performing, to the best of his abilities, the duties and
responsibilities currently carried out by him, except as modified by the Company
by action of the Company's Board of Directors. The parties agree that during the
Interim Period, Mr. Toombs' time and attention shall be principally focused on
the following areas:
(i) transitioning his responsibilities at the Company to other
executive level employees;
(ii) relationships with customers, with the objective of assuring the
Company's key customers and accounts of the Company's continuing
capabilities;
(iii) working the Company's other executive level employees to bring
to completion the several large pending contracts and to provide oversite
in the initial implementation of such contracts; and
(iv) providing supervisory and directional oversight to the Company's
federal sales activities.
The foregoing is intended to be representative of the critical transitional
items for which Mr. Toombs is requested to devote his attention, but such
listing is not intended to be inclusive, and Mr. Toombs shall provide his
services as requested by the Company. Notwithstanding the foregoing, Mr. Toombs
shall not be required to provide services substantially different from those
carried out by him on behalf of the Company during the period immediately prior
to this Agreement.
(b) During the Consulting Period, Mr. Toombs shall not be required to
devote any substantial portion of his time and attention to the affairs of the
Company. Mr. Toombs shall continue as an employee of the Company, and at the
Company's election may be given the title of "Special Assistant to the
President". He shall assist the Company faithfully and diligently to achieve its
business objectives as may, from time to time, be requested by the president or
chief executive officer of the Company, and shall take no action which would be
contrary to such objectives. Mr. Toombs, however, shall not be required to
perform duties different from those customarily assigned to senior executive
level personnel of the Company. During such period, Mr. Toombs shall no longer
have any policy making or staff authority on behalf of the Company, and shall
have no authority to bind the Company to any obligations. Mr. Toombs is not
required to make himself available on a regular basis at the offices of the
Company or any of its subsidiary or affiliated locations. Any services requested
of Mr. Toombs pursuant to this section may be provided by telecommunications.
5. Compensation and Benefits. In lieu of the compensation and benefits set
forth in the Employment Agreement, Mr. Toombs shall be entitled to the
following:
(a) A base salary of $183,000.00 per year payable during the Interim Period
and the Consulting Period, in accordances with the practices established by the
Company for payment of its employees, so long as Mr. Toombs is not in default of
the Employment Agreement or this Agreement, as now or hereafter amended.
(b) The fringe benefits which are provided to Mr. Toombs prior to the date
of this Agreement shall be continued, in full, during the Interim Period, such
benefits including health, life and disability insurance, and the
Company-provided automobile. During the Consulting Period, all such benefits
shall continue. Mr. Toombs shall not be entitled to the accrual of any vacation
or sick leave after the date of this Agreement.
(c) The sum of $28,912.00, subject to applicable withholding, in
satisfaction of all accrued and unused paid absences due to Mr. Toombs through
the date hereof, shall be paid concurrently with the execution of this
Agreement. From and after the date hereof, Mr. Toombs agrees that he shall no
longer accrue paid absences or be entitled to compensation for same.
(d) At the expiration of the Consulting Period, the Company will sell to
Mr. Toombs, for One and No/100 Dollars ($1.00), the laptop, fax machine and home
computer and printer now used by Mr. Toombs and in his possession, and if
requested so to do by Mr. Toombs, will assign to Mr. Toombs and Mr. Toombs will
assume the lease obligation for the Lexus automobile now being used by Mr.
Toombs and leased by the
2
<PAGE> 3
Company. Upon termination of the Consulting Period, the Company will offer to
Mr. Toombs continuation of health insurance pursuant to COBRA.
6. Additional Benefits Upon Sale of Business. The parties agree that the
provisions of Section 4 of the Employment Agreement shall continue and shall be
applicable during the Interim Period to the same extent as set forth in such
sections. The provisions of Section 4 of the Employment Agreement shall be
applicable during the Consulting Period, but only in respect to a transaction
authorized by the Board of Directors of the Company during the Interim Period.
In the event that a transaction as contemplated in Section 4 of the Employment
Agreement shall occur, and Mr. Toombs becomes entitled to a Result Bonus as set
forth in such Section 4, then, to the extent of the Result Bonus payable under
such Section 4, the Company's obligation to make payment to Mr. Toombs under
Section 5(a) of this Agreement shall be adjusted as hereinafter provided. If Mr.
Toombs becomes entitled to a Result Bonus and, for example, such bonus is
$50,000, then the payments otherwise payable to Mr. Toombs under Section 5(a)
above shall be reduced by $50,000, such reduction being made by eliminating the
monthly installments otherwise payable to Mr. Toombs under Section 5(a) above in
inverse order starting from the last of such monthly installments to the extent
of $50,000. Likewise, if the monthly installments payable under Section 5(a)
above have already been made to Mr. Toombs to the extent that there are not
sufficient unpaid monthly installments to offset against the Result Bonus, the
amount payable as the Result Bonus shall be appropriately reduced. Anything here
(or in the Employment Agreement) to the contrary notwithstanding: (a) Mr. Toombs
shall not be required to remain in the employment of the Company or of the
acquiring company to any greater extent than specified in Section 4 above, in
order to qualify for the Option Bonus or the Result Bonus; and (b) Section 7(c)
of the Employment Agreement is deleted.
7. Protective Covenants. The provisions of Section 5 and Section 8
concerning confidentiality and restrictive covenants shall continue in
accordance with the provisions of the Employment Agreement and for the terms
therein provided, except that the first sentence of Section 8 of the Employment
Agreement is modified so that it shall read: "During the Consulting Period and
for the two (2) year period following the termination of the Consulting Period,
Mr. Toombs will not directly own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership, management,
operation or control of any business, similar to the type of business conducted
by the Company at the time of the termination of the Interim Period". The
parties acknowledge that during the Consulting Period Mr. Toombs shall not be
required to devote his full working time and attention to the business of the
Company, and may be engaged in other activities, to which he shall be entitled
to devote a substantial portion of his time, but Mr. Toombs shall not be engaged
in other activities which are competitive to the business of the Company, as it
exists, during the Interim Period. Mr. Toombs acknowledges that the
confidentiality and restrictive covenant provisions have been in effect since at
least October 1991, are fair and reasonable, and are appropriate for the
legitimate business interests of the Company, and are not adverse or detrimental
to Mr. Toombs' ability to be employed and adequately compensated following the
termination of the Consulting Period of this Agreement.
8. Other Matters.
(a) During the Interim Period, Mr. Toombs may continue to occupy the office
areas being used by him prior to the date of this Agreement, and may continue to
maintain a home office. During the Consulting Period, the Company shall make
such office space available at the Company's facilities as the Company shall
deem appropriate.
(b) During the Interim Period, the Company shall reimburse Mr. Toombs for
all reasonable and necessary business expenses incurred by him in furtherance of
his duties under this Agreement, and consistent with the present practices of
the Company. During the Consulting Period, the Company shall reimburse Mr.
Toombs for any expenses reasonably and necessarily incurred by him in carrying
out any services specifically requested of Mr. Toombs by the president or chief
executive officer of the Company.
(c) This Agreement does not modify or cancel the terms and provisions of
any options (collectively the "Stock Options") previously awarded Mr. Toombs for
the purchase of common stock of the Company, and such options shall remain in
full force and effect without modification or amendment. The parties acknowledge
and agree that Mr. Toombs' employment by the Company shall continue through and
including
3
<PAGE> 4
the termination of the Consulting Period, and that such termination date, except
in the event of Mr. Toombs' death, will be the effective date for the
termination of Mr. Toombs' employment for purposes of the Stock Options, and
that the termination of Mr. Toombs' officership shall not adversely affect his
right to stock options.
(d) Mr. Toombs covenants and agrees that when requested so to do by the
Company, Mr. Toombs shall deliver to the Company or its designee (i) all keys to
the Company's offices, (ii) all Company credit cards in his possession, (iii)
any Company files, records or equipment kept or maintained by him in his office
or elsewhere (including all copies thereof), and (iv) all equipment of the
Company except as otherwise provided in this Agreement. Mr. Toombs represents
that as of the date of this Agreement, he has not, and agrees that he will not,
make any claim under workers' compensation insurance with respect to Mr. Toombs'
period of employment at the Company through the date of this Agreement.
9. Releases.
(a) In consideration of the covenants of the Company contained in this
Agreement, Mr. Toombs hereby irrevocably and unconditionally releases, waives,
remises, forever discharges and agrees not to sue the Company and/or any and all
parent companies, divisions, subsidiaries, affiliates and other related entities
of the Company, as well as each of the Company's past, present and future
owners, directors, officers, employees, and the predecessors, successors and
assigns of each of them in their personal or corporate capacities, and all of
their attorneys (collectively, the "Released Parties"), from and with respect to
any and all liabilities, actions, claims, obligations, damages, causes of
action, contracts, accounts, agreements and demands of any nature whatsoever
(which accrued prior to the date hereof) that Mr. Toombs has, may have or may
claim to have against any of the Released Parties, whether known or unknown,
liquidated or unliquidated, in law or in equity, whether arising under any
local, state or federal constitutions, laws, rules or regulations, or under the
common law or statutory law of the United States prohibiting employment
discrimination based on race, color, sex, religion, handicap disability,
national origin or any other protected category or characteristic, including the
Civil Rights Act of 1964, the Civil Rights Act of 1986 or 1871, the National
Labor Relations Act or any other federal, state or local human rights, civil
rights or employment discrimination statute, including any claim arising under
the AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, as amended ("ADEA"), any rules
or regulations arising under such laws, and any and all claims (which accrued
prior to the date hereof) relating to Mr. Toombs' employment or termination
thereof, including, but not limited to, any claims under the doctrines of
defamation, libel, slander, invasion of privacy, interference with contractual
relations, or implied contracts arising from employee handbooks, policies,
manuals or statements or procedure and wrongful discharge, it being the
intention of the Company and Mr. Toombs to make this release as broad and as
general as the law permits to include in addition to the foregoing all possible
claims (which accrued prior to the date hereof) which arose or might arise out
of contract or tort under state or federal law.
(b) Nothing contained in Subsection (a) of this Section 9 shall restrict or
otherwise impair in any manner the rights or obligations of any parties arising
under and by virtue of (i) the Employment Agreement, as amended by this
Agreement, (ii) this Agreement, (iii) the Stock Options, or (iv) any amendment
or modification of any of the foregoing.
10. Disclosure.
(a) MR. TOOMBS SHOULD CAREFULLY READ AND UNDERSTAND THE TERMS, CONDITIONS
AND EFFECTS OF THIS AGREEMENT. THIS IS A LEGAL DOCUMENT, AND MR. TOOMBS IS
ADVISED THAT HE SHOULD CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT.
(b) PURSUANT TO THE TERMS OF THE ADEA, MR. TOOMBS IS ADVISED TO CONSIDER
THIS AGREEMENT FOR A PERIOD OF AT LEAST TWENTY-ONE (21) DAYS AFTER THE DATE OF
RECEIPT BEFORE MR. TOOMBS EXECUTES THIS AGREEMENT. AFTER MR. TOOMBS SIGNS THIS
AGREEMENT AND RETURNS IT TO THE COMPANY, MR. TOOMBS HAS SEVEN (7) CALENDAR DAYS
WITHIN WHICH TO NOTIFY THE COMPANY THAT MR. TOOMBS HAS DECIDED TO WITHDRAW HIS
ACCEPTANCE OF THIS
4
<PAGE> 5
AGREEMENT. THIS AGREEMENT (OTHER THAN SECTION 1 WHICH IS EFFECTIVE) WILL NOT
BECOME EFFECTIVE OR ENFORCEABLE AND NO PAYMENTS WILL BE MADE HEREUNDER UNTIL THE
END OF THE SEVEN (7) DAY REVOCATION PERIOD, AT WHICH TIME THE AGREEMENT SHALL
BECOME EFFECTIVE AND ENFORCEABLE.
11. Miscellaneous.
(a) All capitalized terms which are not defined herein shall have the
meanings set forth in the Employment Agreement.
(b) Each party agrees that he or it will refrain from any communication to
third parties which denigrates, disparages or criticizes any other party hereto.
(c) This Agreement and all the terms, provisions and conditions hereof
shall be binding upon and inure to the benefit of and be enforceable by the
heirs and personal representatives of Mr. Toombs, and by the purchasers,
successors, heirs, merged entities and assigns of the Company.
(d) The Company and Mr. Toombs represent that, as of the date of execution
and delivery of this Agreement by each of them, no breach of the Employment
Agreement, as amended by this Agreement, has occurred which is within the actual
knowledge of the parties so representing.
(e) The Company agrees that should Mr. Toombs be named as a party defendant
in any action concerning his services with the Company (including his services
through the conclusion of the Consulting Period), Mr. Toombs shall be entitled
to be indemnified to the same extent as provided in the Company's Articles of
Incorporation and By-Laws as amended through the date of this Agreement.
SSE TELECOM, INC.
By: /s/ DANIEL E. MOORE
-----------------------------------
Daniel E. Moore
Executive Vice President
SSE TECHNOLOGIES INC.
By: /s/ DANIEL E. MOORE
-----------------------------------
Daniel E. Moore
Executive Vice President
/s/ FREDERICK C. TOOMBS
--------------------------------------
Frederick C. Toombs
5
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into effective as of the
1st day of January, 1994, by and between SSE TECHNOLOGIES INC. ("SSE Tech"), a
Delaware corporation, SSE TELECOM, INC. ("Telecom"), a Delaware corporation, (as
used herein, Telecom and its subsidiaries are collectively referred to as the
"Company", unless the context requires otherwise or it is otherwise specifically
provided), and DANIEL E. MOORE, residing at the address set forth after his
signature (the "Executive").
WHEREAS, the Executive is currently a director of the Company and has been
devoting substantial time to the affairs of the Company for many months, and the
Company has proposed to offer Executive a position of employment as Executive
Vice President of Telecom and Chief Financial Officer of Telecom and one of its
subsidiaries, SSE Tech;
WHEREAS, the Executive and the Company in recognition of the Executive's
past and continuing contributions to the Company, desire to provide for the
full-time employment of the Executive; and
WHEREAS, the Company and Executive wish to set forth in this Agreement the
understandings and agreements by and between the Company and the Executive;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and intending to be legally bound the parties hereto agree as
follows:
1. Term. Subject to the provisions of section 7 hereof, the Company hereby
agrees to employ Executive and the Executive hereby accepts such employment with
the Company upon the terms and conditions herein provided.
2. Duties. Executive, subject to the direction and control of Telecom's
Board of Directors, shall devote his full time, attention and energies to the
business and affairs of the Company and promote the interests and welfare of the
Company. Executive shall, to the best of his abilities, serve as Executive Vice
President of Telecom and Chief Financial Officer of Telecom and SSE Tech.
Executive shall also provide services to and for the benefit of the Company as
such further duties as may, from time to time, be specified by the Company. If
the Executive is elected or appointed a director or an officer of the Company,
the Executive will serve in such capacity or capacities without further
compensation; but nothing in this Agreement shall be construed as requiring the
election or appointment of the Executive as such director or officer. The
Executive agrees to perform his duties in an efficient, trustworthy and
business-like manner, consistent with the policies set by the Board of Directors
of Telecom who shall have the power to alter or change the general practices of
the business as such Board deems necessary to the best interests of the Company.
The Executive shall not, during the term hereof, be interested directly or
indirectly, in any manner, as partner, officer, director, stockholder, advisor,
employee or in any other capacity in any other business, without Telecom's
written consent; provided, however, that nothing herein contained shall be
deemed to prevent or limit the right of Executive to participate as an investor
in any business venture which is not competitive with the Company's business.
The Company hereby acknowledges and consents to the Executive's participation
and interest in an entity known as Venture America as more particularly set
forth in Exhibit A attached hereto.
3. Compensation.
(a) Compensation Plan. As compensation for the Executive's services under
this Agreement, Executive shall be entitled to receive during his employment the
base salary, bonuses and fringe benefits in accordance with this section 3 and
in accordance with the compensation plan fixed for each fiscal year of the
Company, commencing with the fiscal year beginning September 26, 1993. The
compensation plan for each fiscal year shall be established by the Company,
reduced to writing and signed by the Executive and a director of Telecom, other
than Executive.
(b) Base Salary. For all services rendered by the Executive under this
Agreement, the Company shall pay the Executive such base compensation as shall
be established by the Company from time to time. Executive's base compensation
shall be fixed at the beginning of each fiscal year and shall be payable to
Executive by SSE Tech or Telecom in accordance with the practice adopted by SSE
Tech or Telecom for
<PAGE> 2
payment of wages to its employees. For the fiscal year beginning September 26,
1993, the Executive's base compensation shall be $130,000.00 per annum, and
shall be paid to Executive retroactive to January 1, 1994.
(c) Bonuses. Bonus compensation shall be payable in cash and/or stock
options in accordance with a bonus compensation plan, if any, put into effect by
Telecom's Board of Directors at the beginning of each fiscal year. The bonus
compensation plan will be administered by a committee appointed by Telecom's
Board of Directors. For the fiscal year beginning September 26, 1993, the
Executive shall have the opportunity to earn as bonus compensation an amount up
to thirty percent (30%) of base salary upon the Company's achieving certain
pre-established goals. The preestablished goals will be mutually determined by
Telecom and Executive, and are subject to the approval of the Compensation
Committee of Telecom's Board of Directors.
(d) Executive shall, prior to the end of fiscal year 1994, be granted stock
options for up to an aggregate of fifty thousand (50,000) shares of the common
stock of Telecom under Telecom's 1992 Stock Option Plan.
(e) Fringe Benefits. SSE Tech has adopted policies in respect to fringe
benefits for employees in the nature of health and life insurance, holidays,
vacation, sick leave policies and disability. A copy of SSE Tech's present
policies in respect to fringe benefits has been delivered by the Company to
Executive. SSE Tech may from time to time amend its present policies and adopt
other fringe benefits to be generally available to all employees. SSE Tech
covenants and agrees that Executive shall be entitled to participate in any such
fringe benefit policies adopted by SSE Tech to the same extent that such fringe
benefits shall be available to and for the benefit of senior executive level
employees.
