<PAGE> 1
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
For the Fiscal year ended September 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-16473
SSE TELECOM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1466297
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47823 Westinghouse Drive 94539
Fremont, California (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code:
(510) 657-7552
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. [ ]
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 4,
1998 as reported on the Nasdaq National Market, was approximately $8,913,698.
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 4, 1998,
there were 6,016,099 shares of the Registrant's Common Stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Notice of Annual Meeting of Stockholders and
proxy statement for the Annual Meeting of Stockholders (the "Proxy
Statement") are incorporated by reference in Part III of Form 10-K.
(2) Portions of the registrant's Annual Report to Stockholders for the fiscal
year ended September 26, 1998.
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PART I
ITEM 1. BUSINESS
SSE Telecom, Inc.'s (the "Company" or "SSE Telecom") principal business is
the manufacture and sale of satellite telecommunication equipment. The Company
designs, manufactures and markets satellite communications products and systems
for the transmission of voice, data, fax and video. SSE Telecom sells its
products directly to domestic and international telecommunication system
integrators as well as to certain sophisticated end users and has an installed
base of over 40,000 transceivers and modems in satellite earth stations located
in over 110 different countries.
The Company's principal executive offices and manufacturing operations are
located in Fremont, California at 47823 Westinghouse Drive, Fremont, CA
94539-7437.
SATELLITE COMMUNICATION INDUSTRY OVERVIEW
Growing international demand for telecommunications capacity, technical
innovation and deregulation trends continue to contribute to the growth in the
worldwide satellite communications market. The growth is fueled by user
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 equipment portion of the satellite communications market is generally
segmented into earth station and component submarkets. The earth station market
is further divided into large, medium, small, very small aperture terminal
("VSAT") and mobile segments. The Company's primary product focus is on the
small and VSAT segments of the market.
PRODUCTS
A satellite earth station system generally consists of three primary
components: (1) transceivers (2) modems and (3) antennas. SSE Telecom
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, the Company designs and markets a
wide range of integrated satellite hardware, including rack-mounted converters.
The Company also selectively provides systems integration services to certain
sophisticated end users of satellite earth station products.
The Company offers more than 20 different products, including STAR
satellite transceivers, modems, rack converters, and T-Series outdoor
converters. The Company is focused on three primary product areas: (1) microwave
radio frequency ("RF") products which include X, C and Ku-band transceivers and
converters, (2) digital products, primarily satellite modems, and (3) system
product offerings for Federal government applications.
Transceivers
Transceivers manufactured by the Company contain microwave
downconverters, upconverters, frequency synthesizers and power amplifiers.
SSE Telecom 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 Telecom
manufactures a variety of transceivers at X, C and Ku-band frequencies.
Specific power and frequency requirements may be adjusted to individual
customer requirements.
Transceiver options support many different types of specific
applications and, therefore, prices may vary over a wide range. However,
most of these products are standard elements of communications systems
and, as such, are competitively priced.
Modems
SSE Telecom manufactures a broad range of modems ranging from a low
cost, low data rate closed network modem to a fully featured IBS/IDR high
speed modem. The Company's modems and complementary redundancy switches
provide voice, data, and video communications where industry standard
modulation techniques and programmable coding options are required. These
modems support industry standard BPSK, QPSK and 8PSK/TCM modulation
methods.
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Transportable Satellite Terminals
SSE Telecom manufactures several configurations of small transportable
terminals (Fly-Away earth stations) for X, C, Ku and Tri-Band
configurations. The transportable Tri-Band transceivers are lightweight and
designed to permit rapid change to X, C and Ku frequencies with minimal
changes to the physical configuration of the system. These are designed for
maximum performance in a small package with quick and easy set up with no
tools.
CUSTOMERS
Customers of the Company's products include domestic and international
telecommunication systems integrators and service providers, private
communication networks and foreign and domestic government agencies. These key
customers represent a wide range of applications including internet access,
business networks, government usage, training and distance learning. Companies
in broadcast television also contribute to demand in some regions of the world.
The Company's customer base, while diverse, includes a concentration of five
customers which accounted for 42% of revenues in 1998. The U.S. Government and
Loral/Orion, Inc. each accounted for 10% of revenues in 1998. The U.S.
Government accounted for 11% of revenues in 1997 and Nortel Dasa accounted for
13% of revenues in 1996.