4. Additional Benefits Upon Sale of Business.
(a) Subject to the provisions of this Section 4, in the event of the Sale
of Business (as hereinafter defined), Executive will be entitled to the further
benefits provided under this Section 4. As used herein, "Sale of Business" shall
mean the sale of all or substantially all of the assets of the Company as a
going concern to a single purchaser or to a group of associated purchasers, the
sale of all or substantially all of the outstanding stock of the Company or the
sale of all or substantially all of the outstanding stock of SSE Telecom, Inc.,
or any similar transaction, as a result of which at least eighty percent (80%)
voting control the Company becomes vested in persons other than those presently
having such voting control. In the case of a transfer of SSE Telecom stock, for
the following provisions to be applicable, the transaction must be one in which
the Board of Directors of SSE Telecom and a majority of its shareholders have
voted in favor of the proposed transaction.
(b) In the event of the Sale of Business, Executive will be entitled to the
following:
(i) all outstanding options held by Executive to acquire SSE Telecom
stock shall be deemed vested so that the economic value thereof will be
recognized by the Executive. If the options cannot themselves be vested so
as to be exercisable by the Executive, the Executive will be entitled to
receive a bonus award (the "Option Bonus") equal to the difference between
the option exercise price and the "value of a share" (as hereinafter
defined). The "value of a share" means the value of the consideration which
will be received in respect to each share (outstanding or exercisable by
option or warrant) of SSE Telecom as a result of the Sale of Business. For
example, if the value of a share is $10.00 and the Executive could not be
given vested rights in respect to the exercise of 50,000 shares at $7.00
per share, then the Executive would be entitled to receive an amount equal
to $3.00 times the said 50,000 shares.
(ii) In addition to and separate from the provisions of (i) above,
Executive will be entitled to an additional bonus award (the "Result
Bonus") based on the following formula. If the value of the consideration
received in respect to each and every outstanding share and all related
warrants and options of SSE Telecom equals an amount set forth in column II
below, Executive will be entitled to receive the
2
<PAGE> 3
corresponding bonus amount set forth in column I below, where X and Y are
defined as hereafter provided:
<TABLE>
<CAPTION>
I II
BONUS AMOUNT TARGET VALUE
- ----------------------------------- ----------------------------------
<S> <C> <C> <C>
- 0 - Less than 120% of Y
20% of X More than 120% of Y
40% of X More than 140% of Y
80% of X More than 180% of Y
100% of X More than 200% of Y
</TABLE>
X is the Executive's base annual compensation for the fiscal year ended
immediately prior to the year in which the Sale of Business occurs. At the date
of this Agreement Y shall be the agreed amount of $8.00, and commencing January
15, 1995 and each January 15th thereafter during the continuance of Executive's
employment under this Agreement, Y shall be the sum computed by the average
closing price for the Company's common stock as reported in NASDAQ for the
months of November and December prior to each such January 15th, but in no event
shall Y be adjusted to an amount less than Eight Dollars ($8.00).
(c) Executive shall be entitled to the Option Bonus and the Result Bonus if
the Sale of Business occurs while Executive's employment is continuing under
this Agreement and if Executive agrees, if requested so to do by the acquiring
company, to continue in the employment of the Company, or the employment of the
acquiring company for a period of up to twelve (12) months. If Executive is not
requested to remain in the continued employment of the Company, or in the
employment of the acquiring company after the Sale of Business, or if Executive
has been terminated without cause by the Company pursuant to Section 7(b) of
this Agreement during a six (6) month period prior to a Sale of Business,
Executive shall be entitled to receive the Option Bonus and the Result Bonus if
the negotiations which led to the Sale of Business were authorized by the Board
of Directors of SSE Telecom and commenced while Executive was employed under
this Agreement. If as a result of Sale of Business Executive is not to continue
in the employment of the Company or in the employment of the acquiring company,
the Result Bonus and the Option Bonus shall be payable in cash at the effective
date of the Sale of Business. If Executive is to continue in the employment of
the Company or in the employment of the acquiring company after the Sale of
Business and the obligation for payment of the Option Bonus and the Result Bonus
is acknowledged and affirmed by the acquiring company, then such amounts shall
be payable to Executive in twelve (12) equal monthly installments commencing as
of the effective date of the Sale of Business.
5. Confidentiality. Executive will not, during the term of this Agreement,
or at any time thereafter, divulge, furnish or make accessible to anyone other
than the Company, its directors and officers, unless otherwise in the regular
course of the business of the Company, its affiliates or subsidiaries, any
knowledge or information with respect to (i) confidential or secret documents,
processes, plans, models, sales data, contracts, financial costs, formulae,
devises, business opportunities or any other material relating to the business
and activities of the Company, the Company's parent or any other subsidiary or
affiliated companies, or (ii) any other confidential or secret aspect of the
business of the Company, including without limitation any lists or other
information with respect to any clients or customers of the Company, the
Company's parent company or any other subsidiary or affiliated companies. In the
event of a breach or threatened breach by the Executive of the provisions of
this section, the Company shall be entitled to an injunction restraining the
Executive from disclosing, in whole or in part, any knowledge or information
pertaining to the Company, or from rendering any services to any person, firm,
corporation, association or other entity to whom such information, in whole or
in part, has been disclosed or has threatened to be disclosed. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedies
available to the Company for such breach or threatened breach, including the
recovery of damages from the Executive.
6. Expenses. The Executive may incur reasonable expenses in connection
with promoting and operating the Company's business, including expenses for
entertainment, travel and similar items. If Executive has complied with the
Company policy regarding business expenses, the Company will reimburse the
Executive
3
<PAGE> 4
for all such expenses upon the Executive's periodic presentation of an itemized
account of such expenditures. However, in no event shall said Executive's
business expenses exceed the Company's policy without the prior approval of the
Board of Directors.
7. Termination of Employment.
(a) Termination With Cause. The Company may terminate this Agreement
without any further compensation to Executive beyond the date of termination for
willful or gross misconduct in performance of duties, dishonesty, fraud, theft,
embezzlement or other criminal act.
(b) Termination Without Cause.
(i) Without cause, the Company may terminate this Agreement at any
time upon thirty (30) days' written notice to Executive. In such event, the
Executive, if requested by the Company, shall continue to render his
services and shall be paid his regular compensation up to the date of
termination and, in addition, the Company shall continue to pay to
Executive as severance pay his then base compensation and fringe benefits
for a period of six (6) months from the date of termination (less all
amounts required to be withheld and deducted).
(ii) Without cause, the Executive may terminate this Agreement upon
thirty (30) days written notice to the Company. In such event, Executive
shall continue to render his services and shall be paid his regular
compensation up to the date of termination, but no severance allowance
shall be paid to him. Bonus compensation that has been earned by the
Executive through the date of his termination shall be paid to Executive.
(c) Termination Upon Sale of Business. If the Executive's employment is
terminated by the Company as a condition to the Sale of Business, the
Executive's base salary, medical benefits and bonus compensation plan will
continue for a period of twelve (12) months from the effective date of the Sale
of Business. However, if the Executive is offered continuing employment by the
Company or by the acquiring company, this twelve (12) month period will be
reduced by each month of such continued employment.
(d) Death During Employment. If the Executive dies during the term of
employment, the Company shall pay to the estate of the Executive the
compensation which would otherwise be payable to the Executive through the end
of the month in which his death occurs, including payments for accrued vacation
and accrued bonus.
8. Restrictive Covenants. For a period of two (2) years after the
termination of Executive's employment, and without regard to the reason for such
termination, the Executive will not, directly or indirectly, own, manage,
operate, control, be employed by, participate in, or be connected in any manner
with ownership, management, operation or control of any business, similar to the
type of business conducted by the Company at the time of the termination of this
Agreement. In the event of the Executive's actual or threatened breach of the
provisions of this section, the Company shall be entitled to an injunction
restraining the Executive therefrom. Nothing shall be construed as prohibiting
the Company from pursuing any other available remedies for such breach or
threatened breach, including the recovery of damages from the Executive.
Notwithstanding the provisions of this section, the provisions set forth in
section 5 of this Agreement shall continue to be effective and enforceable as
stated therein.
9. Disputes. In the event of any litigation between the Company and the
Executive arising out of this Agreement, and the rights and obligations of the
parties hereunder, the prevailing party shall be entitled to recover his or its
reasonable attorney's fees and court costs.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be deemed sufficient if in writing, and sent by registered or
certified mail to his residence, in the case of the Executive or to its
principal office, in the case of the Company.
11. Joint and Several. Telecom and SSE Tech agree that all obligations
under this Agreement for the payment of compensation to Executive shall be the
joint and several liability of Telecom and SSE Tech, but
4
<PAGE> 5
payment of amounts due Executive may be allocated among Telecom or SSE Tech, in
such manner as the companies deem appropriate.
12. Waiver of Breach. The failure of either party to insist in any one or
more instances upon performance of any terms or conditions of this Agreement
shall not be construed as a waiver of future performance of any such term,
covenant, or condition, but the obligations of either party with respect thereto
shall continue in full force and effect.
13. Assignment. Executive acknowledges that said services to be rendered
by him are unique and personal. Accordingly, the Executive may not assign any of
his rights or delegate any of his duties or obligations under this Agreement.
The rights and obligations of the Company under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
Company.
14. Entire Agreement. This Agreement supersedes all previous agreements
between the Company and Executive and contains the entire understanding and
agreement between the parties with respect to the subject matter hereof, and
cannot be amended, modified or supplemented in any respect except by a
subsequent written agreement entered into by both parties.
15. Applicable Law. The validity, enforceability and interpretation of
this Agreement shall be determined and governed by the laws of the State of
Virginia.
16. Number of Agreements. This Agreement may be executed in any number of
counterparts, any one of which may be deemed original.
17. Severability. If any of the provisions of this Agreement are held to
be invalid or unenforceable, all other provisions hereof shall nevertheless
continue in full force and effect.
18. Pronouns. The use of any word in any gender shall be deemed to include
any other gender and the use of any word in the singular shall be deemed to
include the plural where the context requires.
19. Headings. The section headings used in this Agreement are for
convenience only and are not to be controlling with respect to the contents
thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
<TABLE>
<S> <C>
COMPANY:
SSE TECHNOLOGIES INC.
By:
-------------------------------------------
Frederick C. Toombs, President
- ------------------------ SSE TELECOM, INC.
Date
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C>
- ------------------------ By:
Date -----------------------------------------------
Frederick C. Toombs, President
EXECUTIVE:
- ------------------------ -----------------------------------------------
Date Daniel E. Moore
1629 Wrightson Drive
McLean, VA 22101
</TABLE>
6
<PAGE> 1
FOURTH AMENDMENT
This Fourth Amendment to Lease ("Amendment") is entered into as of January
5, 1996 by and between WARM SPRINGS ASSOCIATES II, a California General
Partnership, herein referred to as "Landlord" and SSE Technologies, Inc., a
Delaware Corporation, herein referred to as "Tenant."
RECITALS
WHEREAS, Landlord and Tenant entered into a Net Least Agreement dated
February 19, 1991, and further modified by First Amendment to Lease dated March
21, 1991, and further modified by Second Amendment to Lease dated March 28,
1991, and again further modified by Third Amendment to Lease dated August 7,
1995, hereinafter referred to as the "Lease," for the premises commonly known as
47823 Westinghouse Drive, Fremont, California, more fully described in the
Lease.
AGREEMENT
LANDLORD AND TENANT, being parties to the Lease referenced in the Recitals,
hereby express their mutual desire and intent to extend the lease term for the
spaces occupied by SSE, known as 47823 and 47835 Westinghouse Drive, and amend
by this writing those terms, covenants and conditions as hereinafter provided.
1. The Lease term will be extended for five (5) years. The termination date
will be June 30, 2001.
2. Rent for the extended term shall be:
<TABLE>
<S> <C> <C>
year 1 07/01/96 - 06/30/97 $22,008.00/month
year 2 07/01/97 - 06/30/98 $22,685.00/month
year 3 07/01/98 - 06/30/99 $23,363.00/month
year 4 07/01/99 - 06/30/00 $24,040.00/month
year 5 07/01/00 - 06/30/01 $24,717.00/month
</TABLE>
3. The current Security Deposit of $21,000.00 shall be increased to
$23,000.00, payable upon execution of this Amendment.
4. Any Tenant Improvements to be installed, along with the general
contractor used to perform the installation, shall be mutually
acceptable to Tenant and Landlord. All Tenant Improvements are to be
paid for by Tenant. Tenant shall notify Landlord of its intent to
install Tenant Improvements not less than seven (7) days prior to
commencement of construction so that Landlord may post a Notice of
Non-responsibility. Any Tenant Improvement shall maintain the existing
three-tenant layout of the building.
5. Landlord hereby acknowledges and consents to Tenant subleasing from
Boehringer Mannheim Corporation approximately 3,950 square feet at the
northeast corner of 47829 Westinghouse Drive.
6. Landlord shall, at Landlord's sole expense, install a 3'0" wide concrete
sidewalk from the northerly front exit of 47829 Westinghouse Drive to
the southerly front exit of same.
7. Effective May 5, 1999 the following provisions shall apply:
a) The premises shall include the approximately 17,644 square foot
middle space, known as 47829 Westinghouse Drive, the "Additional
Space."
b) The additional rent for the Additional Space shall be as follows:
<TABLE>
<S> <C>
05/05/99 - 06/30/99 $ 12,174.00/month
07/01/99 - 06/30/00 $ 12,527.00/month
07/01/00 - 06/30/01 $ 12,880.00/month
</TABLE>
c) The Tenant's share of Common Area Expenses shall be 100%, effective
5/5/99.
d) The lease term for the Additional Space shall terminate June 30,
2001.
<PAGE> 2
e) The Tenant's right to parking shall include all of the parking
spaces.
f) The Security Deposit shall increase to $35,000.00, payable May 5,
1999.
g) Tenant shall accept Additional Space in "as-is" condition.
h) Paragraph 4 of this amendment shall also apply to the Additional
Space.
i) The Lease for the Additional Space shall not be effective if
Boehringer Mannheim Corporation fails to execute a Lease extension
for the space for the period of May 5, 1996 through May 4, 1999.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants and conditions of
said Lease remain in full force and effect and unmodified.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Third Amendment
to Lease as of the day and year set forth below.
<TABLE>
<S> <C>
LANDLORD TENANT
WARM SPRINGS ASSOCIATES II, SSE TECHNOLOGIES, INC.,
a California General Partnership a Delaware Corporation
By
----------------------------------------- By
-----------------------------------------
Its President
Its General Partner
- -------------------------------------------- --------------------------------------------
Date: Date: Jan. 23, 1996
- -------------------------------------------- --------------------------------------------
</TABLE>
<PAGE> 1
SUBLEASE
1. PARTIES
This Sublease is entered into this 18th day of July, 1997 by and between
Phylon Communications, Inc., a California corporation, Sublessor, and SSE
Telecom, Inc., a Delaware Corporation, Sublessee, as a Sublease under the Master
Lease dated April 23, 1996 entered into by SCI Limited Partnership I, a Delaware
Limited Partnership, as Lessor, and Sublessor under this Sublease as Lessee; a
copy of the Master Lease is attached hereto as Exhibit "A".
2. PREMISES
Sublessor leases to Sublessee and Sublessee hires from Sublessor the
following described Premises together with the appurtenances, situated in the
City of Fremont, County of Alameda, State of California, commonly known and
described as 47436 Fremont Blvd., Suite A, Fremont, California, consisting of
approximately 11,000 sq. ft. as shown on Exhibit "B".
3. TERM
(a) The term of this Sublease shall be for a period of twelve (12) months,
commencing on the 1st day of August, 1997, and ending on the 31st day of July,
1998. This rental amount includes the payment of taxes and operating expenses
per the Master Lease Agreement. Sublessor and Sublessee can extend the term of
this sublease on a month-to-month basis with notice from Sublessee prior to May
31, 1998. The extension approval shall be in Sublessor's sole discretion.
4. RENTAL
Sublessee shall pay to Sublessor as rental the sum of Eleven Thousand Two
Hundred Twenty and No/100 Dollars ($11,220.00) per month in advance on the 1st
day of each month in lawful money of the United States of America, commencing on
the 1st day of August 1997.
5. POSSESSION
Sublessor shall deliver the Premises in a secure, clean and good working
condition. Notwithstanding said commencement date, if for any reason Sublessor
cannot deliver possession of the Premises to Sublessee on said date, Sublessor
shall not be subject to any liability therefore, nor shall such failure affect
the validity of this Lease of the obligations of Sublessee hereunder or extend
the term hereof, but in such case Sublessee shall not be obligated to pay rent
until possession of the Premises is tendered to Sublessee; provided, however
that if Sublessor shall not have delivered possession of the Premises with sixty
(60) days from said commencement date, Sublessee may, at Sublessee's option, by
notice in writing to Sublessor within ten (10) days thereafter, cancel this
Sublease, in which event the parties shall be discharged from all obligations
thereunder. If Sublessee occupies the Premises prior to said commencement date,
such occupancy shall be subject to all provisions hereof, such occupancy shall
not advance the termination date and Sublessee shall pay rent for such period at
the initial monthly rates set forth above.
6. SECURITY DEPOSIT
Sublessee shall deposit the Sublessor upon the execution hereof $11,000.00
as security for Sublessee's faithful performance of Sublessee's obligation
hereunder. If Sublessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Sublease, Sublessor may
use, apply or retain all or any portion of said deposit for the payment of any
rent or other charge in default or for the payment of any other sum to which
Sublessor may become obligated by reason of Sublessee's default, or to
compensate Sublessor for any loss or damage which Sublessor may suffer thereby.
Page 1 of 2
<PAGE> 2
If Sublessee performs all of Sublessee's obligations hereunder, said
deposit, or so much thereof as has not heretofore been applied by Sublessor,
shall be returned, without payment of interest or other increment for its use to
Sublessee at the expiration of the term hereof, and after Sublessee has vacated
the premises.
7. USE
Sublessee shall use the premises for general office, administration and
assembly of electronic components.
8. PROVISIONS CONSTITUTING SUBLEASE
a. This Sublease is subject to all of the terms and conditions of the
Master Lease in Exhibit "A" and Sublessee shall assume and perform the
obligations of the Lessee in said Master Lease, to the extent said terms and
conditions are applicable to the Premises subleased pursuant to this Sublease.
Subleasee shall not commit or permit to be committed on the Premises any act or
omission which shall violate any term or condition of the Master Lease. In the
event of termination of Sublessor's interest as Lessee under the Master Lease
for any reason, then this Sublease shall terminate coincidentally therewith
without any liability of Sublessor to Sublessee.
b. All of the terms and conditions contained in the Master Lease are
incorporated herein except for paragraphs 6, 8, 36, Addendums 1-6 as terms and
conditions of this Sublease (with each reference therein to Lessor and Lessee to
be deemed to refer to Sublessor and Sublessee) and along with all of the
following paragraphs set out in this Sublease, shall be the complete terms and
conditions of this Sublease.
c. Sublessor shall provide copies of the electrical bills on a monthly
basis and Sublessee shall reimburse Sublessor for its estimated share within ten
(10) days.
d. Sublessor shall provide a secure environment and provide Sublessee use
of the restroom core. Sublessee shall grant access to the phone room upon
request from Sublessor.
e. Sublessee shall deliver the Premises to Sublessor in a clean and good
working condition upon termination of sublease, less normal wear and tear.
f. Sublessee shall maintain the HVAC on a quarterly basis as per Exhibit
"C".
9. ASSIGNMENT OF SUBLEASE
Sublessee shall not assign this Sublease or any interest therein nor sublet
the demised premises or any part thereof or any right or privilege appurtenant
thereto nor permit the occupancy or use of any part thereof by any person
without the written consent of Sublessor first had and obtained. Any assignment,
further subletting, occupancy or use without the prior written consent of the
Sublessor shall at the option of the Sublessor terminate this Sublease.
10. Upon execution of this Sublease, Sublessor shall pay Wayne Mascia
Associates, a licensed real estate broker, fees set forth in a separate
agreement between Sublessor and Broker.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease in duplicate.
DATED: DATED:
- --------------------------------------- --------------------------------------
- --------------------------------------- --------------------------------------
Sublessor Sublessee
- -------------------------------------- --------------------------------------
Sublessor Sublessee
PHYLON COMMUNICATIONS, INC. SSE TELECOM, INC.
CONSENT TO SUBLEASE
Without releasing Lessee in the Master Lease from obligations hereunder,
the undersigned hereby consents to the foregoing Sublease provided that this
consent shall not be construed as a consent to any further subletting.
DATED:
- ------------------------------- --------------------------------------
Lessor under the Master Lease
Page 2 of 2
<PAGE> 3
<PAGE> 1
LEASE
BY AND BETWEEN
5025 EAST WASHINGTON ASSOCIATES
LIMITED PARTNERSHIP
"LANDLORD"
AND
SSE TELECOM, INC.
"TENANT"
LOCATED AT
5025 EAST WASHINGTON,
PHOENIX, ARIZONA
SEPTEMBER 23, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
LEASE OF PREMISES....................................................................... 1
Base Year............................................................................. 1
Commencement Date..................................................................... 1
Common Areas.......................................................................... 1
Default Interest...................................................................... 1
Expiration Date....................................................................... 1
Index................................................................................. 1
Tenant's Mailing Address.............................................................. 1
Landlord's Mailing Address............................................................ 1
Project............................................................................... 1
Rentable Area......................................................................... 1
Security Deposit...................................................................... 1
State................................................................................. 1
Term.................................................................................. 1
DELIVERY OF POSSESSION.................................................................. 1
RENT.................................................................................... 1
ADDITIONAL RENT: OPERATING EXPENSE ADJUSTMENT........................................... 1
Comparison Year....................................................................... 1
Direct Expenses....................................................................... 1
Tenant's Share of the Direct Expenses................................................. 1
The Excess............................................................................ 1
INTEREST AND LATE CHARGES............................................................... 2
SECURITY DEPOSIT........................................................................ 2
USE OF PREMISES BY TENANT............................................................... 2
PARKING................................................................................. 3
SERVICES AND UTILITIES.................................................................. 3
TAXES PAYABLE BY TENANT................................................................. 3
CONDITION OF THE PREMISES............................................................... 4
REPAIRS AND MAINTENANCE................................................................. 4
FIRE OR CASUALTY........................................................................ 4
ALTERATIONS AND ADDITIONS............................................................... 5
LEASEHOLD IMPROVEMENTS, TENANT'S PROPERTY............................................... 5
HAZARDOUS MATERIALS..................................................................... 5
Hazardous Materials Laws.............................................................. 5
Hazardous Materials................................................................... 5
RULES AND REGULATIONS................................................................... 6
CERTAIN RIGHTS RESERVED TO THE LANDLORD................................................. 6
ASSIGNMENT AND SUBLETTING............................................................... 7
HOLDING OVER............................................................................ 8
SURRENDER OF PREMISES................................................................... 8
EMINENT DOMAIN.......................................................................... 8
INDEMNIFICATION......................................................................... 8
TENANT'S INSURANCE...................................................................... 9
LANDLORD'S INSURANCE.................................................................... 9
WAIVER OF SUBROGATION................................................................... 9
WAIVER.................................................................................. 10
SUBORDINATION AND ATTORNMENT............................................................ 10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ESTOPPEL CERTIFICATE BY TENANT.......................................................... 10
TRANSFER OF LANDLORD'S INTEREST......................................................... 10
DEFAULT; INSOLVENCY..................................................................... 10
Default............................................................................... 10
Insolvency............................................................................ 11
INABILITY TO PERFORM.................................................................... 11
BROKERAGE FEES.......................................................................... 11
NOTICES................................................................................. 11
GOVERNMENT ENERGY OR UTILITY CONTROLS................................................... 11
QUIET ENJOYMENT......................................................................... 11
MISCELLANEOUS........................................................................... 11
Attorneys' Fees....................................................................... 11
Severability.......................................................................... 11
Successors and Assigns................................................................ 11
Choice of Law......................................................................... 11
Prior Agreement; Amendments........................................................... 12
Captions, Articles and Section Numbers................................................ 12
Recording............................................................................. 12
Consent............................................................................... 12
Counterparts.......................................................................... 12
Furnishing of Financial Statements; Tenant's Representations.......................... 12
Accord and Satisfaction............................................................... 12
Execution of Lease; No Option......................................................... 12
Corporate Authority................................................................... 12
Changes Requested by Lender........................................................... 12
Further Assurances.................................................................... 12
Mortgage Protection................................................................... 12
Time is of the Essence................................................................ 12
Light or Air.......................................................................... 12
Exhibits.............................................................................. 12
Landlord's Liability.................................................................. 12
RENEWAL OPTION.......................................................................... 12
RIGHT OF REFUSAL........................................................................ 12
</TABLE>
<PAGE> 4
This Lease, dated September 23, 1997, is made by and between 5025 EAST
WASHINGTON ASSOCIATES LIMITED PARTNERSHIP ("Landlord") and SSE TELECOM, INC., a
Delaware Corporation ("Tenant").
1. Lease of Premises. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord that certain office space, known as Suite 200, (the
"Premises"), as shown on Exhibit "D", located on the 2nd floor, 5025 East
Washington, Arizona (the "Building").
2. Definitions. The following definitions shall apply:
a. Base Year: The calendar year starting 1998.
b. Commencement Date: November 1, 1997.
c. Common Areas: All portions of the building and associated
facilities walkways and hallways, restrooms, parking areas, stairways,
elevators, courtyards, landscaped areas and other areas designated for use
in common by the public and tenants of the Building.
d. Default Interest: The prime rate of interest announced by the Bank
of America plus three percent, adjusted as and when said prime rate is
adjusted.
e. Expiration Date: October 31, 2000.
f. Index: The Metropolitan Phoenix Consumer Price Index compiled by
the Bureau of Business and Economic Research, College of Business
Administration, Arizona State University (1982-84 = 100) or, if said Index
should be discontinued or modified, such substitute Index as Landlord, in
the exercise of its sole discretion, shall select.
g. Tenant's Mailing Address:
47823 Westinghouse Drive
Fremont, CA 94539
Attn: Russ Kinsch
h. Landlord's Mailing Address:
Stanfield-Pinel Associates, Inc.
P.O. Box 63003
Phoenix, Arizona 85082-3003
i. Project: The Building, the real property described on Exhibit "A"
(the "Real Property") and all other buildings or improvements now or
hereafter constructed on the Real Property.
j. Rentable Area: For the purpose of all calculations under this
lease, the Rentable Area of the Premises shall be conclusively deemed to be
7000 square feet, regardless of whether the actual area is greater or less
than this amount.
k. Security Deposit: $10,000.00
l. State: The State of Arizona.
m. Term: The period commencing on the Commencement Date and expiring
at midnight on the Expiration Date, or on such other date as this Lease may
be terminated in accordance with its terms.
3. Delivery of Possession: Landlord shall endeavor to deliver possession
of the Premises to Tenant on the Commencement Date, but if for any reason
Landlord does not deliver possession of the Premises to Tenant on the
Commencement Date, Landlord shall not be subject to any liability for such
failure, the Expiration Date shall not change, the validity of this Lease shall
not be impaired, and rent shall be abated until delivery of possession. If
Landlord permits Tenant to enter into possession of the Premises before the
Commencement Date, the Commencement Date shall be advanced to the date Tenant
takes possession. Notwithstanding the foregoing, if Landlord fails to deliver
possession within 15 days after the Commencement Date, Tenant, as its sole
remedy, may elect to terminate this Lease by written notice to Landlord, and
upon such termination both Landlord and Tenant shall be released of all
liability and obligation hereunder.
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4. Rent. Tenant shall pay to Landlord, without deduction, offset, notice
or demand, a Base Rent of EIGHT THOUSAND SEVEN HUNDRED FIFTY United States
Dollars ($8,750.00) per month during the first Lease year, a Base Rent of NINE
THOUSAND THREE HUNDRED THIRTY THREE United States Dollars ($9,333.00) per month
during the second Lease year, and a Base Rent of NINE THOUSAND NINE HUNDRED
SEVENTEEN United States Dollars ($9,917.00) per month during the last Lease
year, in advance on the first day of each calendar month, at P.O. Box 63003,
Phoenix, Arizona 85082-3003 or at such other place as Landlord may designate
from time to time in writing; beginning on November 1, 1997 provided, however,
that Tenant shall pay upon the execution of this Lease the Base Rent for the
first full calendar month and for the fractional month, if any, preceding the
first full calendar month. The Base Rent payable for any fractional month at the
beginning or end of the Term shall be pro-rated,
5. Additional Rent: Operating Expense Adjustment.
a. For the purpose of this Article, the following definitions shall apply:
Comparison Year. Each successive 12 month period after the Base Year.
Direct Expenses. All direct costs of operation and maintenance of the
Building and associated improvements, including parking and other Common
Areas, as determined by standard accounting practices, including without
limitation: real property taxes and assessments; water and sewer charges;
insurance premiums; utilities; security; janitorial services; trash
removal; costs incurred in the management of the Building and associated
Real Property, if any, including administrative overhead and property
management fees (said management fees not to exceed 5% of gross rental
income); air conditioning and heating; elevator maintenance; supplies;
materials; equipment and tools; plumbing and electrical systems; paving,
re-paving and re-striping; and costs of maintenance, repair and replacement
of all structures, improvements, facilities, equipment and systems. "Direct
Expenses" shall not include depreciation on the Building or equipment
therein, loan payments, executive salaries or real estate brokers'
commissions.
Tenant's Share of the Direct Expenses. 19.42% of the Direct Expenses
for a Base or Comparison Year, representing the percentage of the total
rentable area of the Building contained within the Premises.
The Excess. The amount by which Tenant's share of actual or estimated
Direct Expenses exceeds the Base Year Direct Expenses.
b. All payments required by this Article shall constitute additional rent.
c. Landlord shall endeavor to give to Tenant on or before the first day of
the third month following the end of the Base Year and of each Comparison Year a
statement (the "Statement") of:
i. The Direct Expenses for the preceding Base or Comparison Year;
ii. An estimate of the Direct Expenses for the current Comparison
Year;
iii. Either (1) the amount due from Tenant for Tenant's Share of the
actual Direct Expenses for the preceding year over the Base Year Direct
Expenses or, (2) if the payments by Tenant for the preceding year were in
excess of Tenant's Share of actual Direct Expenses over the Base Year
Direct Expenses, a statement of the refund due from Landlord to Tenant as
hereinafter provided.
Failure by Landlord to give the Statement by said date shall not constitute
a waiver by Landlord of any of its rights under this Article.
d. On the first day of each calendar month commencing on or after receipt
of the Statement, and continuing until revised in the next annual Statement,
Tenant shall pay to Landlord an amount equal to one-twelfth of the Landlord's
estimate of the Excess for the then current Comparison Year as set forth in the
Statement. In addition, on the first day of the first calendar month commencing
on or after receipt of the Statement, Tenant shall pay to Landlord: (i) the
Excess for the prior year (as reduced by all payments made by Tenant on account
of the estimated Excess for that prior year) plus (ii) one-twelfth of the
Landlord's estimate of the Excess for the then current Comparison Year times the
number of months in the current
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Comparison Year which commenced prior to receipt of the Statement, less all
payments previously made by Tenant on account of the Excess for the current
Comparison Year. If the actual Excess payable by Tenant for any Comparison Year
as shown on a Statement is less than the payments made by Tenant on account of
the estimated Excess for that Comparison Year, the overpayment by Tenant shall,
so long as Tenant is not then in default and Landlord has no claim against
Tenant for any prior default, be credited towards the next monthly Base Rent
falling due. In no event, however, shall Tenant be entitled to a refund of the
amount, if any, by which the Base Year Direct Expenses exceeds Tenant's Share of
actual Direct Expenses.
e. If the Lease expires on other than the last day of a Comparison Year,
the amount of the Excess payable by Tenant for that year shall be prorated.
f. Even though the Term has expired or the Lease terminated and Tenant has
vacated the Premises, when the final determination is made of the Excess for the
Year in which this Lease terminates or for the preceding year, Tenant shall
immediately pay any unpaid portion of the Excess, and conversely, so long as
Tenant is not then in default and Landlord has no claim against Tenant for any
prior default, any overpayment shall be refunded by Landlord to Tenant.
g. The annual Statement shall be prepared in accordance with generally
accepted accounting practices, shall be certified by Landlord, and shall be
final and conclusive on both parties.
6. Interest and Late Charges. Tenant acknowledges that the late payment of
any installment of Base Rent or additional rent will cause Landlord to lose the
use of that money and incur costs and expenses not contemplated under this
Lease, including without limitation, administrative and collection costs and
processing and accounting expenses, the exact amount of which is extremely
difficult to ascertain. Therefore, if any installment of Base Rent or additional
rent is not received by Landlord within ten (10) days from the date it is due
and noticed, Tenant shall pay Landlord a late charge equal to ten percent (10%)
of such installment. Landlord and Tenant agree that this late charge represents
a reasonable estimate of such costs and expenses and is fair compensation to
Landlord for the loss suffered from such non-payment by Tenant. In addition, all
unpaid amounts shall bear interest beginning thirty days after they fall at the
Default Interest, but in no event higher than the maximum rate allowed by law.
Assessment or acceptance of any interest or late charge shall not constitute a
waiver of Tenant's default with respect to such nonpayment by Tenant nor prevent
Landlord from exercising any other rights or remedies available to Landlord
under this Lease.
7. Security Deposit. Upon execution of this Lease, Tenant agrees to
deposit with Landlord the Security Deposit in the amount set forth in Article
2.k, as security for Tenant's full and faithful performance of every provision
of this Lease. Landlord is not required to keep the Security Deposit separate
from its general funds, and Tenant is not entitled to interest on the deposit.
Tenant shall not mortgage, assign, transfer or encumber the Security Deposit
without the prior written consent of Landlord and any attempt by Tenant to do so
shall be void, without force or effect, and shall not be binding upon the
Landlord. If Tenant fully and faithfully performs every provision of this Lease
to be performed by it, the Security Deposit or any remaining balance thereof
shall be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) at the expiration of the Term and the surrender of
possession of the Premises to Landlord in accordance with Article 22.
8. Use of Premises by Tenant. Tenant shall continuously use and occupy the
Premises for Office and Research and for no other purpose whatsoever. Tenant
shall not use or occupy the Premises in violation of law or any covenant,
condition or restriction affecting the Building or Project or the certificate of
occupancy issued for the Building or Project, and shall, upon notice from
Landlord, immediately discontinue any use of the Premises which is declared by
any governmental authority having jurisdiction to be a violation of law or the
certificate of occupancy. Tenant, at Tenant's own cost and expense, shall comply
with all laws, ordinances, regulations, rules and/or any directions of any
governmental agencies or authorities having jurisdiction which shall, by reason
of the nature of Tenant's use or occupancy of the Premises, impose any duty upon
Tenant or Landlord with respect to the Premises or its use or occupation. A
judgment of any court of competent jurisdiction or the admission by Tenant in
any action or proceeding against Tenant that Tenant has violated any such laws,
ordinances, regulations, rules and/or directions in the use of the Premises
shall be deemed to be a conclusive determination of that fact as between
Landlord and Tenant. Tenant shall not do or permit to be
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done anything which will invalidate or increase the cost of any fire, extended
coverage or other insurance policy covering the Building or Project and/or
property located therein, and shall comply with all rules, orders, regulations,
requirements and recommendations of any insurer or any governmental agency
having jurisdiction over the insurance business. Tenant shall promptly upon
demand reimburse Landlord for any additional premium charges for such policy by
reason of Tenant's failure to comply with the provision of this Article. Tenant
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or hereunder) at the expiration of the Term and the
surrender of possession of the Premises to Landlord in accordance with Article
22.
8. Use of Premises by Tenant. Tenant shall continuously use and occupy the
Premises for Office and Research and for no other purpose whatsoever. Tenant
shall not use or occupy the Premises in violation of law or any covenant,
condition or restriction affecting the Building or Project or the certificate of
occupancy issued for the Building of Project, and shall, upon notice from
Landlord, immediately discontinue any use of the Premises which is declared by
any governmental authority having jurisdiction to be a violation of law or the
certificate of occupancy. Tenant, at Tenant's own cost and expense, shall comply
with all laws, ordinances, regulations, rules and/or any directions of any
governmental agencies or authorities having jurisdiction which shall, by reason
of the nature of Tenant's use or occupancy of the Premises, impose any duty upon
Tenant or Landlord with respect to the Premises or its use or occupation. A
judgment of any court of competent jurisdiction or the admission by Tenant in
any action or proceeding against Tenant that Tenant has violated any such laws,
ordinances, regulations, rules and/or directions in the use of the Premises
shall be deemed to be a conclusive determination of that fact as between
Landlord and Tenant. Tenant shall not do or permit to be done anything which
will invalidate or increase the cost of any fire, extended coverage or other
insurance policy covering the Building or Project and/or property located
therein, and shall comply with all rules, orders, regulations, requirements and
recommendations of any insurer or any governmental agency having jurisdiction
over the insurance business. Tenant shall promptly upon demand reimburse
Landlord for any additional premium charges for such policy by reason of
Tenant's failure to comply with the provision of this Article. Tenant shall not
do or permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or Project, or injure or annoy them, or use or allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises.