The evolving international markets continue to be an important source of
revenue for the Company. Continued requirements for telephone service
internationally drives 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 Company has an installed base of products in over 110
countries. Direct export revenues accounted for 44% of the Company's revenues in
1998, 45% of the Company's revenues in 1997 and 56% of the Company's revenues in
1996. No individual geographic region represented a significant portion of
revenues.
SALES, MARKETING AND CUSTOMER SUPPORT
SSE Telecom directs its marketing activities and programs toward domestic
and international systems integrators of telecommunications equipment and to
establishing direct relationships with certain substantial companies or
government agencies who provide their own systems installations. The Company
markets and supports its products through 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 believes an essential element of its marketing strategy is its
establishment and maintenance of close relationships with its customers through
multi-functional teams composed of technical, marketing, sales, training, and
manufacturing personnel. Field engineers, customer service representatives,
application engineers and sales support personnel provide support services to
customers. Customers receive direct support from customer service
representatives throughout the order entry, manufacturing and delivery
scheduling processes so that customer equipment specifications and scheduling
may be met. Warranty and repair service is administered by the same
representatives, thus enhancing the continuity of customer support. Technical
and service support is 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. Most support services are
provided through direct contact via telephone, e-mail and facsimile. When
appropriate, technical and training support is also provided in the field at
customer sites. Customers may also receive training at the Company's facilities.
MANUFACTURING
The Company manufactures its products in Fremont, California. This
facility is certified ISO 9001 compliant. The primary manufacturing focus during
1998 was the manufacture of STAR transceivers, and two modem products that had
been introduced in 1997. The STAR transceivers, introduced in late 1996, are the
Company's latest design in a series of advanced satellite transceiver products,
utilizing Monolithic Microwave Integrated Circuit (MMIC) technology.
COMPETITION
The satellite communications equipment market is very competitive and the
Company expects that competition will increase. Significant competitive factors
include price, quality, delivery, product performance and features, timing of
new product introductions by the Company and its competitors, and customer
service and support. The Company believes it competes favorably in each of these
areas. 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.
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RESEARCH AND DEVELOPMENT AND SUSTAINING ENGINEERING
The Company's research and development efforts focus on new product
development, adding or enhancing features on existing products, and sustaining
engineering on mature products. Research and development expenses were
approximately $5.6 million, or 15.3% of revenue during fiscal 1998, $5.1
million, or 11.1% of revenue in fiscal 1997, and $4.2 million, or 9.0% of
revenue in fiscal 1996. 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. Research and development
expenses are expected to decline in fiscal 1999 relative to fiscal 1998 due to
the planned increased reliance on outside supplier relationships. However, the
Company plans to continue with its commitment to research and development in
fiscal 1999.
PERSONNEL
As of December 4, 1998, the Company employed a total of 172 regular
fulltime employees and 17 temporary employees. 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 had a backlog of firm orders of $5,931,000 at September 26,
1998, and management expects all of the orders to be delivered within fiscal
1999. The current backlog compares to a backlog of $11,027,000 at September 27,
1997 and $8,872,000 at September 28, 1996. The decrease in backlog in 1998 was
due to lower order bookings primarily due to economic conditions in Latin
America and Asia, in addition to reduced U.S. Government demand. The backlog is
generally representative of the historical product and customer mix. Backlog as
of December 4, 1998 was approximately $5,639,000.
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.
RISK FACTORS
Information contained in this document 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:
Potential Fluctuations in Quarterly Operating Results
The Company's operating results have fluctuated in the past and may
fluctuate in the future as a result of a number of factors, including
market acceptance of the Company's product line of STAR satellite
transceivers and the Company's new high speed high data rate modems,
delays in the delivery of the Company's products, delays in the closing of
sales, availability, quality, timely shipment of materials, equipment and
components from the Company's suppliers, new product introductions and
product enhancements by the Company or its competitors, the prices of the
Company's or its competitors products, the mix of products sold,
manufacturing costs, the level of warranty claims and changes in general
economic conditions. In addition, competitive pressure on pricing in a
given quarter could adversely affect the Company's operating results for
such period, and such price pressure over an extended period could
materially adversely affect the Company's long term profitability. For
example, the Company's reduction in the list price of its STAR transceiver
during fiscal 1998 had a negative impact on net revenues and gross
margins. The Company expects that the gross margin will continue to be
under pressure to decline due to such price reductions as well as
continuing competitive price pressure in the satellite telecommunication
equipment market. The Company's ability to maintain or increase net
revenues and gross margin will depend upon its ability to increase unit
sales volumes, reduce manufacturing costs and introduce new products or
product enhancements. There can be no assurance that the Company will be
able to increase unit sales volumes of existing products, introduce and
sell new products or reduce its costs as a percentage of net revenues. The
Company typically ships products near the end of each quarter.