9. Parking. When not in default hereunder, Tenant shall be entitled, at no
additional cost or expense, to the exclusive use of seven designated covered
parking spaces at such locations as Landlord may from time to time select at the
Project.
10. Services and Utilities. Provided that Tenant is not in default
hereunder, Landlord agrees to furnish to the Premises during generally
recognized business days, and during hours determined by Landlord in its sole
discretion, and subject to the Rules and Regulations of the Building or Project,
electricity for normal desk top office equipment and normal copying equipment,
and heating, ventilation and air conditioning ("HVAC") as required in Landlord's
judgement for the comfortable use and occupancy of the premises. If Tenant
desires HVAC at any other time, Landlord shall use reasonable efforts to furnish
such service upon request from Tenant and Tenant shall pay Landlord's charges
therefor on demand. For pre-scheduled HVAC and electrical use in excess of fifty
hours per weekly period for the Premises, Tenant shall pay as additional monthly
rent an amount equivalent to the excess hourly usage times Thirty Two United
States Dollars ($32). For "on demand" supplemental HVAC use in excess of the
base 50 hours per week plus any pre-scheduled times, Tenant shall pay as
additional rent an amount equivalent to Two and 50/100 United States Dollars per
hour of usage per HVAC air handling unit. Landlord shall also maintain and keep
lighted the common stairs, common entries and rest-rooms in the Building.
Landlord shall not be in default hereunder or be liable for any damages directly
or indirectly resulting from, nor shall the rent be abated by reason of (a) the
installation, use or interruption of use of any equipment in connection with the
furnishing of any of the foregoing services (b) failure to furnish or delay in
furnishing any such services where such failure to delay is caused by accident
or any condition or event beyond the reasonable control of Landlord, or by the
making of necessary repairs or improvements to the Premises, Building or
Project. Landlord shall not be liable under any circumstances for a
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loss of or injury to property or business, however occurring, through or in
connection with or incidental to failure to furnish any such services. If Tenant
uses heat generating machines, electronic data processing equipment, or
equipment in the Premises which affect the temperature otherwise maintained by
the HVAC system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation, operation and maintenance thereof, shall be paid by Tenant to
Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any
apparatus or device in the Premises, including without limitation, electronic
data processing machines, photocopiers or machines using in excess of 220 volts,
which consume more electricity than is usually furnished or supplied for the use
of premises as general office space, as determined by the Landlord. Tenant shall
not consume water or electric current in excess of that usually furnished or
supplied for the use of Premises as general office space (as determined by
Landlord), without first procuring the written consent of Landlord, which
Landlord may refuse, and in the event of consent, Landlord may have installed a
water meter or electrical current meter in the Premises to measure the amount of
water or electric current consumed. The cost of any such meter and of its
installation, maintenance and repair shall be paid for by the Tenant and Tenant
agrees to pay to Landlord promptly upon demand, as additional rent, for all such
water and electric current consumed as shown by said meters, at the rates
charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to
require at any time separate metering of utilities furnished to the Premises. In
the event utilities are separately metered, Tenant shall pay promptly upon
demand for all utilities consumed at utility rates charged by the local public
utility plus any additional expense incurred by Landlord in keeping account of
the utilities so consumed. Tenant shall be responsible for the maintenance and
repair of any such meter at its sole cost.
Provided that Tenant is not in default hereunder, Landlord agrees to
furnish janitorial and cleaning services to the Premises at least five (5) days
per week, except recognized federal, state and local holidays. Tenant shall pay
to Landlord, within five (5) business days after receipt of Landlord's bill, the
reasonable costs incurred by Landlord for extra cleaning in the Premises
required because of (a) misuse or neglect on the part of Tenant, its employees
or invitees, (b) use of portions of the Premises for special purposes requiring
greater or more difficult cleaning work than office areas, (c) interior glass
partitions or unusual quantities of glass surfaces, (d) non-building standard
materials or finishes installed by Tenant, and (e) removal from the premises of
refuse and rubbish of Tenant in excess of that ordinarily accumulated in general
office occupancy or at times other than landlord's standard cleaning times.
11. Taxes Payable by Tenant. In addition to all other rents and any other
charges to be paid by Tenant hereunder, Tenant shall pay Landlord, as additional
rent, a sum equal to the aggregate of any municipal, city, county, state or
federal excise, sales, use or transaction privilege taxes now or hereafter
levied or imposed, directly or indirectly, against or on account of the amounts
payable hereunder or the receipts thereof by Landlord, which sum shall be paid
with each installment of rent or additional rent. Tenant also shall reimburse
Landlord upon demand for any and all taxes payable by Landlord (other than net
income taxes) which are not otherwise reimbursable under this Lease, whether or
not now customary or within the contemplation of the parties, where such taxes
are imposed upon, measured by or reasonably attributable to: (a) the cost or
value of Tenant's equipment, furniture, fixtures and other personal property
located in the Premises, or the cost or value of any leasehold improvements made
in or on the Premises by or for Tenant, other than Building Standard Work made
by Landlord, regardless of whether title to such improvements is held by Tenant
or Landlord; (b) the gross or net rent payable under this Lease, including,
without limitation, any rental or gross receipts tax levied by any taxing
authority with respect to the receipt of the rent hereunder; (c) the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion thereof; or (d) this
transaction or any document to which Tenant is a party creating or transferring
an interest or any estate in the Premises. If it becomes unlawful for Tenant to
reimburse Landlord for any costs as required under this Lease, the Base Rent
shall be revised to net Landlord the same net rent
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after imposition of any tax or other charge upon Landlord as would have been
payable to Landlord but for the reimbursement being unlawful.
12. Condition of the Premises. Tenant's taking of possession of the
Premises shall be deemed conclusive evidence that as of the date of taking
possession the Premises are in good order and satisfactory condition except for
such matters as to which Tenant gave Landlord notice or before the Commencement
Date. No promise of Landlord to alter, remodel, repair or improve the Premises,
the Building or the Project and no representation, express or implied respecting
any matter or thing relating to the Premises, Building, Project or this Lease
(including without limitation the condition of the Premises, the Building or the
Project) have been made to Tenant by Landlord or its broker or sales agent other
than as may be contained herein or in a separate exhibit or addendum signed by
Landlord and Tenant.
13. Repairs and Maintenance. Tenant shall, at Tenant's sole cost and
expense, keep the Premises and every part thereof in good condition and repair,
damage thereto from causes beyond the control of Tenant (and not caused by any
act or omission of Tenant's agents, officers, employees, contractors, servants,
invitees, licensees or guests) and ordinary wear and tear excepted. If Tenant
does not make such repairs, Landlord may make such repairs and replacements, and
Tenant shall pay Landlord the costs thereof upon receipt of a statement
therefor. Tenant shall, upon the expiration or sooner termination of this Lease,
surrender the Premises to Landlord in good condition, ordinary wear and tear and
damage from causes beyond the control of Tenant (and not caused by any act or
omission of Tenant's agents, officers, employees, contractors, servants,
licensees, invitees or guests) excepted. Except as specifically provided in an
addendum, if any, to this Lease, Landlord shall have no obligation whatsoever to
alter, remodel, improve, repair, decorate or paint the Premises or any part
thereof and the parties hereto affirm that Landlord has made no representations
to Tenant respecting the condition of the Premises or the Building except as
specifically herein set forth.
Notwithstanding the provisions hereinabove, Landlord shall repair and
maintain the structural portions of the Building, including the basic plumbing,
air conditioning, heating, and electrical systems installed or furnished by
Landlord, unless such maintenance or repairs are caused in part or in whole by
the act, neglect, fault or omission of any duty by the Tenant, its agents,
officers, employees, contractors, servants, licensees, invitees or guests, in
which case Tenant shall pay to Landlord the reasonable cost of such maintenance
or repairs. Landlord shall not be liable for any failure to make any such
repairs or to perform any maintenance for which Landlord is responsible as
provided above unless such failure shall persist for an unreasonable time after
the written notice of the need of such repairs or maintenance is given to
Landlord by Tenant and is due solely to causes within Landlord's reasonable
control. Actual notice shall not be a substitute for written notice hereunder.
In any event there shall be no liability of Landlord by reason of any injury to
or interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and equipment therein. Tenant waives the
right to make repairs at Landlord's expense under any law, statute or ordinance
now or hereafter in effect. Landlord may enter the Premises at all reasonable
times to make any repairs Landlord deems necessary or desirable or as Landlord
may be required to do by any governmental authority.
14. Fire or Casualty. In the event less than ten percent (10%) of the
Premises or the Building is damaged by fire or other perils covered by the
extended coverage insurance carried by Landlord for the Building, Landlord
agrees to repair the same with reasonable promptness and this Lease shall remain
in full force and effect, except that Tenant shall be entitled to a
proportionate reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon the extent to which the making of such
repairs shall materially interfere with the business carried on by the Tenant in
the Premises. If the damage is due to the fault or neglect of Tenant, or its
agents, officers, employees, contractors, servants, invitees, licensees or
guests, there shall be no reduction or abatement of rent.
In the event more than ten percent (10%) of the Premises is damaged by any
perils covered or not covered by the extended coverage insurance carried by
Landlord for the Building, Tenant shall have the right to give notice to
Landlord, at any time within 30 days after such damage, terminating this Lease
as of the date specified in such notice, which date shall be no less than 30 and
no more than 60 days after the giving of such notice. In the event of giving
such notice, this Lease shall expire and all interest of the Tenant in the
Premises
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shall terminate on the date so specified in such notice and the rent, reduced by
a proportionate amount based upon the extent, if any, to which such damage has
materially interfered with the business carried on by Tenant in the Premises,
shall be paid up to the date of such termination.
In the event the Premises or the Building is damaged as a result of any
cause other than the perils covered by the fire and extended coverage insurance
carried by Landlord on the Building, then Landlord shall forthwith repair the
same, provided the extent of the destruction be less than ten percent (10%) of
the then full replacement cost of the Premises or the Building, as applicable.
In the event the destruction of the Premises or the Building is to an extent
greater than ten percent of the full replacement cost thereof, then Landlord
shall have the option: (a) to repair or restore such damage, this Lease
continuing in full force and effect, but the rent to be proportionately reduced
as provided above; or (b) to give notice to Tenant at any time within 60 days
after such damage terminating this Lease as of the date specified in such
notice, which date shall be no less than 30 and no more than 60 days after the
giving of such notice. In the event of giving such notice, this Lease shall
expire and all interest of the Tenant in the Premises shall terminate on the
date so specified in such notice and the rent, reduced by a proportionate amount
based upon the extent, if any, to which such damage has materially interfered
with the business carried on by Tenant in the Premises, shall be paid up to the
date of such termination.
Notwithstanding anything to the contrary contained in this Article or any
other Articles, Landlord shall not have any obligation whatsoever to repair,
reconstruct, or restore the Premises when any damage thereto or to the Building
occurs during the last 12 months of the term of this Lease or any extension
thereof; provided, however, that Landlord shall not be relieved of the
obligation to perform such routine maintenance as is provided elsewhere in this
Lease. Landlord shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements, of any panels, decoration,
office fixtures, furniture, railings, floor coverings, partitions, or any other
property installed or placed in the Premises by Tenant.
Tenant shall not be entitled to any compensation or damages from Landlord
for loss of the use of the whole or any part of the Premises, for damage to or
loss of any of Tenant's fixtures or personal property, or for any damage to
Tenant's business, or any inconvenience or annoyance occasioned by such damage,
or by any repair, reconstruction or restoration by Landlord, or by any failure
of Landlord to make any repairs, reconstruction or restoration under this
Article or any other provision of this Lease.
With respect to damage which Landlord is obligated or elects to repair,
Tenant shall continue to be liable to pay rent and shall not be entitled to quit
and surrender possession of the Premises except as specifically provided in this
Article.
15. Alterations and Additions. Tenant shall not make any additions,
alterations or improvements to the Premises without Landlord's prior written
consent. All work with respect to any addition, alteration or improvement shall
be done in a good and workmanlike manner by properly qualified and licensed
personnel approved by Landlord, and such work shall be diligently prosecuted to
completion. Landlord may, at Landlord's option, require that any such work be
performed by Landlord's contractor, in which case the cost of such work shall be
paid for before commencement of the work. Tenant shall pay to Landlord upon
completion of any such work by Landlord's contractor, an administrative fee of
ten percent (10%) of the cost of the work.
Tenant shall pay the costs of any work done on the Premises pursuant to
this Article and shall keep the Premises, Building and Project free and clear of
liens of any kind. Tenant shall indemnify, defend against and keep Landlord free
and harmless from all liability, loss, damage, costs, attorney's fees and any
other expenses incurred on account of claims by any person performing work or
furnishing materials or supplies for Tenant or any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease, free
and clear of all attachment or judgment liens. Before the actual commencement of
any work for which a claim or lien may be filed, Tenant shall give Landlord
notice of the intended commencement date a sufficient time before that date to
enable Landlord to post notices of non-responsibility or any other notices which
Landlord deems necessary for the proper protection of Landlord's
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interest in the Premises, Building or the Project, and Landlord shall have the
right to enter the Premises and post such notices at any reasonable time.
Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a performance and payment bond in an amount equal
to at least one and one-half (1 1/2) times the total estimated cost of any
additions, alterations or improvements to be made in or to the Premises, to
protect Landlord against any liability for mechanics' and materialmen's liens
and to insure timely completion of the work. Nothing contained in this Article
shall relieve Tenant of its obligation under this Article to keep the Premises,
Building and Project free of all liens.
16. Leasehold Improvements, Tenant's Property. All fixtures, equipment,
improvements and appurtenances attached to or built into the Premises at the
commencement of or during the term, whether or not by or at the expense of
Tenant ("Leasehold Improvements"), shall be and remain a part of the Premises,
shall be the property of Landlord and shall not be removed by Tenant, except as
expressly provided in this Article or Article 22.
All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the Premises
and acquired by or for the account of Tenant, without expense to Landlord, which
can be removed without structural damage to the Building, and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Premises (collectively "Tenant Property") shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of Tenant's property is removed, Tenant shall
promptly repair any damage to the Premises or to the Building resulting from
such removal.
17. Hazardous Materials.
a. For the purposes of this Article, the following definition shall apply:
Hazardous Materials Laws: Any and all federal, state, local,
ordinances, rules, decrees, orders, regulations or court decisions
(including the so called "common-law") relating to hazardous substances,
hazardous materials, hazardous waste, toxic substances, environmental
conditions on, under or about the Premises, or soil and ground water
conditions, including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended, 42
U.S.C. sec.9601, et seq., the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. sec.6901, et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. sec.1801, et seq., any amendments to the
foregoing, and any similar federal, state or local laws, ordinances, rules
decrees, orders or regulations.
Hazardous Materials: Any chemical, compound, material, substance or
other matter that: (i) is a flammable explosive, asbestos, radioactive
material, nuclear medicine material, drug, vaccine, bacteria, virus,
hazardous waste, toxic substance, petroleum product, or related injurious
or potentially injurious material, whether injurious or potentially
injurious by itself or in combination with other materials; (ii) is
controlled, designated in or governed by any Hazardous Materials Law; (iii)
gives rise to any reporting, notice or publication requirement under any
Hazardous Materials Law; or (iv) gives rise to any liability,
responsibility or duty on the part of Tenant or Landlord with respect to
any third person under any Hazardous Materials Law.
b. Tenant shall not allow any Hazardous Material to be used, generated,
released, stored or disposed of on, under or about, or transported from, the
Premises, the Building or the Project, unless: (i) such uses is specifically
disclosed to and approved by Landlord in writing prior to such use; and (ii)
such uses is conducted in compliance with the provisions of this Article.
Landlord may approve such use subject to reasonable conditions to protect the
Premises, the Building or the Project, and Landlord's interests. Landlord may
withhold approval if Landlord determines that such proposed use involves a
material risk of a release or discharge of Hazardous Materials or a violation of
any Hazardous Materials Laws or that Tenant has not provided reasonable
assurances of its ability to remedy such a violation and fulfill its obligation
under this Article.
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c. Tenant shall strictly comply with, and shall maintain the Premises in
compliance with, all Hazardous Materials laws. Tenant shall obtain and maintain
in full force and effect all permits, licenses and other governmental approvals
required for Tenant's operations on the Premises under any Hazardous Materials
Laws and shall comply with all terms and conditions thereof. At Landlord's
request, Tenant shall deliver copies of, or allow Landlord to inspect, all such
permits, licenses and approvals. Tenant shall perform any monitoring,
investigation, clean-up, removal and other remedial work (collectively,
"Remedial Work") required as a result of any release or discharge of Hazardous
Materials affecting the Premises, the Building or the Project, or any violation
of Hazardous Materials Laws by Tenant or any assignee or sublessee of Tenant or
their respective agents, contractors, employees, licensees, or invitees.