Accordingly, the Company's net revenues for any particular quarter cannot
be predicted with any degree of accuracy. In addition, the Company has, in
the past, experienced delays with shipping its products which has caused
its revenues and net income to fluctuate significantly from anticipated
levels and from quarter to quarter. Due to all of the foregoing
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factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would
likely be materially adversely affected.
Product Concentration; Market Acceptance of Products
Sales of the Company's STAR transceivers have accounted for
approximately 44% of net revenues in 1998. The Company anticipates that
its STAR transceivers will continue to account for a substantial majority
of its net revenues during fiscal year 1999. Any factor adversely
affecting the demand or supply for the STAR transceiver product line could
materially adversely affect the Company's business, financial condition or
results of operations. The market for the Company's products is subject to
technological change, new product introductions and continued market
acceptance. Current competitors or new market entrants may develop new
products with features that could cause a significant decline in sales,
price reductions or loss of market acceptance of the Company's existing
products and future products. The Company's success will depend, among
other factors, upon its ability to enhance its existing products and to
introduce new products on a timely basis.
The Company's STAR transceivers and other products are extremely
complex and the Company has, in the past, experienced problems with
respect to the performance and reliability of these products. If the
Company's products continue to have performance and reliability or quality
problems, then the Company may experience reduced orders and additional
warranty and service expenses. In addition, such problems may damage the
Company's reputation and adversely affect its ability to attract new
customers. There can be no assurance that the Company will not encounter
performance or reliability issues in the future.
Limited Number of Principal Customers
Sales of the Company's products are concentrated in a small number of
customers. For fiscal 1998, the largest five customers accounted for 42%
of sales. There can be no assurance that the Company will realize
equivalent sales from their top customers in the future. The loss of any
existing customer or a significant reduction in the level of sales to any
existing customer could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Suppliers
The Company's manufacturing operations are highly dependent upon the
timely delivery of quality components and other equipment by outside
suppliers. From time to time the Company has experienced delivery delays
from key suppliers which impacted sales. In addition, as was experienced
in 1998 and 1997, certain vendor supplied materials may have quality
issues which could impact sales and increase customer support costs. There
can be no assurance that the Company will not experience material supply
problems or component issues in the future.
Competition
The market for satellite telecommunication equipment is highly
competitive and subject to rapid technological change. The Company
competes with a number of companies that manufacture components of
satellite earth station systems similar to those manufactured by the
Company. Certain of these companies have substantially greater financial
resources and production, marketing, engineering and other capabilities
than the Company with which to develop, manufacture, market and sell their
products. 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 customer service
and support.
The Company expects its competitors to continue to improve the
performance of their current products and to introduce new products or new
technologies that provide improved performance characteristics. New
product introductions by existing competitors and the entry of new
competitors into the satellite telecommunication equipment market has in
the past and may in the future cause the Company to reduce the prices of
its products. The Company expects this increased competitive pressure to
lead to intensified price-based competition, resulting in lower prices and
may result in lower gross margins which would adversely affect the
Company's business, financial condition and results of operations.
Attraction and Retention of Qualified Personnel
The Company's manufacturing and development capabilities are highly
dependent upon hiring and retaining the required technical personnel. The
Company competes for such personnel with other companies, government
entities and organizations. From time to time the Company has experienced
difficulties in recruiting and retaining key qualified personnel which
impacted operations. There can be no assurance that the Company will not
experience personnel resource problems in the future.
Year 2000
The Company is aware that many existing Information Technology
("IT") systems, such as computer and software products, as well as non-IT
systems that included embedded technology, were not designed to correctly
process data after December 31, 1999. The Company has created a Year 2000
project team to review, and evaluate the Company's products, computer
systems, test equipment systems and other non-IT systems. The Company has
determined that it will be necessary to modify or replace portions of its
software so that its computer and non-IT systems will properly utilize
dates beyond 1999. The Company believes that with
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modifications and conversions to new software, the Year 2000 issue can be
mitigated, and anticipates completion of all Year 2000 efforts by the end
of fiscal 1999. However, if such modifications and conversions are not
made, or are not completed in a timely manner, the Year 2000 issue could
have a material impact on the operations of the Company. The Company has
also initiated discussions with its suppliers regarding their plans to
investigate and address their Year 2000 problems, if any. Failures by the
Company's suppliers' computer systems could adversely affect the demand
for product. There can be no assurance that the systems of other companies
on which the Company's systems, services, and products rely will be timely
converted, or that any such failure to convert by another company would
not have an adverse affect on the Company's business financial conditions
or results of operations.
The Company has been using both external and internal resources to
upgrade its commercial software programs for the Year 2000 issue. To date,
the amounts incurred and expensed for developing and carrying out the plan
have not had a material effect on the Company's operations. The Company
plans to complete the Year 2000 modifications, including testing, by the
end of 1999. The total remaining estimated cost for addressing the Year
2000 Issue of approximately $220,000,which is based on management's
current estimates, is not expected to be material to the Company's
operations. All remaining Year 2000 issue costs will be funded through
operating cash flows.
As the efforts of the Year 2000 project team continue, the Company
may identify situations that present material Year 2000 risks and/or that
will require substantial time and material expense to address. In
addition, if any customers, suppliers or service providers fail to
appropriately address their Year 2000 issues, such failure could have a
material adverse effect on the Company's business, financial condition and
results of operations. For example, because a significant percentage of
the purchase orders received from the Company's customers are computer
generated and electronically transmitted, a failure of one or more of the
computer systems of the Company's customers could have a significant
adverse effect on the level and timing of orders from such customers.
Similarly, if Year 2000 problems experienced by any of the Company's
significant suppliers or service providers cause or contribute to delays
or interruptions in the delivery of products or services to the Company,
such delay or interruptions could have a material adverse effect on the
Company's business, financial condition and results of operations.
Finally, disruption in the economy generally resulting from Year 2000
issues could also materially adversely affect the Company. Although the
Year 2000 project team has not determined the most likely worst-case Year
2000 scenarios or quantified the likely impact of such scenarios, it is
clear that the occurrence of one or more of the risks described above
could have a material adverse effect on the Company's business, financial
conditions or results of operations.
The Company's Year 2000 project team's activities will include the
development of contingency plans in the event the Company has not
completed all of its remediation programs in a timely manner. In addition,
the Year 2000 project team will develop contingency plans in the event
that any third parties who provide goods and services essential to the
Company's business fail to appropriately address their Year 2000 issues.
The Year 2000 project team expects to conclude the development of these
contingency plans by the end of fiscal 1999. Even if these plans are
completed on time and put in place, there can be no assurance that such
plans will be sufficient to address any third party failures or that
unresolved or undetected internal and external Year 2000 issues will not
have a material adverse effect on the Company's business, financial
condition and results of operations
ITEM 2. PROPERTIES
SSE Telecom occupies two facilities: 37,700 square feet at 47823
Westinghouse Drive, Fremont, California which houses manufacturing and
administration, and approximately 11,000 square feet at 47436 Fremont Boulevard,
Fremont, California which houses research and development. 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 1999. The Company maintains its
executive offices in the Fremont facilities. SSE Telecom also leases
approximately 7,000 square feet of facilities in Phoenix, Arizona that was once
occupied by SSE Datacom. This facility is not currently utilized and the Company
is actively marketing the facility for sublease.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation and is not aware of any
litigation that 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 4, 1998, there were
approximately 157 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.
<TABLE>
<CAPTION>
1998 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $7.25 $4.56
Second Quarter 4.94 3.50
Third Quarter 4.84 3.50
Fourth Quarter 2.75 1.31
<CAPTION>
1997 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $9.35 $7.25
Second Quarter 8.75 7.25
Third Quarter 7.50 5.56
Fourth Quarter 6.63 4.63
</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. The Company's credit facility requires the Company's bank to
give prior written approval before declaring or paying cash dividends.