Landlord shall have the right to intervene in any governmental action or
proceeding involving any Remedial Work, and to approve performance of the work,
in order to protect Landlord's interest.
d. Tenant shall comply with the requirements of Landlord's and Tenant's
respective insurers regarding Hazardous Materials and with such insurer's
recommendations based upon prudent industry practices regarding management of
Hazardous Materials.
e. Tenant shall notify Landlord, in writing, within two (2) days after any
of the following: (i) a release or discharge of any Hazardous Material, whether
or not the release or discharge is in quantities that would otherwise be
reportable to a public agency; (ii) Tenant's receipt of any order of a
governmental agency requiring any Remedial Work pursuant to any Hazardous
Materials Laws; (iii) Tenant's receipt of any warning, notice of inspection,
notice of violation or alleged violation, or Tenant's receipt of notice or
knowledge of any proceeding, investigation of enforcement action, pursuant to
any Hazardous Materials Laws; or (iv) Tenant's receipt of notice or knowledge of
any claims made or threatened by any third party against Tenant or the Premises,
the Building or the Project, relating to any loss or injury resulting from
Hazardous Materials. Tenant shall deliver to Landlord copies of all test
results, reports and business or management plans required to be filed with any
governmental agency pursuant to any Hazardous Materials laws.
f. Upon the termination of this Lease, Tenant shall remove any equipment,
improvements or storage facilities utilized in connection with any Hazardous
Materials and shall clean-up, detoxify, repair and otherwise restore the Leased
Premises to a condition free of Hazardous Materials.
g. Tenant shall protect, indemnify, defend and hold Landlord harmless from
and against, and shall be responsible for, any and all claims, costs, expenses,
suits, judgements, actions, investigations, proceedings and liabilities arising
out of or in connection with any breach of any provisions of this Article or
directly or indirectly arising out of the uses, generation, storage, release,
disposal or transportation of Hazardous Materials by Tenant or any sublessee or
assignee of Tenant, or their respective agents, contractors, employees,
licensees, or invitees, on, under or about the Premises, the Building or the
Project during the Term or Tenant's occupancy of the Premises, including, but
not limited to, all foreseeable and unforeseeable consequential damage and the
cost of any Remedial Work. Neither the consent by Landlord nor the use,
generation, storage, release, disposal or transportation of Hazardous Materials
nor the strict compliance with all Hazardous Material Laws shall excuse Tenant
from Tenant's indemnification obligations pursuant to this Article. The
foregoing indemnity shall be in addition to and not a limitation of the
indemnification provision of Article 24 of this Lease. Tenant's obligation
pursuant to this Article shall survive the termination or expiration of this
Lease.
h. If Landlord's consent is required for an assignment of this Lease or a
subletting of the Premises, Landlord shall have the right to refuse such consent
if the possibility of a release of Hazardous Materials is materially increased
as a result of the assignment or sublease or if Landlord does not receive
reasonable assurances that the new tenant has the experience and the financial
ability to remedy a violation of the Hazardous Materials Laws and fulfill its
obligations under this Article.
i. Landlord and its agents, employees and contractors, shall have the
right, but not the obligation, to enter the Premises at all reasonable times to
inspect the Premises and Tenant's compliance with the terms and conditions of
this Article, or to conduct investigations and tests. No prior notice to Tenant
shall be required in the event of an emergency, or if Landlord has reasonable
cause to believe that violations of this Article have occurred, or if Tenant
consents at the time of entry. In all other cases, Landlord shall give at least
twenty-four
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(24) hours prior notice to Tenant. Landlord shall have the right, but not the
obligation, to remedy any violation by Tenant of the provision of this Article
or to perform any Remedial Work which is necessary or appropriate as a result of
any governmental order, investigation or proceeding. Tenant shall pay, upon
demand, as additional rent, all costs incurred by Landlord in remedying such
violations or performing all Remedial Work, plus interest thereon at the Default
Interest from the date of demand until the date received by Landlord.
j. The release or discharge of any Hazardous Material or the violation of
any Hazardous Materials Laws shall constitute an event of default by Tenant
under this Lease. In addition to and not in lieu of the remedies available under
this Lease as a result of such event of default, Landlord shall have the right,
without terminating this Lease, to require Tenant to suspend its operations and
activities on the Premises until Landlord is satisfied that appropriate Remedial
Work has been or is being adequately performed and Landlord's election to this
remedy shall not constitute a waiver of Landlord's right thereafter to pursue
the other remedies set forth in this Lease.
18. Rules and Regulations. Tenant shall faithfully observe and comply with
the rules and regulations attached to this Lease as Exhibit "E" and such other
reasonable rules and regulations as Landlord may from time to time promulgate.
Landlord reserves the right from time to time to make reasonable modifications
to said rules. The additions and modifications to those rules shall be binding
upon Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
liable to Tenant for the nonperformance of any said rules and regulations by any
other tenants or occupants of the Building.
19. Certain Rights Reserved to the Landlord. Landlord reserves the
following rights, exercisable without liability to Tenant for (i) damage or
injury to property, person or business, (ii) causing an actual or constructive
eviction from the premises, or (iii) disturbing Tenant's use or possession of
the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of
the Building and Project;
c. To have master keys to the Premises and all doors within the
Premises, excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to
Tenant, to inspect the Premises, and to show the Premises to any
prospective purchaser or mortgagee of the Project, or to any assignee of
any mortgage on the Project, or to others having an interest in the Project
or Landlord, and during the last six months of the Term, to show the
Premises to prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections,
repairs, alterations, additions or improvements to the Premises or the
Building (including, without limitation, checking, calibrating, adjusting
or balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders, or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry;
f. To designate and/or approve, prior to installation, any type of
window shades, blinds, drapes, awnings, window ventilators or other similar
equipment and to control all internal lighting that may be visible from the
Building's exterior;
g. To designate, limit, restrict and/or control any business and any
service in or to the Building and its tenants;
h. To decorate, repair, alter, add to or improve structurally or
otherwise, the Building or any part thereof and to enter the Premises for
such purposes and, during the continuance of such work, to temporarily
close doors, entryways, public space and corridors in the Building and to
interrupt or
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temporarily suspend Building services and facilities, so long as the
Premises are reasonably accessible by Tenant;
i. To grant to anyone the exclusive right to conduct a business or
render a service in or to the Building, provided such exclusive right does
not operate to exclude Tenant from the use expressly permitted herein;
j. To require that moving of furniture and similar items in and out of
the Building and the Premises be only at such times and in such manner as
Landlord directs in writing. Movement of Tenant's property in or out of the
Building and within the Building is entirely at Tenant's risk and
responsibility and Landlord reserves the right to require permits before
allowing such property to be moved in or out of the Building;
k. To require Tenant to obtain Landlord's written approval before
vending or dispensing machines of any kind are placed in or about the
Premises;
l. To have access for itself and Building tenants to mail chutes
located on the Premises according to the rules of the United States Postal
Service;
m. To permit Landlord and its agents to enter the Premises at all
reasonable times to examine or inspect the same, to show the same to
prospective purchasers or lessees, and to make such alterations, repairs,
improvements or additions to the Premises or to the Building as Landlord is
required or permitted to do under the terms of this Lease. If Tenant is not
personally present to open and permit entry into the Premises when
Landlord's entry is necessary or permitted hereunder, Landlord may enter by
means of a master key or may enter forcibly, without liability to Tenant
except for failure to exercise due care for Tenant's property, and without
breaching the terms of this Lease.
20. Assignment and Subletting. No assignment of this Lease by Tenant or
sublease of all or any part of it shall be permitted except as provided in this
Article. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises or any
part thereof, or permit the use of the Premises by any party other than Tenant.
Any of the foregoing acts without such consent shall be void and shall, at the
option of the Landlord, terminate this Lease. This Lease shall not, nor shall
any interest of Tenant herein, be assignable by operation of law without the
written consent of Landlord.
If at any time or from time to time during the Term, Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall given
notice to Landlord setting forth the terms and provisions of the proposed
assignment or sublease, and the identity of the proposed assignee or subtenant.
Tenant shall promptly supply Landlord with such information concerning the
business background and financial condition of such proposed assignee or
subtenant as Landlord may reasonably request. Tenant thereafter may assign the
Lease or sublet such space to such proposed assignee or subtenant if and only if
all of the following conditions are satisfied;
a. Landlord shall have given its written consent to the assignment or
sublease, which consent shall not be unreasonably withheld;
b. The assignment or sublease shall be on the same terms set forth in
the notice given to Landlord;
c. No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to Landlord;
d. No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
e. Any sums or other economic consideration received by Tenant from
time to time as a result of such assignment or subletting, however
denominated under the assignment or sublease, which exceed, in the
aggregate (i) the total sums which Tenant is obligated to pay Landlord
under this Lease (prorated to reflect obligations allocable to any portion
of the Premises subleased), plus (ii) any real estate brokerage commission
or fees payable in connection with such assignment or subletting, shall be
paid to Landlord as
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additional rental under this Lease without affecting or reducing any other
obligations of Tenant hereunder.
Notwithstanding the foregoing, Tenant may assign this Lease or sublet the
Premises or any portion thereof, without Landlord's consent to any corporation
which controls, is controlled by or is under common control with Tenant, or to
any corporation resulting from a merger or consolidation with Tenant, provided
that (i) the assignee or sublessee assumes, in full, the obligations of Tenant
under this Lease, (ii) Tenant remains fully liable under this Lease, and (iii)
the use of the Premises under Article 8 remains unchanged.
No subletting or assignment shall release Tenant of Tenant's obligations
under this Lease or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder. The
acceptance of rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by assignee or subtenant of Tenant or any
successor of Tenant in the performance of any of the terms hereof, Landlord may
proceed directly against Tenant without the necessity of exhausting remedies
against such assignee, subtenant or successor. Landlord may consent to
subsequent assignments of the Lease or sublettings or amendments or
modifications to the Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and any such actions shall not relieve Tenant of liability under this Lease.
For purposes of this Article, any transfer or transfers of ownership or
control of Tenant (if Tenant is not an individual and is not a corporation whose
shares are publicly traded on a national stock exchange) resulting, in the
aggregate, in the ownership or control by persons not shareholders, partners, or
joint ventures with Tenant as of the execution of this Lease of more than a 25%
interest in Tenant shall constitute an assignment of this Lease.
21. Holding Over. Tenant shall not, without Landlord's prior written
consent, hold over after the termination or expiration of this Lease. If Tenant
holds over with Landlord's prior written consent, the tenancy shall be from
month-to-month terminable upon ten days notice by Landlord and upon thirty days
notice by Tenant. Any holdover without Landlord's prior written consent shall be
a tenancy at will terminable upon demand for possession regardless of whether
any rental has been paid in advance. In either event, Tenant shall comply with
all of the terms of this Lease, including the payment of all additional rent,
except that the Base Rent shall be 125% of the Base Rent, as adjusted,
immediately prior to expiration or termination of this Lease.
22. Surrender of Premises. Upon expiration or termination of this Lease or
upon the termination of Tenant's right of possession, whether by lapse of time
or at the Landlord's option as herein provided, Tenant shall immediately
surrender possession of the Premises to Landlord and remove all of its property
therefrom as permitted or required hereunder, and if such possession is not
immediately surrendered, Landlord may re-enter the Premises and remove all
persons and property therefrom. Without limiting the generality of the
foregoing, Tenant agrees to remove at the termination of this Lease all personal
property to which Tenant is entitled under Article 16 hereof, together with any
Leasehold Improvements Landlord designates in writing to be removed. All damage
to the Premises or the Building arising from Tenant's moving of property in or
out of the Building including damage to floors due to overloading, shall be
fully repaired at Tenant's sole expense. If Tenant fails or refuses to remove
any such property from the Premises, Tenant shall be conclusively presumed to
have abandoned the same, and title thereto shall thereupon pass to Landlord
without cost, set-off, credit allowance or otherwise, and Landlord may accept
title to such property, or at Tenant's expense, remove it or any part thereof in
any manner that Landlord shall choose and store or dispose of it without
incurring liability to Tenant or any other person.
Neither surrender of this Lease by Tenant nor a mutual cancellation thereof
shall cause a merger, but rather shall, at Landlord's option, operate to
terminate any or all subleases or subtenancies or operate as an assignment to
Landlord of any or all of such subleases or subtenancies.
23. Eminent Domain. If the whole of the Building or Premises is lawfully
taken by condemnation or in any other manner for any public or quasi-public
purpose, this Lease shall terminate as of the date of such taking, and rent
shall be prorated to such date. If less than the whole of the Building or
Premises is so taken,
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this Lease shall be unaffected by such taking, provided that (a) Tenant shall
have the right to terminate this Lease by notice to Landlord given within ninety
(90) days after the date of such taking if twenty percent (20%) or more of the
Premises is taken and the remaining areas of the Premises is not reasonably
sufficient for Tenant to continue operation of its business; and (b) Landlord
shall have the right to terminate this Lease by notice to Tenant given within
ninety (90) days after the date of such taking. If either Landlord or Tenant so
elects to terminate this Lease, the Lease shall terminate on the thirtieth
(30th) day after either such notice. The rent shall be prorated to the date of
termination. If this Lease continues in force upon such partial taking, the Base
Rent and Tenant's proportionate Share of Direct Expenses shall be equitably
adjusted according to the remaining rentable area of the Premises and the
Building.
In the event of any taking, partial or whole, all of the proceeds of any
award, judgment or settlement payable by the condemning authority shall be the
exclusive property of Landlord, and Tenant hereby assigns to Landlord all of its
right, title and interest in any award, judgment or settlement from the
condemning authority. Tenant, however, shall have the right, to the extent that
Landlord's award is not reduced or prejudiced, to claim from the condemning
authority (but not from Landlord) such compensation as may be recoverable by
Tenant in its own right for relocation expenses and damages to Tenant's personal
property.
In the event of a partial taking of the Premises which does not result in a
termination of this Lease, Landlord shall restore the remaining portion of the
Premises as nearly as practicable to its condition prior to the condemnation or
taking, but only to the extent of building standard work. Tenant shall be
responsible at its sole cost and expense for the repair, restoration and
replacement of any other Leasehold improvements and Tenant's Property.
24. Indemnification. Tenant shall defend, indemnify and hold Landlord
harmless, regardless of any negligence which may be imputed or charged to
Landlord as the owner of real property alleged to be dangerous or defective,
from and against any and all claims arising out of (a) Tenant's use of the
Premises or any part thereof or the conduct of its business, or (b) any
activity, work or other thing done, permitted or suffered by Tenant in or about
the Building or the Premises, or any part thereof, or (c) any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or (d) any act or negligence of the Tenant, or any officer,
agent, employee, contractor, servant, licensee, invitee or guest of Tenant, and
in each case from and against any and all damages, losses, liabilities,
lawsuits, judgments, and costs and expenses (including without limitation expert
witness fees and reasonable attorneys' fees) arising in connection with any such
claim or claims as described in clauses (a) through (d) above, or any action or
proceeding brought thereon. If any such action or proceeding be brought against
Landlord, Tenant upon notice from Landlord shall defend the same at Tenant's
sole expense by counsel reasonably satisfactory to Landlord. Tenant as a
material part of the consideration to Landlord hereby assumes all risk of damage
or loss to property or injury or death to persons, in, upon or about the
Premises, from any cause other than Landlord's sole and active negligence, and
Tenant hereby waives all claims in respect thereof against Landlord.
Landlord or its agents shall not be liable for any damage or loss to
property entrusted to employees of the Building, nor for loss or damage to any
property by theft or otherwise, nor for any injury to or death of or damage or
loss to persons or property resulting from any accident, casualty or condition
occurring in or about the Building or the Premises, or any part thereof, or any
equipment, appliances or fixtures therein, or from any other cause whatsoever,
unless caused solely by the active negligence of Landlord, its agents, servants
or employees.
25. Tenant's Insurance. All insurance required to be carried by Tenant
hereunder shall be issued by responsible insurance companies acceptable to
Landlord and Landlord's Lender and qualified to do business in the State. Each
policy, except the worker's compensation insurance policy, shall name Landlord,
and at Landlord's request any mortgagee of Landlord, as an additional insured,
as their respective interests may appear. Each policy shall contain (a) a
cross-liability endorsement, (b) a provision that such policy and the coverage
evidenced thereby shall be primary and non-contributing with respect to any
policies carried by Landlord and that any coverage carried by Landlord shall be
excess insurance. A copy of each paid up policy (authenticated by the insurer)
or certificate of the insurer evidencing the existence and amount of each
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insurance policy required hereunder shall be delivered to Landlord before the
date Tenant is first given the right of possession of the Premises, and
thereafter within thirty (30) days after any demand by Landlord therefor.
Landlord may, at any time and from time to time, inspect and/or copy any
insurance policies required to be maintained by Tenant hereunder. No such policy
shall be cancelable except after twenty (20) days written notice to Landlord and
Landlord's Lender. Tenant shall furnish Landlord with renewals or "binders" of
any such policy at least ten (10) days prior to the expiration thereof. Tenant
agrees that if Tenant does not take out and maintain such insurance, Landlord
may (but shall not be required to) procure said insurance on Tenant's behalf and
charge the Tenant the premiums together with a twenty-five (25%) handling
charge, payable upon demand. Tenant shall have the right to provide such
insurance coverage pursuant to blanket policies obtained by the Tenant, provided
such blanket policies expressly afford coverage to the Premises, Landlord,
Landlord's mortgagee and Tenant as required by this Lease.
Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure, pay
for and maintain in effect policies of casualty insurance covering (i) all
Leasehold Improvements (including any alterations, additions or improvements as
may be made by Tenant pursuant to the provisions of Article 16 hereof), and (ii)
trade fixtures, merchandise and other personal property from time to time in, on
or about the Premises, in an amount not less than one hundred percent (100%) of
their actual replacement cost from time to time, providing protection against
any peril included with the classification "Fire and Extended Coverage" together
with insurance against sprinkler damage, vandalism and malicious mischief. The
proceeds of such insurance shall be used for the repair or replacement of the
property so insured. Upon termination of this Lease following a casualty as set
forth herein, the proceeds under (i) above shall be paid to Landlord, and the
proceeds under (ii) above shall be paid to Tenant.
Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure, pay
for and maintain in effect workers' compensation insurance as required by law
and comprehensive general liability and property damage insurance with respect
to the construction of improvements on the Premises, the use, operation or
condition of the Premises and the operations of Tenant in, on or about the
Premises, providing personal injury and broad form property damage coverage for
not less than One Million Dollars ($1,000,000.00) combined single limit for
bodily injury, death and property damage liability.
Not less than every three (3) years during the Term, Landlord and Tenant
shall mutually agree to increases in all of Tenant's insurance policy limits for
all insurance to be carried by Tenant as set forth in this Article. In the event
Landlord and Tenant cannot mutually agree upon the amounts of said increases,
then Tenant agrees that all insurance policy limits as set forth in this Article
shall be adjusted for increases in the cost of living.
26. Landlord's Insurance. Landlord covenants and agrees that throughout
the Term it will insure the Building (excluding any property with respect to
which Tenant is obligated to insure pursuant to the provisions of Article 25
against damage by fire and standard extended coverage perils and public
liability insurance in such reasonable amounts with such reasonable deductibles
as would be carried by a prudent owner of a similar building in the geographic
area in which the Building is situated. In addition, Landlord may keep and
maintain in full force and effect during the Term, rental income insurance
insuring Landlord against abatement or loss of rent, including items of
additional rent, in case of fire or other casualty similarly insured against, in
an amount at least equal to the Annual Fixed rent during one calendar year
hereunder. Landlord may, but shall not be obligated to, take out and carry any
other form or forms of insurance as it or the mortgagee or ground lessors (if
any) of Landlord may reasonably determine advisable. Notwithstanding any
contribution by Tenant to the cost of insurance premiums as provided herein,
Tenant acknowledges that it has no right to receive any proceeds from any such
insurance policies carried by Landlord, although Landlord shall use such
proceeds in the repair and reconstruction of the Building and the Premises
unless the provisions of Article 14 above shall apply. Landlord will not carry
insurance of any kind on Tenant's furniture or furnishings, or on any fixtures,
equipment, improvements or appurtenances of Tenant under this Lease, and
Landlord shall not be obligated to repair any damage thereto or to replace the
same.