RECENT SALES OF UNREGISTERED SECURITIES
In fiscal 1998, the Company did not sell any of its securities in
unregistered sales.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(dollars and shares in thousands except for per share data)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SUMMARY OF OPERATIONS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
REVENUE $ 36,739 $ 45,764 $ 46,220 $ 33,569 $ 30,173
Cost of revenue 34,618 36,431 33,697 22,952 19,997
GROSS MARGIN 2,121 9,333 12,523 10,617 10,176
OPERATING EXPENSES:
Research and development 5,622 5,071 4,179 2,958 2,543
Marketing, general and administrative 8,681 9,512 7,721 5,829 4,733
Write-off of acquired in-process R&D -- -- 1,404 -- --
Acquisition related asset write down -- -- 1,105 -- --
Restructuring 1,236 850 -- -- --
OPERATING (LOSS) INCOME (13,418) (6,100) (1,886) 1,830 2,900
Net (gain) on sale of investments (10,020) (3,730) (2,584) -- (1,227)
Net (gain) on sale of assets (5,094)
Net interest expense 411 524 479 223 147
Other expense 133 14 -- 94 586
INCOME (LOSS) BEFORE INCOME TAXES 1,152 (2,908) 219 1,513 3,394
Provision (benefit) for income taxes 484 (1,018) 88 414 1,224
NET INCOME (LOSS) $ 668 $ (1,890) $ 131 $ 1,099 $ 2,170
NET INCOME (LOSS) PER SHARE:
Basic net income (loss) per share $ 0.12 $ (0.32) $ 0.02 $ 0.20 $ 0.42
Diluted net income (loss) per share $ 0.12 $ (0.32) $ 0.02 $ 0.20 $ 0.40
Cash dividends paid $ -- $ -- $ -- $ -- $ --
Shares used in computing basic net
income (loss) per share 5,743 5,820 5,368 5,370 5,144
Shares used in computing diluted net
income (loss) per share 5,744 5,820 5,595 5,587 5,593
BALANCE SHEET:
Total current assets $ 20,883 $ 28,547 $ 27,214 $ 21,874 $ 21,652
Total assets 31,049 47,557 55,263 37,823 25,034
Total current liabilities 10,490 14,823 11,238 4,222 3,890
Total long-term liabilities 2,381 9,191 12,737 14,044 9,781
Stockholders' equity 18,178 23,543 31,288 19,557 11,363
</TABLE>
The table above sets forth selected consolidated financial data of SSE Telecom
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere in this report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and notes thereto in Item 8. This Annual Report on Form
10-K contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
herein. Factors that cause or contribute to such differences include, but are
not limited to, those discussed in "Business-Risk Factors" in Part 1 of this
Annual Report on Form 10-K and in the Company's other filings with the SEC.
OVERVIEW
Fiscal 1998 was a challenging year for SSE Telecom. The Company's
financial results were adversely impacted by lower than anticipated order
bookings resulting from unfavorable international economic conditions and
production problems related to both the transceiver and modem product lines. The
production process was affected by the restructuring and consolidation of the
Company's modem development operations from the Phoenix, Arizona facility to the
Fremont, California facilities.
The Company's 1998 year end backlog was $5.9 million. This was a 46.4%
decrease from 1997 year end of $11.0 million, and a 33.7% decrease over the 1996
year end of $8.9 million. The decrease was due to poor economic conditions in
Latin American and Asia, and decreased U.S. Government business resulting in
reduced order bookings. The difficulties in factory throughput also negatively
impacted order bookings.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1998, 1997 AND 1996
REVENUE: Revenues were $36.7 million for fiscal 1998 as compared to $45.8
million in fiscal 1997 and $46.2 million in fiscal 1996, representing a decrease
from 1997 to 1998 of 19.7% compared to a decrease of 1.0% from 1996 to 1997. The
decline in revenue for fiscal 1998 is principally attributable to lower bookings
in addition to a decline in the average selling prices in the Company's
transceiver products.
GROSS MARGIN: The gross margin was $2.1 million or 5.8% of revenues in
fiscal 1998, compared to $9.3 million or 20.4% of revenues and $12.5 million or
27.1% of revenues in fiscal 1997 and fiscal 1996, respectively. The gross margin
decline in 1998 was due to material manufacturing problems in the Company's
satellite transceivers, the $3.9 million expense associated with the elimination
of obsolete products, and a decline in the average selling price of the
Company's products. Gross margin 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.
OPERATING EXPENSES: Research and development spending was $5.6 million in
fiscal 1998, compared to $5.1 million in fiscal 1997, and $4.2 million in 1996.
Research and development expenses as a percentage of sales were 15.3%, 11.1% and
9.0% in fiscal 1998, 1997 and 1996, 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 1999.
Marketing, general and administrative expenses were $8.7 million or 23.6%
of revenues in fiscal 1998, compared to $9.5 million or 20.8% of revenues in
fiscal 1997, and $7.7 million or 16.7% of revenues in fiscal 1996. The decrease
in absolute dollars in fiscal 1998 was due to the reduction of expenses as a
result of the June 1997 consolidation of the Arizona operations. The increase in
fiscal 1997 was due to increases in bad debts, certain compensation and
severance costs associated with the Company's former president and higher
commission expenses. The Company's investment in its marketing, general and
administrative functions may vary as a percentage of sales in the future.
The fiscal 1998 restructuring expenses of $1.2 million principally includes
charges associated with the closing and relocation of its modem development
facility from Scottsdale, Arizona to Fremont, California, staffing adjustments
and severance. The fiscal 1997 restructuring expense was for charges associated
with the consolidation of the Company's manufacturing facilities 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 and
other various costs incurred in transferring the manufacturing capability in
Scottsdale, Arizona and consolidating it with the transceiver product line in
Fremont, California.
GAIN ON SALES OF INVESTMENTS: During fiscal 1998, the Company sold 506,880
shares of its total of 625,780 shares of class A common stock (the "Stock") of
Echostar Communications Corporation ("Echostar".) 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 $10.0 million, net of commission and
transaction expenses, on the sale of the Stock in 1998. The proceeds generated
from these sales were used for repayment of convertible debentures payable to
Echostar, and to fund general
9
<PAGE> 10
working capital requirements. A pre-tax gain of approximately $3.7 million and
$2.6 million, net of commission and transaction expenses, were realized on the
sale of the Stock in fiscal 1997 and fiscal 1996, respectively. As of September
26, 1998, the Company held a total of 118,900 Echostar common stock.
GAIN ON SALES OF ASSETS: In 1989, Corporate Telecom Services ("CTSI") a
wholly-owned subsidiary of the Company, was an applicant before the Federal
Communications Commission for the award of certain cellular telephone licenses
for certain rural statistical areas ("RSA"). In 1989, in order to comply with
certain FCC rules, the Company transferred its ownership interest in CTSI to
Wilbur L. Pritchard (the "Trustee"), pursuant to a trust agreement among SSE
Telecom, CTSI and the Trustee. On December 22, 1997, CTSI entered into an
agreement with Western Wireless Corporation ("Western") under which agreement
the parties agreed to seek FCC approval for the transfer by CTSI of its
authorization to operate a cellular telephone system in Boone, Nebraska RSA. The
application was approved and the transfer by CTSI to Western effected June 22,
1998. Upon the transfer of the license to Western, CTSI received $6,960,000.
After the payment of all expenses and liabilities arising from the obtaining of
the license and its transfer, the termination of the trust, and all expenses
associated with such termination, CTSI had net assets of approximately $5.8
million, before provision for taxes. In July 1998, the Company, CTSI and the
Trustee determined that the trust agreement should be terminated. On July 16,
1998, pursuant to an Agreement for Termination by and among SSE Telecom, CTSI
and the Trustee, the trust was terminated and the ownership interest of CTSI
conveyed by the Trustee to the Company. There is no material relationship
between the Trustee, or any of his affiliates, on the one hand, and the Company
and any of its affiliates, directors, or officers, or any associate of any
director of officer of the Company, on the other hand, other than that arising
out of the creation of the trust agreement, the ownership of the CTSI stock
interest thereunder, and the Agreement for Termination of the trust. In 1989 Mr.
Pritchard was an officer, director and principal shareholder of the Company. Mr.
Pritchard has not been a director or officer, or held any material ownership
interest in the Company in the past five (5) years.
NET INTEREST EXPENSE: Net interest expense was $411,000, $524,000 and
$479,000 in fiscal 1998, 1997 and 1996, respectively. The decrease in interest
expense during fiscal 1998 reflects lower levels of borrowing throughout the
year and repayment of debenture principal. During fiscal 1998, 1997, and 1996
the Company had earned interest income, which lowered net interest expense.