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27. Waiver of Subrogation. Landlord and Tenant each hereby waive all
rights of recovery against the other and against the officers, employees, agents
and representatives of the other, on account of loss by or damage to the waiving
party or its property or the property of others under its control, to the extent
that such loss or damage is insured against and under any fire and extended
coverage insurance policy which either may have in force at the time of the loss
or damage. Tenant shall, upon obtaining the policies of insurance required Lease
unless written notice of termination is given to Tenant. Notwithstanding any
termination of Tenant's right to possession without terminating the Lease,
Landlord may at any time thereafter elect to terminate this Lease for such
previous breach.
No remedy herein conferred upon Landlord is exclusive of any other remedy;
Landlord's remedies are cumulative and in addition to every other remedy given
hereunder, or now or hereafter existing at law or in equity or by statute.
Landlord's delay or omission to exercise any right or power arising from any
default shall not impair any such right or power, nor waive any such default.
No act or conduct of Landlord, or its agent, whether by acceptance of the
keys to the Premises or otherwise, shall constitute Landlord's re-entry,
acceptance of Tenant's surrender of the Premises prior to the expiration of the
term hereof. Landlord's acceptance of Tenant's surrender shall occur only by a
written acceptance of surrender signed by Landlord.
Tenant shall serve any notice of claimed default or breach by Landlord
under this Lease upon the lender (if any) holding a first trust deed or mortgage
against the Building or any part thereof and notwithstanding anything contained
herein, shall allow such lender the same period following any default to cure
the same as provided in Article 38.p. No notice of default shall be effective
against Landlord unless the requirements of Article 38.p have been satisfied.
b. Insolvency. Tenant agrees that neither this Lease nor its interest
hereunder in the Premises or the improvements thereon shall be subject to
involuntary assignment, transfer, or sale by operation of law or otherwise and
that any attempted involuntary assignment, transfer or sale shall be void.
Without limiting the generality of the preceding sentence, Tenant agrees that if
any proceeding under the Federal Bankruptcy Code is commenced by or against
Tenant (and if against Tenant, said proceeding is not dismissed before either
any order for relief is entered or the confirmation of an arrangement) or if
Tenant is adjudged insolvent or makes an assignment for the benefit of its
creditors, or if a writ of attachment or execution is levied on the leasehold
estate hereby created and is not released or satisfied in any proceeding to
which Tenant is a party within a period of 30 days, or if a trustee, receiver,
examiner, liquidator or custodian is appointed with authority to take possession
or control of the Premises or Tenant's business conducted thereon and he is not
discharged within a period of 30 days after his appointment; any such event or
involuntary assignment shall constitute a breach of this Lease by Tenant and, at
Landlord's option, in addition to its rights or remedies hereunder or as
provided by law, Landlord may, without notice of entry and without the ten days'
notice described in the first sentence of Article 32.a, and without other
action, terminate this Lease and all Tenant's rights under this Lease and those
of any persons claiming under Tenant in and to the Premises.
33. Inability to Perform. If either party hereto is delayed or prevented
from performing any act required hereunder by acts of God, strikes, lockouts,
labor troubles, civil disorder, inability to procure materials, restrictive
governmental laws or regulations or other cause without fault and beyond the
control of the party obligated (financial inability excepted), performance of
such act shall be excused for the period of delay and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay; provided, however, nothing contained in this Article shall
excuse Tenant from the prompt payment of rent and other charge required of
Tenant.
34. Brokerage Fees. Tenant warrants that it has had no dealings with any
real estate broker or agents in connection with the negotiation of this Lease
excepting Stanfield-Pinel Associates, Inc. and Cutler Commercial (Tyler Lupton)
and that it knows of no other real estate broker or agent who is entitled or
claims to be entitled to a commission in connection with this Lease. Tenant
agrees to indemnify and hold Landlord harmless from and against any and all
claims, demands, losses, liabilities, lawsuits, judgments, and costs and
expenses (including without limitation reasonable attorneys' fees) with respect
to any alleged leasing
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commission or equivalent compensation alleged to be owing on account of Tenant's
dealings with any real estate broker or agent other than the aforesaid broker.
35. Notices. All notices, approvals and demands permitted or required to
be given under this Lease shall be in writing and (a) if to Landlord, shall be
given by personal delivery or by certified mail, return receipt requested, to
Landlord's Mailing Address as set forth in Article 2.h and (b) if to Tenant,
shall be given by first class or certified mail to Tenant's Mailing Address as
set forth in Article 2.g or to the Premises. All notices to Tenant shall be
deemed given when delivered or mailed and all notices to Landlord shall be
deemed given when received. Either party may from time to time change its
Mailing Address by notice to the other party.
36. Government Energy or Utility Controls. In the event of imposition of
federal, state or local government controls, rules, regulations, or restrictions
on the use of consumption of energy or other utilities during the Term, both
Landlord and Tenant shall be bound thereby. In the event of a difference in
interpretation by Landlord and Tenant of any such controls, the interpretation
of Landlord shall prevail, and Landlord shall have the right to enforce
compliance therewith, including the right of entry into the Premises to effect
compliance.
37. Quiet Enjoyment. Tenant, upon paying the rent and performing all of
its obligations under this Lease, shall peaceably and quietly enjoy the
Premises, subject to the terms of this Lease and to any mortgage, lease, or
other agreement to which this Lease may be subordinate, provided, however, that
Landlord shall have no duty to protect Tenant against disturbance by any person
not employed by Landlord.
38. Miscellaneous.
a. Attorneys' Fees. If any action or proceeding is brought by either party
against the other arising out of this Lease, the prevailing party shall be
entitled to recover all costs and expenses, including reasonable attorneys' fees
and expert witness fees, incurred on account of such action or proceeding.
b. Severability. A final determination by a court of competent
jurisdiction that any provision of this Lease is invalid shall not affect the
validity of any other provision, and any provision so determined to be invalid
shall, to the extent possible, be construed to accomplish its intended effect.
c. Successors and Assigns. Subject to the provisions of Article 20, this
Lease shall be binding upon and inure to the benefit of the heirs, personal
representatives, successors and assigns of the parties.
d. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the State.
e. Prior Agreement; Amendments. This Lease constitutes the entire
agreement of the parties with respect to its subject matter, and no prior
agreement or understanding pertaining to its subject matter shall be effective
for any purpose. No provision of this Lease may be waived or modified except in
writing signed by the party (or its successor in interest) against whom
enforcement of the waiver or modification is sought.
f. Captions, Articles and Section Numbers. The captions appearing within
the body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease.
g. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
h. Consent. Notwithstanding anything contained in this Lease to the
contrary, Tenant shall have no claim, and hereby waives all claims against
Landlord for money damages by reason of any refusal, withholding or delay by
Landlord of any consent or approval, and in such event, Tenant's sole remedy
shall be an action for specific performance, injunction or declaratory judgment
for the determination of the issue by a court of competent jurisdiction.
i. Counterparts. This Lease may be executed in multiple counterparts, all
of which shall constitute one and the same Lease.
16
<PAGE> 20
j. Furnishing of Financial Statements; Tenant's Representations. Upon
Landlord's written request, Tenant shall promptly furnish Landlord, from time to
time, with financial statements reflecting Tenant's current financial condition.
Tenant represents and warrants that all financial statements, records and
information furnished by Tenant to Landlord in connection with this Lease are
true, correct and complete in all respects, and have been submitted to Landlord
to induce Landlord to enter into this Lease.
k. Accord and Satisfaction. No payment by Tenant or receipt by Landlord of
a lesser amount than the rent provided for in this Lease shall be deemed to be
other than on account of the earliest due rent, nor shall any endorsement or
statement on any check or letter accompanying any check or payment be effective
to give rise to an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of the
amounts due and to pursue any other remedy provided for in this Lease.
l. Execution of Lease; No Option. The submission of this Lease to Tenant
shall be for examination purposes only and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord notwithstanding any delay and notwithstanding any delivery
of possession of the Premises to Tenant, until Landlord has signed and delivered
this Lease to Tenant.
m. Corporate Authority. If Tenant is a corporation, each individual
signing this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation, and
that this Lease is binding on Tenant in accordance with its terms. Tenant shall,
at Landlord's request, deliver a certified copy of a resolution of its Board of
Directors authorizing such execution.
n. Changes Requested by Lender. Neither Landlord nor Tenant shall
unreasonably withhold its consent to changes or amendments to this Lease
requested by the lender on Landlord's interest, so long as these changes do not
alter the basic business terms of this Lease or otherwise materially diminish
any rights or materially increase any obligation of the party from whom consent
to such change or amendment is requested.
o. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
p. Mortgage Protection. Tenant agrees to send by certified or registered
mail to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
q. Time is of the Essence. Time is of the essence of this Lease.
r. Light or Air. No rights to light or air across or over any property,
whether belonging to Landlord or any other person, are granted to Tenant by this
Lease, and Landlord shall not be liable for interference with the natural light
to the Premises or for any latent defect in the Premises, Building or Project.
s. Exhibits. The exhibits attached hereto constitute part of this Lease
and are incorporated herein by reference.
t. Landlord's Liability. If, at any time during the Term, the holder of
Landlord's interest is a partnership or joint venture, Tenant agrees to look
only to the assets of such partnership or joint venture (and not to the partners
or joint ventures personally) with respect to any obligations or payments due or
which may become due from Landlord hereunder.
The parties hereto have executed this Lease on the dates specified
immediately adjacent to their respective signatures.
17
<PAGE> 21
39. Renewal Option. If not in default hereunder, Tenant shall have the
right to renew this Lease for a two (2) year period at prevailing market rates.
40. Right of Refusal. If Tenant is not in default hereunder, Tenant shall
have a right of first refusal for the vacant space contiguous to the Premises to
the East, during the term of this Lease. Landlord will notify Tenant of the
availability of the space. Tenant will be given ten (10) working days to
exercise its right to lease the contiguous premise at the same terms offered to
a prospective tenant.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
LANDLORD OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTIONS
RELATING THERETO.
<TABLE>
<S> <C> <C>
Executed on September 29, 1997 LANDLORD: By: [Illegible Signature]
---------------------------------------
Its: Agent
--------------------------------------
Executed on September 26, 1997 TENANT: By: [Illegible Signature]
---------------------------------------
Its: Chief Financial Officer
--------------------------------------
</TABLE>
18
<PAGE> 22
EXHIBIT "A"
LEGAL DESCRIPTION OF PROPERTY
ON WHICH PREMISES ARE LOCATED
That certain parcel of land being situated in the west half of Section 8,
Township 1 North, Range 4 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, more particularly described as follows:
COMMENCING at the West quarter corner of said Section 8;
thence East 33.00 feet to a point on the Easterly line of 48th Street;
thence North parallel to and 33 feet Easterly from the center line of 48th
Street and the West line of said Section 8, 1227.83 feet to a point 50 feet
Southerly from the center line of Washington Street;
thence South 81 degrees 50 minutes 00 seconds East parallel to and 50 feet
Southerly from the center line of Washington Street 1402.28 feet to a point,
said point being the Northeast corner of that certain parcel of land described
in Deed recorded in Docket 7997, page 474, in the office of the Maricopa County
Recorder;
thence South 8 degrees 10 minutes 00 seconds West along the East line of
said last mentioned 666.51 feet to the Southeast corner thereof and the True
Point of Beginning:
THENCE South 81 degrees 50 minutes 00 seconds East parallel with said
center line of Washington Street, 346.14 feet;
thence North 8 degrees 10 minutes 00 seconds East parallel to the East line
of said parcel, described in said Deed, 666.51 feet to a point 50 feet Southerly
from the center line of Washington Street;
thence North 81 degrees 50 minutes 00 seconds West parallel to the East
line of said parcel, described in said Deed, 666.51 feet to a point that bears
North 81 degrees 50 minutes 00 seconds West 30.00 feet from the True Point of
Beginning;
thence South 81 degrees 50 minutes 00 seconds East parallel with said
center line of Washington Street 30.00 feet to the True Point of Beginning.
<PAGE> 23
EXHIBIT "B"
PROJECT SITE PLAN
[DRAWING TO COME]
<PAGE> 24
EXHIBIT "C"
TENANT IMPROVEMENTS
LANDLORD SHALL PROVIDE THE FOLLOWING IMPROVEMENTS:
Improvements to the Premises according to agreed upon drawings, attached
herewith after approval, with cost of improvements not to exceed TWENTY EIGHT
THOUSAND United States Dollars ($28,000.00) and executed according to provisions
of Paragraph 15. ALTERATIONS AND ADDITIONS.
TENANT SHALL PROVIDE THE FOLLOWING IMPROVEMENTS:
Improvements to the Premises according to agreed upon drawings, attached
herewith after approval, with cost of improvements in excess of Landlord's
participation as stated above, and for all costs defined in Paragraph 16.
LEASEHOLD IMPROVEMENTS.
<PAGE> 1
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is made and entered this 5th day of
February 1996, by and between Boehringer Mannheim, an Indiana corporation, with
its principal offices at 9115 Hague Road, Indianapolis, Indiana ("SUBLANDLORD"),
and SSE Technologies, a Delaware corporation with its principal business offices
at 47823 Westinghouse Drive, Fremont, California 94539 ("SUBTENANT").
RECITALS
A. Whereas, Warms Springs Associates II hereinafter called "MASTER
LANDLORD", and SUBLANDLORD have entered into that certain Lease Agreement dated
February 13, 1989 as amended by that certain First Amendment, hereinafter
("Master Lease"), a copy of which is attached hereto as Exhibit A, pursuant to
which SUBLANDLORD has leased from MASTER LANDLORD a building ("Building") and
other real property ("Property") located at 48431 Milmont Drive, Fremont,
California 94538.
B. Whereas, SUBLANDLORD desires to lease to SUBTENANT a portion of the
Building leased by MASTER LANDLORD to SUBLANDLORD, and SUBTENANT desires to
lease a portion of the Building from SUBLANDLORD.
C. Whereas, MASTER LANDLORD desires to consent to the Sublease by executing
the "Consent of Master Landlord" provision at the end of this Sublease, or by
the execution of MASTER LANDLORD's standard Consent to Sublease agreement by all
of the Parties hereto, whereby Master Landlord otherwise agrees and acknowledges
said Sublease Agreement between SUBTENANT and SUBLANDLORD.
THEREFORE, SUBLANDLORD AND SUBTENANT agree as follows:
1. Premises. Subject to the terms, conditions and covenants set forth in
this Sublease, SUBLANDLORD hereby leases to SUBTENANT and SUBTENANT hereby
leases from SUBLANDLORD, approximately 3550 square feet in the Building commonly
known as the northwest corner of 47829 Westinghouse Drive ("Premises"). The
Premises are shown on attached Exhibit B, which by this reference is
incorporated herein.
2. Term. This Sublease shall commence on February 5, 1996 and end on May
4, 1999 ("Term"), unless sooner terminated by breach of the terms and conditions
of this Sublease.
3. Rent. SUBTENANT shall pay to SUBLANDLORD all Basic Rent for the
Premises according to the following schedule:
<TABLE>
<CAPTION>
MONTHS BASIC MONTHLY RENTAL
- ---------------- --------------------
<S> <C>
2/5/96 - 5/4/96 $3,676
5/5/96 - 5/4/97 $2,308
5/5/97 - 5/4/98 $2,322
5/5/98 - 5/4/99 $2,335
</TABLE>
All such Basic Rent shall be payable in advance on the first day of each
calendar month during the Term. SUBTENANT shall deposit with SUBLANDLORD upon
execution of this Sublease the sum of three thousand six hundred and seventy-six
Dollars ($3,676) as Basic Rent for the first month that Basic Rent is due under
this Sublease, namely February 5, 1996 through March 4, 1996. In addition to
said Basic Rent Subtenant shall pay its pro rata share of all charges, costs and
expense obligations defined as Additional Rent as set forth in Paragraph 12.2 of
said MASTER LEASE. The current charge for additional rent is $471 per calendar
month. This amount will be adjusted as the amount paid by the SUBLANDLORD is
adjusted. All Basic and Additional Rent ("Rent") shall be paid to SUBLANDLORD at
its address indicated below:
Boehringer Mannheim Corporation
48431 Milmont Drive
Fremont, California 94538.
Page 1
<PAGE> 2
Rent shall be payable without notice or demand and without any deduction,
offset, or abatement. Rent payable for any portion of a calendar month shall be
a pro rata portion of the installment payable for a full calendar month.
4. Late Charge. SUBTENANT shall pay to SUBLANDLORD as Additional Rent, a
late charge equal to five percent (5%) of any installment of Basic Rent which is
not received by SUBLANDLORD within ten (10) days after the due date for such
installment.
5. Use. Subtenant shall use the Premises only for general offices,
research and development, light manufacturing, storage and for no other
purposes. SUBTENANT shall not permit the Premises or any part thereof to be used
for any purpose or use in violation of any law or ordinance, or of the
regulation of any governmental authority, or in any manner that will constitute
a nuisance. SUBTENANT shall not allow any use in violation of any existing
restriction on the Premises. SUBTENANT shall conform its use of the Premises in
every respect to all laws, statutes, ordinances, and regulations now enforced or
hereafter enacted affecting the use of occupancy of the Premises.
6. Acceptance of Premises. SUBTENANT acknowledges that the Premises
contain certain existing tenant improvements with which SUBTENANT is familiar.
SUBTENANT agrees the its act of taking possession of the Premises will
constitute its acknowledgement and acceptance that the Premises are in rentable
and good condition. SUBTENANT acknowledges and hereby agrees that subject only
to SUBLANDLORD's completion those certain Interior Improvements defined in
SECTION 10.1 herebelow, Subtenant is Subleasing the Subject Premises strictly on
an "as is" basis, and that SUBLANDLORD makes no representation or warranties
relating to the suitability of the Premises for SUBTENANT's intended use or
whether said Premises are in compliance with all applicable building codes,
governmental laws, statutes, ordinances and regulations (e.g. ADA and Title 24
statutes and laws).
7.Incorporation of Master Lease, Assumption, Termination of Master Lease
7.1 This Sublease is expressly subject and subordinate to the terms
and conditions of "The Master Lease" attached hereto as Exhibit A. All
terms and conditions of the Master Lease are incorporated herein and are
deemed a part of this Sublease. References to Landlord and Tenant in the
Master Lease shall, for purposes of this Sublease, be deemed to refer to
both MASTER LANDLORD and SUBLANDLORD, and SUBTENANT, respectively.