PROVISION FOR INCOME TAXES: The Company's effective income tax rate was
42.0%, (35.0%) and 40.0% in fiscal 1998, fiscal 1997 and fiscal 1996
respectively. The higher tax rate in fiscal 1998 was principally due to an
increase in state taxes from the gain on sale of the CTSI license. The income
tax benefit for fiscal 1997 relates principally to the federal tax effect of
that year's loss. The higher tax rate in fiscal 1996 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.
LIQUIDITY AND CAPITAL RESOURCES: At September 26, 1998, the Company had
working capital of $10.4 million, including cash and cash equivalents of $3.3
million compared to working capital at September 27, 1997 of $13.7 million,
including cash and cash equivalents of $408,000.
Net cash used in operating activities was $4.8 million in 1998 compared to
net cash used in operating activities of $3.4 million and $6.0 million in 1997
and 1996, respectively. Cash flow from operations was negative in 1998
principally due to operating losses, decrease in accounts payable and non-cash
charges, partially offset by decreases in accounts receivable, inventory, other
assets and a non-cash consolidation charge.
The Company's investing activities provided $12.9 million in fiscal 1998
as compared to $2.7 million in fiscal 1997 and $257,000 used in fiscal 1996. The
cash provided in fiscal 1998 resulted from the sale of Echostar common stock and
the sale of the CTSI license. The Company financed a portion of its operating
cash requirements and the payment of debt with these funds.
The Company's financing activities in fiscal 1998 included the expenditure
of $5.2 million primarily for payment on the Company's 6-1/2% convertible
subordinated debentures payable to Echostar and payment on the Company's bank
line-of-credit.
During 1998, the Company purchased an additional $2.4 million of Media4
convertible debentures. See Note 4 in the Notes to Consolidated Financial
Statements. 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.
At September 26, 1998, the Company's principal sources of liquidity
consisted of $3.3 million in cash and cash equivalents. On October 21, 1997
(amended August 1998), the Company entered into a credit facility which allows
for a line-of-credit of $3.0 million for operations ($2.2 million outstanding
at September 26, 1998) and a $900,000 term loan. See Note 6 in the Notes to
Consolidated Financial Statements.
A principal source of finance is the Company's holding of Echostar common
stock which is subject to the volatility of the stock market. On September 26,
1998 the Company held 118,900 shares of Echostar stock with a value of $3.0
million and an unrealized gain, net of tax, of approximately $1.8 million
recorded 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
10
<PAGE> 11
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.
YEAR 2000
The Company is aware that many existing Information Technology ("IT")
systems, such as computer and software products, as well as non-IT systems that
included embedded technology, were not designed to correctly process data after
December 31, 1999. The Company has created a Year 2000 project team to review,
and evaluate the Company's products, computer systems, test equipment systems
and other non-IT systems. The Company has determined that it will be necessary
to modify or replace portions of its software so that its IT and non-IT computer
systems will properly utilize dates beyond 1999. The Company believes that with
modifications and conversions to new software, the Year 2000 issue can be
mitigated, and anticipates completion of all Year 2000 efforts by the end of
fiscal 1999. However, if such modifications and conversions are not made, or are
not completed in a timely manner, the Year 2000 issue could have a material
impact on the operations of the Company. The Company has also initiated
discussions with its suppliers regarding their plans to investigate and address
their Year 2000 problems, if any. Failures by the Company's suppliers' computer
systems could adversely affect the demand for product. There can be no assurance
that the systems of other companies on which the Company's systems, services,
and products rely will be timely converted, or that any such failure to convert
by another company would not have an adverse affect on the Company's business
financial conditions or results of operations.
The Company has been using both external and internal resources to upgrade
its commercial software programs for the Year 2000 issue. To date, the amounts
incurred and expensed for developing and carrying out the plan have not had a
material effect on the Company's operations. The Company plans to complete the
Year 2000 modifications, including testing, by the end of 1999. The total
remaining estimated cost for addressing the Year 2000 Issue of approximately
$220,000,which is based on management's current estimates, is not expected to be
material to the Company's operations. All remaining Year 2000 Issue costs will
be funded through operating cash flows.