7.2 Except as otherwise provided herein, SUBTENANT hereby expressly
assumes and agrees to perform and comply with all obligations required to
be kept or performed by SUBLANDLORD pursuant to the provisions of the
Master Lease. SUBTENANT shall not commit or permit to be committed on the
Premises any act or omission which shall violate any term or condition of
the Master Lease. SUBTENANT agrees to indemnify, defend, hold harmless
SUBLANDLORD from any and all claims, damages, costs, and expenses
(including reasonable attorney's fees) with respect to SUBTENANT's non
performance or non observance of any such term and condition.
7.3 If the Master Lease is terminated, this Sublease shall terminate
simultaneously and the SUBLANDLORD and SUBTENANT shall thereafter be
released from all obligations under this Sublease, and SUBLANDLORD shall
refund to SUBTENANT any unreturned Rent paid in advance, except as
otherwise provided in this Sublease.
8. Utilities/Services. SUBTENANT shall obtain, contract for, and pay 100%
of all expenses relating to its personal electronic communications, data and
telephone services, its private security systems, trash, and janitorial services
provided to the SUBTENANT's Premises.
9. Obligations of SUBLANDLORD. SUBLANDLORD agrees to maintain the Master
Lease during the Term of this Sublease, subject, however, to any termination of
the Master Lease without the fault of SUBLANDLORD. SUBLANDLORD agrees to comply
with or perform all of its obligations under the Master Lease that SUBTENANT has
not assumed under this Sublease. Provided, however, SUBLANDLORD, does not assume
the obligations required to be kept or performed by the MASTER LANDLORD under
the Master Lease.
Page 2
<PAGE> 3
10. Alterations, Additions or Improvements. Except as otherwise provided
for in The Master Lease, SUBTENANT shall not make any alterations, additions or
improvements on or to the Premises without first obtaining the written consent
of SUBLANDLORD, which SUBLANDLORD may withhold in its absolute and sole
discretion. All permitted alterations, additions and improvements shall be made
at the sole expense of SUBTENANT, and unless SUBTENANT is otherwise notified in
writing to remove or repair same upon expiration of the Sublease term, said
alterations, additions and improvements shall remain on and be surrendered with
the Premises as part thereof at the termination of this Sublease. SUBTENANT
shall keep the Premises free and clear from all liens arising out of any work
performed, materials furnished or obligations incurred by SUBTENANT.
10.1 SUBTENANT's Alterations. Anything to the contrary contained
herein notwithstanding, SUBLANDLORD grants SUBTENANT, permission to make a
5 foot x 9 foot opening in the shear wall, separate the utilities and close
off various doors and windows which connect the area between the
SUBLANDLORD and SUBTENANT.
11. Signs. SUBTENANT shall not be entitled to place or install any signs
on or about the subject Premises without obtaining SUBLANDLORD's prior written
consent, which may be given or withheld in SUBLANDLORD's sole discretion.
12. Hazardous Materials. Notwithstanding anything contained in Paragraph
47 of the Master Lease, SUBTENANT shall not be entitled to use or store any
Hazardous Materials or Substances on or about the Subject Premises without first
obtaining the express written consent of SUBLANDLORD, which may be given or
withheld in SUBLANDLORD's absolute and sole discretion.
13. Consent of Master Landlord. This sublease is made and entered into
with the full knowledge and agreement of MASTER LANDLORD, who consented to this
sublease by executing an Amendment to the Master Lease on January 5, 1996.
IN WITNESS WHEREOF, the parties have executed this Sublease Agreement on
the date indicated below.
SSE Technologies, Inc., a Delaware
corporation
--------------------------------------
("SUBTENANT")
By: /s/ FRED C. TOOMBS
--------------------------------------
By: Fred C. Toombs
--------------------------------------
Date: 2/26/96
--------------------------------------
, a corporation
--------------------------------------
("SUBLANDLORD")
By:
--------------------------------------
By:
--------------------------------------
Date:
--------------------------------------
Page 3
<PAGE> 1
SIXTH AMENDMENT
TO
OFFICE LEASE AGREEMENT
This SIXTH AMENDMENT TO OFFICE LEASE AGREEMENT, (the "Amendment") dated as
of the 10th day of October, 1996, by and between 8230/NVC LIMITED PARTNERSHIP, a
Virginia limited partnership, (the "Landlord"), and SSE TELECOM, INC., a
Delaware corporation, (the "Tenant").
WITNESSETH
WHEREAS, 8230 Leesburg Pike Limited Partnership and Venture America
Services, Inc. entered into a certain Office Lease Agreement dated September 14,
1989, as amended by the First Amendment to Office Lease Agreement dated February
6, 1990, the Second Amendment to Office Lease Agreement dated September 14,
1992, 8230 Leesburg Pike Limited Partnership Assignment of Lease to 8230/NVC
Limited Partnership (the "Landlord") dated June 30, 1993, Third Amendment to
Office Lease Agreement dated October 29, 1993, the Fourth Amendment to Office
Lease Agreement dated August 25, 1994, and the Fifth Amendment to Office Lease
Agreement dated October 30, 1995, (collectively the "Lease"), for approximately
3,528 square feet of space on the seventh floor in a certain office building
located at 8230 Leesburg Pike, Vienna, Virginia (the "Building"); and
WHEREAS, Landlord and Venture America Services, Inc. Entered into an
Assignment, Assumption and Amendment of Lease dated October 10, 1995, whereby
VENTURE AMERICA SERVICES, L.P. assigned its Lease to SSE TELECOM, INC. (the
"Tenant"); and
WHEREAS, the Landlord and Tenant wish to amend certain provisions of the
Lease as set forth herein.
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00)
and other valuable considerations, the receipt of which are hereby acknowledged,
Landlord and Tenant agree that the Lease is hereby amended as follows:
1. As of the execution date of this Amendment, the Lease Term defined
in Paragraph 2.1 shall be extended for an additional thirty-six (36) months
to terminate October 31, 1999.
2. Effective November 1, 1996, the second sentence of Paragraph 3.1
shall be deleted and the following added in its place:
"As of November 1, 1996 the monthly base rent shall increase to
$5,512.50 (which is based upon $18.75 per square foot)."
3. Paragraph 4.2(a) shall be modified to indicate that the Operating
Charges Base Amount shall be equal to the product of Six Dollars and
Seventy-five Cents ($6.75) and the Area of the Building.
4. The following shall be added to the end of Paragraph 3.1(b):
"(c) On November 1, 1997, and on each subsequent November 1, the Base
Rent then in effect shall be increased by three percent (3%)."
5. Paragraph 24.6(i) and (ii) shall be deleted in their entirety and
the following inserted in their respective places:
"(i) if to Landlord:
8239/NVC Limited Partnership
c/o Metro Realty Advisors, Inc.
8230 Leesburg Pike, Suite 510
Vienna, Virginia 22182
Attention: Peter H. Lunt
<PAGE> 2
(ii) if to Tenant:
SSE Telecom, Inc.
8230 Leesburg Pike, Suite 710
Vienna, Virginia 22182
Attention: Daniel E. Moore"
6. Landlord shall shampoo the carpet and repaint the premises within
ninety (90) days of final execution of this Amendment.
7. Except as expressly modified hereby, all other provisions of the
Lease remain in full force and effect in accordance with its terms.
8. This Amendment shall be governed and interpreted under the laws of
the Commonwealth of Virginia.
9. Current Security Deposit held by Landlord is $5,318.70.
IN WITNESS WHEREOF, the parties have put their hands and seals on the date
first above written.
<TABLE>
<S> <C>
WITNESS: LANDLORD:
8239/NVC LIMITED PARTNERSHIP
/s/-PHILLIP W. HATHCORT a Virginia limited partnership
- --------------------------------------------- By: Metro Realty Advisors, Inc.
its duly authorized Agent*
/s/ PETER H. LUNT
---------------------------------------------
Peter H. Lunt
Executive Vice President
WITNESS: TENANT:
SSE TELECOM, INC.
/s/ PAULA E. GREEN a Delaware corporation
- ---------------------------------------------
By: /s/ DANIEL E. MOORE
---------------------------------------------
Name: Daniel E. Moore
---------------------------------------------
Title: Executive Vice President
---------------------------------------------
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into effective as of the
3rd day of June, 1997, by and between SSE TELECOM, INC. ("Telecom"), a Delaware
corporation (as used herein, Telecom and its affiliates and subsidiaries are
collectively referred to as the "Company", unless the context requires otherwise
or it is otherwise specifically provided) and JAMES D. BLETAS, residing at the
address set forth after his signature (the "Executive").
WHEREAS, the Executive has accepted a position of employment with the
Company and the parties wish by this Agreement to provide for the employment of
the Executive, upon the terms and conditions and for the compensation as
hereafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and intending to be legally bound the parties hereto agree as
follows:
1. Term. The Executive's employment commenced on March 3, 1997 and subject
to the provisions of Section 5 hereof, the Company hereby agrees to employ
Executive and the Executive hereby accepts such employment with the Company upon
the terms and conditions herein provided.
2. Duties. The Executive, subject to the direction and control of the
Chief Executive Officer and Telecom's Board of Directors, shall devote his full
time, attention and energies to the business and affairs of Telecom and promote
the interests and welfare of Telecom. The Executive shall also provide services
to and for the benefit of the subsidiaries and affiliates of Telecom as such
further duties may, from time to time, be specified by the Board of Directors of
Telecom. If the Executive is elected or appointed a director or an officer of
the Company, the Executive will serve in such capacity or capacities without
further compensation; but nothing in this Agreement shall be construed as
requiring the election or appointment of the Executive as such director or
officer. The Executive agrees to perform his duties in an efficient, trustworthy
and business-like manner, consistent with the policies set by the Board of
Directors of Telecom who shall have the power to alter or change the general
practices of the business as such Board deems necessary to the best interests of
the Company. The Executive shall not, during the term hereof, be interested
directly or indirectly, in any manner, as partner, officer, director,
stockholder, advisor, employee or in any other capacity in any other business,
without Telecom's written consent; provided, however, that nothing herein
contained shall be deemed to prevent or limit the right of Executive to
participate as an investor in any business venture which is not competitive with
the Company's business.
3. Compensation.
(a) Compensation Plan. As compensation for the Executive's services under
this Agreement, Executive shall be entitled to receive during his employment the
base salary, bonuses and fringe benefits in accordance with this Section 3 and
in accordance with the compensation plan fixed for each fiscal year of the
Company, commencing with the current fiscal year.
(b) Compensation for Current Fiscal Year. The compensation and fringe
benefits for the current fiscal year are as follows:
(i) Base Salary. For all services rendered by the Executive under
this Agreement, the Executive shall be paid an annual base salary. The
annual base salary is One Hundred Fifty Thousand Dollars ($150,000) through
June 3, 1997 and effective June 8, 1997 the annual base salary shall be one
Hundred Sixty Thousand Dollars ($160,000). The annual base salary may be
increased from time to time during the term of this Agreement and shall be
payable to the Executive by Telecom, or by a subsidiary of Telecom, in
accordance with the practice adopted by such company for payment of wages
to its employees.
(ii) Bonuses. Bonus compensation shall be payable in cash and/or
stock options in accordance with a bonus compensation plan, if any, put
into effect by the Company for each fiscal year.
<PAGE> 2
(iii) Stock Options. Executive shall, prior to the end of the current
fiscal year, be granted stock options under Telecom's 1997 Equity
Participation Plan (the "Plan") so that the aggregate of all stock options
granted to the Executive as of September 30, 1997 will be for 45,000
shares.
(iv) Fringe Benefits. The Company has adopted policies in respect to
fringe benefits for employees in the nature of health and life insurance,
holidays, vacation, sick leave policies and disability. A copy of the
Company's present policies in respect to fringe benefits has been delivered
by the Company to Executive. The Company may from time to time amend its
present policies and adopt other fringe benefits to be generally available
to all employees. The Company covenants and agrees that Executive shall be
entitled to participate in any such fringe benefit policies adopted by the
Company to the same extent that such fringe benefits shall be available to
and for the benefit of executive level employees.
(c) Annual Review. The Company will review the compensation payable by the
Company to the Executive not less frequently than once annually, with the
purpose of adjusting the Executive's compensation in such manner as the Company
shall deem appropriate. Any such adjustment may modify the Executive's base
salary, establish provisions for the obtaining of bonus compensation, provide
for the granting of stock options and fix the fringe benefits to be made
available to Executive. Nothing herein shall be deemed to obligate the Company
to adjust the Executive's compensation, the parties hereby acknowledging that,
except as otherwise provided in Section 5, this is an at will employment
agreement.
4. Expenses. The Executive may incur reasonable expenses in connection
with promoting and operating the Company's business, including expenses for
entertainment, travel and similar items. If Executive has complied with the
Company policy regarding business expenses, the Company will reimburse the
Executive for all such expenses upon the Executive's periodic presentation of an
itemized account of such expenditures. However, in no event shall said
Executive's business expenses exceed the Company's policy.
5. Termination of Employment.
(a) Termination With Cause. The Company may terminate this Agreement
without any further compensation to Executive beyond the date of termination for
breach of this Agreement, willful or gross misconduct in performance of duties,
dishonesty, fraud, theft, embezzlement or any criminal act.
(b) Termination Without Cause.
(i) Without cause, the Company may terminate this Agreement at any
time upon fifteen (15) days' written notice to Executive. In such event,
the Executive, if requested by the Company, shall continue to render his
services and shall be paid his regular compensation up to the date of
termination. In addition, for the six (6) month period following the
effective date of termination of employment, the Executive shall be
entitled to receive, and shall receive, "Continuing Compensation" as
hereafter in subsection (iii) defined.
(ii) Without cause, the Executive may terminate this Agreement upon
thirty (30) days written notice to the Company. In such event, Executive
shall continue to render his services and shall be paid his regular
compensation up to the date of termination. Bonus compensation that has
been earned by the Executive through the date of his termination shall be
paid to Executive.
(iii) "Continuing Compensation" means and includes the following: (x)
the Executive's base salary as in effect as of the effective date of
termination, (y) any bonus compensation that would have been earned by
Executive based on the factors or elements of the bonus compensation plan
which had been achieved by Executive through the effective date of
termination, and (z) the fringe benefits customarily being made available
by the Company to Executive for health, life and disability insurance, but
excluding the accrual of holidays, vacation and sick leave, and further
excluding any participatory contributions by the Company to 401k or stock
purchase or similar plans. If the Company is obligated to make payment of
any continuing compensation, such payments shall be made during the
applicable period at the same time that the Company would make such
payments on behalf of its regular employees.
2
<PAGE> 3
(c) Termination Upon Sale of Business.
(i) If the Executive's employment is terminated by the Company as a
condition to the Sale of Business (as defined below), the Executive shall
be entitled to receive Continuing Compensation as defined in subsection
(b)(iii) above for a period of twelve (12) months from the effective date
of the termination of the Executive's employment.
(ii) For purposes of this Section 5(c), "Sale of Business" shall mean
the sale of all or substantially all of the assets of the Company as a
going concern to a single purchaser or to a group of associated purchasers,
the sale of all or substantially all of the outstanding stock of the
Company or the sale of all or substantially all of the outstanding stock of
SSE Telecom, Inc., or any similar transaction, as a result of which at
least eighty percent (80%) voting control the Company becomes vested in
persons other than those presently having such voting control. For the
foregoing provisions to be applicable, the transaction must be one in which
the Board of Directors of SSE Telecom and a majority of its shareholders
have voted in favor of the proposed transaction and the transaction must be
consummated.
(iii) In the event of the Sale of Business all outstanding options
held by Executive to acquire SSE Telecom stock shall be deemed vested as
provided in the Plan.
(d) Death During Employment. If the Executive dies during the term of
employment, the Company shall pay to the estate of the Executive the
compensation which would otherwise be payable to the Executive through the end
of the month in which his death occurs, including payments for accrued vacation
and accrued bonus.
6. Protective Covenants; Remedies.
(a) Non-Disclosure of Confidential Information. Executive will not, during
the term of this Agreement, or at any time during the five year period
thereafter, divulge, furnish or make accessible to anyone other than the
Company, the directors and officers of the Company, unless otherwise in the
regular course of the business of the Company, any knowledge or information with
respect to (i) confidential or secret documents, processes, plans, models, sales
data, contracts, financial costs, product prices, devices, business
opportunities or any other material relating to the business and activities of
Telecom or its subsidiaries or affiliates, or (ii) any other confidential or
secret aspect of the business of Telecom or its subsidiaries or affiliates,
including without limitation any lists or other information with respect to any
clients or customers of Telecom or its subsidiaries or affiliates (the foregoing
being hereinafter collectively referred to as the "Confidential Information").
The Executive acknowledges that such Confidential Information is of special and
peculiar value to the Company; is the property of the Company, the product of
years of experience and trial and error; is not generally known to the Company's
competitors; and is regularly used in the operation of the Company's business.
(b) Non-Competition. The Executive agrees that during the term of this
Agreement and for the twelve month period following termination of Executive's
employment, and without regard to the reason for such termination, the Executive
will not, directly or indirectly, own, manage, operate, control, be employed by,
participate in, or be connected in any manner with ownership, management,
operation or control of any business, directly in competition with the business
conducted by Telecom, its subsidiaries or affiliates, at the time of the
termination of this Agreement.
(c) Suspension of Time. Notwithstanding any provision of this Agreement to
the contrary, the time periods for the protective covenants set forth herein
shall be suspended during the period of any breach or violation of such
protective covenant, and likewise shall be suspended for the time in which there
shall be pending in any court of competent jurisdiction, any action or
proceeding to enforce such covenant where temporary or injunctive relief has not
been granted.
(d) Acknowledgment Regarding Protective Covenants. The Executive
acknowledges and understands that the covenants provided for in this Section 6
are limited to the covenants set forth herein and do not preclude the Executive
upon the termination of this Agreement from obtaining gainful employment or
utilizing the Executive's general business skills, and that numerous
opportunities exist for the Executive to utilize such skills. Although the
Executive agrees that the time and area restraints set forth herein are
3
<PAGE> 4
reasonable; nevertheless, if for any reason now unforeseen, a court of competent
jurisdiction finds that the time and/or area restraints agreed to herein by the
parties are unreasonable then the time and/or area restraints agreed to herein
shall be reduced to an area and/or duration deemed reasonable by such court. The
Executive acknowledges that he has read and understands the terms of this
Agreement, that same was specifically negotiated, and that the protective
covenants agreed upon herein are necessary for the protection of the Company's
business as a result of the business secrets that will be disclosed during the
employment.
(e) Remedies. In addition to any other rights and remedies which are
available to the Company, with respect to any breach or violation of the
protective covenants set forth herein, it is recognized and agreed that the
Company shall be entitled to obtain injunctive relief which would prohibit the
Executive from continuing any breach or violation of such protective covenants.
The Company may pursue any of the remedies allowed by this Agreement
concurrently or consecutively in any order as to any breach or violation of the
protective covenants, and the pursuit of any such remedies at any time will not
be deemed an election of remedies or waiver of the right to pursue the other of
such remedies as to that breach or violation, or as to any other breach or
violation of this Agreement. Pursuit of one or more remedies shall not preclude
pursuit of any other remedies herein provided or any other remedy that may be
available to the Company.
7. Disputes. In the event of any litigation between the Company and the
Executive arising out of this Agreement, and the rights and obligations of the
parties hereunder, the prevailing party shall be entitled to seek an award from
the court to recover his or its reasonable attorney's fees and court costs. The
court shall not award attorney's fees if the court determines that the
litigation arose from a bona fide good faith dispute.
8. Notices. Any notice required or permitted to be given under this
Agreement shall be deemed sufficient if in writing, and sent by registered or
certified mail to his residence, in the case of the Executive or to its
principal office, in the case of the Company.
9. Waiver of Breach. The failure of either party to insist in any one or
more instances upon performance of any terms or conditions of this Agreement
shall not be construed as a waiver of future performance of any such term,
covenant, or condition, but the obligations of either party with respect thereto
shall continue in full force and effect.
10. Assignment. Executive acknowledges that said services to be rendered
by him are unique and personal. Accordingly, the Executive may not assign any of
his rights or delegate any of his duties or obligations under this Agreement.
The rights and obligations of the Company under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
Company.
11. Entire Agreement. This Agreement supersedes all previous agreements
between the Company and Executive and contains the entire understanding and
agreement between the parties with respect to the subject matter hereof, and
cannot be amended, modified or supplemented in any respect except by a
subsequent written agreement entered into by both parties.
12. Applicable Law. The validity, enforceability and interpretation of
this Agreement shall be determined and governed by the laws of the State of
Delaware. Any action brought pursuant to this Agreement may, however, be brought
in the state or federal courts in the State of California.
13. Number of Agreements. This Agreement may be executed in any number of
counterparts, any one of which may be deemed original.
14. Severability. If any of the provisions of this Agreement are held to
be invalid or unenforceable, all other provisions hereof shall nevertheless
continue in full force and effect.
15. Pronouns. The use of any word in any gender shall be deemed to include
any other gender and the use of any word in the singular shall be deemed to
include the plural where the context requires.
16. Headings. The section headings used in this Agreement are for
convenience only and are not to be controlling with respect to the contents
thereof.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
COMPANY:
SSE TELECOM, INC.
By: /s/ DANIEL E. MOORE
------------------------------------
Its: CEO
Date: July 25, 1997
EXECUTIVE:
By: /s/ JAMES D. BLETAS
------------------------------------
James D. Bletas
Date: July 25, 1997
Address:
---------------------------------
---------------------------------
---------------------------------
5
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into effective as of the
day of , 1997, by and between SSE TELECOM, INC. ("Telecom"), a
Delaware corporation (as used herein, Telecom and its affiliates and
subsidiaries are collectively referred to as the "Company", unless the context
requires otherwise or it is otherwise specifically provided) and CLAUDIO
MARIOTTA, residing at the address set forth after his signature (the
"Executive").
WHEREAS, the Executive has accepted a position of employment with the
Company and the parties wish by this Agreement to provide for the employment of
the Executive, upon the terms and conditions and for the compensation as
hereafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and intending to be legally bound the parties hereto agree as
follows:
1. Term. The Executive's employment shall commence on the date hereof and
subject to the provisions of Section 5 hereof, the Company hereby agrees to
employ Executive and the Executive hereby accepts such employment with the
Company upon the terms and conditions herein provided.
2. Duties. The Executive, subject to the direction and control of
Telecom's Board of Directors, shall devote his full time, attention and energies
to the business and affairs of Telecom and promote the interests and welfare of
Telecom. The Executive shall also provide services to and for the benefit of the
subsidiaries and affiliates of Telecom as such further duties may, from time to
time, be specified by the Board of Directors of Telecom. If the Executive is
elected or appointed a director or an officer of the Company, the Executive will
serve in such capacity or capacities without further compensation; but nothing
in this Agreement shall be construed as requiring the election or appointment of
the Executive as such director or officer. The Executive agrees to perform his
duties in an efficient, trustworthy and business-like manner, consistent with
the policies set by the Board of Directors of Telecom who shall have the power
to alter or change the general practices of the business as such Board deems
necessary to the best interests of the Company. The Executive shall not, during
the term hereof, be interested directly or indirectly, in any manner, as
partner, officer, director, stockholder, advisor, employee or in any other
capacity in any other business, without Telecom's written consent; provided,
however, that nothing herein contained shall be deemed to prevent or limit the
right of Executive to participate as an investor in any business venture which
is not competitive with the Company's business.
3. Compensation.
(a) Compensation Plan. As compensation for the Executive's services under
this Agreement, Executive shall be entitled to receive during his employment the
base salary, bonuses and fringe benefits in accordance with this Section 3 and
in accordance with the compensation plan fixed for each fiscal year of the
Company, commencing with the current fiscal year. The compensation plan for each
fiscal year shall be established by the Company, reduced to writing and signed
by the Executive and an officer of Telecom (other than the Executive).
(b) Base Salary. For all services rendered by the Executive under this
Agreement, the Executive shall be paid an annual base salary of One Hundred
Thirty-Nine Thousand One Hundred Dollars ($139,100). The annual base salary may
be increased from time to time during the term of this Agreement and shall be
payable to the Executive by Telecom, or by a subsidiary of Telecom, in
accordance with the practice adopted by such company for payment of wages to its
employees.
(c) Bonuses. Bonus compensation shall be payable in cash and/or stock
options in accordance with a bonus compensation plan, if any, put into effect by
Telecom's Board of Directors at the beginning of each fiscal year. The bonus
compensation plan will be administered by a committee appointed by Telecom's
Board of Directors.
(d) Stock Options. Executive shall, prior to the end of the current fiscal
year, be granted stock options under Telecom's 1997 Equity Participation Plan
(the "Plan") so that the aggregate of all stock options granted to the Executive
as of September 30, 1997 will be for ( ) shares.
<PAGE> 2
(e) Fringe Benefits. SSE Tech has adopted policies in respect to fringe
benefits for employees in the nature of health and life insurance, holidays,
vacation, sick leave policies and disability. A copy of SSE Tech's present
policies in respect to fringe benefits has been delivered by the Company to
Executive. SSE Tech may from time to time amend its present policies and adopt
other fringe benefits to be generally available to all employees. SSE Tech
covenants and agrees that Executive shall be entitled to participate in any such
fringe benefit policies adopted by SSE Tech to the same extent that such fringe
benefits shall be available to and for the benefit of executive level employees.
4. Expenses. The Executive may incur reasonable expenses in connection
with promoting and operating the Company's business, including expenses for
entertainment, travel and similar items. If Executive has complied with the
Company policy regarding business expenses, the Company will reimburse the
Executive for all such expenses upon the Executive's periodic presentation of an
itemized account of such expenditures. However, in no event shall said
Executive's business expenses exceed the Company's policy without the prior
approval of the Board of Directors.
5. Termination of Employment.
(a) Termination With Cause. The Company may terminate this Agreement
without any further compensation to Executive beyond the date of termination for
breach of this Agreement, willful or gross misconduct in performance of duties,
dishonesty, fraud, theft, embezzlement or any criminal act.
(b) Termination Without Cause.
(i) Without cause, the Company may terminate this Agreement at any
time upon thirty (30) days' written notice to Executive. In such event, the
Executive, if requested by the Company, shall continue to render his
services and shall be paid his regular compensation up to the date of
termination and, in addition, the Company shall continue to pay to
Executive as severance pay his then base compensation and fringe benefits
for a period of three (3) months from the date of termination (less all
amounts required to be withheld and deducted).
(ii) Without cause, the Executive may terminate this Agreement upon
thirty (30) days written notice to the Company. In such event, Executive
shall continue to render his services and shall be paid his regular
compensation up to the date of termination, but no severance allowance
shall be paid to him. Bonus compensation that has been earned by the
Executive through the date of his termination shall be paid to Executive.
(c) Termination Upon Sale of Business.
(i) If the Executive's employment is terminated by the Company as a
condition to the Sale of Business (as defined below), the Executive's
compensation and fringe benefits will continue for a period of twelve (12)
months from the effective date of the termination of the Executive's
employment. However, if the Executive is offered continuing employment by
the Company or by the acquiring company, under terms substantially the same
as those in effect with the Company and for similar duties, this twelve
(12) month period will be reduced by each month of such continued
employment.
(ii) For purposes of this Section 5(c), "Sale of Business" shall mean
the sale of all or substantially all of the assets of the Company as a
going concern to a single purchaser or to a group of associated purchasers,
the sale of all or substantially all of the outstanding stock of the
Company or the sale of all or substantially all of the outstanding stock of
SSE Telecom, Inc., or any similar transaction, as a result of which at
least eighty percent (80%) voting control the Company becomes vested in
persons other than those presently having such voting control. For the
foregoing provisions to be applicable, the transaction must be one in which
the Board of Directors of SSE Telecom and a majority of its shareholders
have voted in favor of the proposed transaction and the transaction must be
consummated on or before March 31, 1998.
(iii) In the event of the Sale of Business all outstanding options
held by Executive to acquire Telecom stock shall be vested as provided in
the Plan.
2
<PAGE> 3
(d) Death During Employment. If the Executive dies during the term of
employment, the Company shall pay to the estate of the Executive the
compensation which would otherwise be payable to the Executive through the end
of the month in which his death occurs, including payments for accrued vacation
and accrued bonus.
6. Protective Covenants; Remedies.
(a) Non-Disclosure of Confidential Information. Executive will not, during
the term of this Agreement, or at any time thereafter, divulge, furnish or make
accessible to anyone other than the Company, the directors and officers of the
Company, unless otherwise in the regular course of the business of the Company,
any knowledge or information with respect to (i) confidential or secret
documents, processes, plans, models, sales data, contracts, financial costs,
formulae, devises, business opportunities or any other material relating to the
business and activities of Telecom or its subsidiaries or affiliates, or (ii)
any other confidential or secret aspect of the business of Telecom or its
subsidiaries or affiliates, including without limitation any lists or other
information with respect to any clients or customers of Telecom or its
subsidiaries or affiliates (the foregoing being hereinafter collectively
referred to as the "Confidential Information"). The Executive acknowledges that
such Confidential Information is of special and peculiar value to the Company;
is the property of the Company, the product of years of experience and trial and
error; is not generally known to the Company's competitors; and is regularly
used in the operation of the Company's business.
(b) Non-Competition. The Executive agrees that during the term of this
Agreement and for a period of two (2) years after the termination of Executive's
employment, and without regard to the reason for such termination, the Executive
will not, directly or indirectly, own, manage, operate, control, be employed by,
participate in, or be connected in any manner with ownership, management,
operation or control of any business, similar to the type of business conducted
by Telecom, its subsidiaries or affiliates, at the time of the termination of
this Agreement.
(c) Suspension of Time. Notwithstanding any provision of this Agreement to
the contrary, the time periods for the protective covenants set forth herein
shall be suspended during the period of any breach or violation of such
protective covenant, and likewise shall be suspended for the time in which there
shall be pending in any court of competent jurisdiction, any action or
proceeding to enforce such covenant where temporary or injunctive relief has not
been granted.
(d) Acknowledgment Regarding Protective Covenants. The Executive
acknowledges and understands that the covenants provided for in this Section 6
are limited to the covenants set forth herein and do not preclude the Executive
upon the termination of this Agreement from obtaining gainful employment or
utilizing the Executive's general business skills, and that numerous
opportunities exist for the Executive to utilize such skills. Although the
Executive agrees that the time and area restraints set forth herein are
reasonable; nevertheless, if for any reason now unforeseen, a court of competent
jurisdiction finds that the time and/or area restraints agreed to herein by the
parties are unreasonable then the time and/or area restraints agreed to herein
shall be reduced to an area and/or duration deemed reasonable by such court. The
Executive acknowledges that he has read and understands the terms of this
Agreement, that same was specifically negotiated, and that the protective
covenants agreed upon herein are necessary for the protection of the Company's
business as a result of the business secrets that will be disclosed during the
employment.
(e) Remedies. In addition to any other rights and remedies which are
available to the Company, with respect to any breach or violation of the
protective covenants set forth herein, it is recognized and agreed that the
Company shall be entitled to obtain injunctive relief which would prohibit the
Executive from continuing any breach or violation of such protective covenants.
The Company may pursue any of the remedies allowed by this Agreement
concurrently or consecutively in any order as to any breach or violation of the
protective covenants, and the pursuit of any such remedies at any time will not
be deemed an election of remedies or waiver of the right to pursue the other of
such remedies as to that breach or violation, or as to any other breach or
violation of this Agreement. Pursuit of one or more remedies shall not preclude
pursuit of any other remedies herein provided or any other remedy that may be
available to the Company.
3
<PAGE> 4
7. Disputes. In the event of any litigation between the Company and the
Executive arising out of this Agreement, and the rights and obligations of the
parties hereunder, the prevailing party shall be entitled to recover his or its
reasonable attorney's fees and court costs.
8. Notices. Any notice required or permitted to be given under this
Agreement shall be deemed sufficient if in writing, and sent by registered or
certified mail to his residence, in the case of the Executive or to its
principal office, in the case of the Company.
9. Waiver of Breach. The failure of either party to insist in any one or
more instances upon performance of any terms or conditions of this Agreement
shall not be construed as a waiver of future performance of any such term,
covenant, or condition, but the obligations of either party with respect thereto
shall continue in full force and effect.
10. Assignment. Executive acknowledges that said services to be rendered
by him are unique and personal. Accordingly, the Executive may not assign any of
his rights or delegate any of his duties or obligations under this Agreement.
The rights and obligations of the Company under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
Company.
11. Entire Agreement. This Agreement supersedes all previous agreements
between the Company and Executive and contains the entire understanding and
agreement between the parties with respect to the subject matter hereof, and
cannot be amended, modified or supplemented in any respect except by a
subsequent written agreement entered into by both parties.
12. Applicable Law. The validity, enforceability and interpretation of
this Agreement shall be determined and governed by the laws of the Commonwealth
of Virginia.
13. Number of Agreements. This Agreement may be executed in any number of
counterparts, any one of which may be deemed original.
14. Severability. If any of the provisions of this Agreement are held to
be invalid or unenforceable, all other provisions hereof shall nevertheless
continue in full force and effect.
15. Pronouns. The use of any word in any gender shall be deemed to include
any other gender and the use of any word in the singular shall be deemed to
include the plural where the context requires.
16. Headings. The section headings used in this Agreement are for
convenience only and are not to be controlling with respect to the contents
thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
SSE TELECOM, INC.
By:
------------------------------------
Its:
EXECUTIVE:
--------------------------------------
Claudio Mariotta
Address:
---------------------------------
---------------------------------
---------------------------------
4
<PAGE> 5
<PAGE> 1
EXHIBIT 11
SSE TELECOM
COMPUTATION OF EARNINGS PER SHARE
FOR YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 28, 1996, SEPTEMBER 30, 1995
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
PRIMARY:
Weighted common average shares outstanding...................... 5,580 5,368 5,370
Increase in weighted average shares due to dilutive stock
options and warrants.......................................... -- 227 217
Primary weighted average shares................................. 5,580 5,595 5,587
------- ------ ------
Net income/(loss):.............................................. $(1,890) $ 131 $1,099
Primary net income (loss) per share:............................ $ (.32) $ .02 $ .20
------- ------ ------
FULLY DILUTED:
Weighted average common shares outstanding...................... 5,580 5,368 5,370
Increase in weighted average shares due to dilutive stock
options and warrants.......................................... 32 230 220
Shares issuable from assumed exercise of conversion of 6 1/2%
convertible subordinated debentures........................... 340 711 729
------- ------ ------
Fully diluted shares............................................ 5,955 6,309 6,319
------- ------ ------
Net income/(loss):.............................................. $(1,890) $ 131 $1,099
Interest on 6 1/2% convertible subordinated, net of income tax
effect........................................................ 284 358 420
------- ------ ------
Net income/(loss), as adjusted.................................. $(1,606) $ 489 $1,519
======= ====== ======
Fully diluted net income/(loss) per share....................... $ (.27)* $ .08* $ .24*
======= ====== ======
</TABLE>
- ---------------
* This calculation is submitted in accordance with Regulation S-K item 601
(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because
it produces an anti-dilutive effect.
31
<PAGE> 1
EXHIBIT 21.1
SSE TELECOM
SUBSIDIARIES OF REGISTRANT
SSE Technologies Inc.
SSE Datacom, Inc.
32
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-57700 and 33-65084) pertaining to the SSE Telecom, Inc. 1988
Stock Option Plan and the SSE Telecom, Inc. 1992 Stock Option Plan and in the
Registration Statement (Form S-3 No. 33-57046) of SSE Telecom, Inc. and in the
related Prospectuses, of our report dated December 4, 1997, with respect to the
consolidated financial statements and schedule of SSE Telecom, Inc. included in
the Annual Report (Form 10-K), for the year ended September 27, 1997.
ERNST & YOUNG LLP
San Jose, California
December 29, 1997
33
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> SEP-27-1997
<CASH> 408
<SECURITIES> 0
<RECEIVABLES> 11,683
<ALLOWANCES> 622
<INVENTORY> 12,888
<CURRENT-ASSETS> 28,547
<PP&E> 12,404
<DEPRECIATION> 8,063
<TOTAL-ASSETS> 47,557
<CURRENT-LIABILITIES> 14,823
<BONDS> 3,803
0
0
<COMMON> 60
<OTHER-SE> 23,483
<TOTAL-LIABILITY-AND-EQUITY> 47,557
<SALES> 45,764
<TOTAL-REVENUES> 45,764
<CGS> 36,431
<TOTAL-COSTS> 51,864
<OTHER-EXPENSES> (3,716)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524
<INCOME-PRETAX> (2,908)
<INCOME-TAX> (1,018)
<INCOME-CONTINUING> (1,890)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,890)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