As the efforts of the Year 2000 project team continue, the Company may
identify situations that present material Year 2000 risks and/or that will
require substantial time and material expense to address. In addition, if any
customers, suppliers or service providers fail to appropriately address their
Year 2000 issues, such failure could have a material adverse effect on the
Company's business, financial condition and results of operations. For example,
because a significant percentage of the purchase orders received from the
Company's customers are computer generated and electronically transmitted, a
failure of one or more of the computer systems of the Company's customers could
have a significant adverse effect on the level and timing of orders from such
customers. Similarly, if Year 2000 problems experienced by any of the Company's
significant suppliers or service providers cause or contribute to delays or
interruptions in the delivery of products or services to the Company, such delay
or interruptions could have a material adverse effect on the Company's business,
financial condition and results of operations. Finally, disruption in the
economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. Although the Year 2000 project team has not
determined the most likely worst-case Year 2000 scenarios or quantified the
likely impact of such scenarios, it is clear that the occurrence of one or more
of the risks described above could have a material adverse effect on the
Company's business, financial conditions or results of operations.
The Company's Year 2000 project team's activities will include the
development of contingency plans in the event the Company has not completed all
of its remediation programs in a timely manner. In addition, the Year 2000
project team will develop contingency plans in the event that any third parties
who provide goods and services essential to the Company's business fail to
appropriately address their Year 2000 issues. The Year 2000 project team expects
to conclude the development of these contingency plans by the end of fiscal
1999. Even if these plans are completed on time and put in place, there can be
no assurance that such plans will be sufficient to address any third party
failures or that unresolved or undetected internal and external Year 2000 issues
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently 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 presentation of earlier periods as well.
Had SFAS 130 been adopted for the year ending September 26, 1998 the
comprehensive income would be $944,000. If adopted for the year ending September
27, 1997 comprehensive loss would be $4,252,000.
In June 1997, the FSAB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement requires that financial
information be reported on the basis used internally for evaluating segment
performance and deciding how to allocate resources to segments. SFAS 131 will
be effective for the Company's fiscal year 1999 and requires restatement of all
previously reported information for comparative purposes. The Company has not
yet evaluated the effects of this change on its reporting of segments.
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivatives Instruments and Hedging Activities" was issued
which defines derivatives, requires all derivatives be carried at fair value,
and provides for hedging accounting when certain conditions are met. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Although the Company has not fully assessed the implications of
this new statement, the Company does not believe adoption of this statement will
have a material impact on the Company's financial statements.
11
<PAGE> 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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 Class A common stock (the "Shares")
of Echostar. The Company sold 506,880 Shares and 176,937 Shares at net realized
gains before taxes of $10,020,000 and $3,730,000 in fiscal 1998 and fiscal 1997,
respectively. The value of these shares is subject to market risk and general
economic conditions. As of September 26, 1998, the Company had 118,905 Shares
remaining with the closing price on that date of $25.38. The 52-week range for
Echostar's Common Stock as of December 4, 1998 was a low of $14.00 and a high of
$42.13.
During fiscal 1998, the Company invested $2,425,000 in Media4 Inc. As of
September 26, 1998, the Company had invested approximately $965,000 in Media4
Common Stock and held $2.6 million in Media4 convertible 9.5% and 7% debentures,
due in March 1999 and May 2000, respectively. As of September 27, 1997, the
Company had invested approximately $965,000 in Media4 Common Stock and held
$175,000 in Media4 convertible 7% debentures. On October 14, 1998 Echostar
announced it had signed a letter of intent to acquire Media4 through the
exchange of Common Stock. The Company does not anticipate making any further
investment in Media4 and believes Echostar Common Stock received from Echostar's
acquisition of Media4 will be approximately equal value to the Media4 Common
Stock and convertible debentures as of September 26, 1998.
At September 26, 1998, the Company was operating under a credit facility
with outstanding borrowings of $2.2 million. This facility allows for a $3.0
million operating line-of-credit. Borrowings under this line-of-credit bear
interest at prime plus 1.25% (prime rate was 8.5% at September 26, 1998). The
Company is required under this line-of-credit to be in compliance with certain
financial covenants.
Certain assets of the Company secure the line-of-credit. On August 14,
1998 the Company and the bank modified the borrowing agreement. Pursuant to the
amendment, the amount of the line-of-credit available was reestablished at $3.0
million, the borrowing base was modified to be based on a formula and several
covenants were modified. The Company was in compliance with all covenants as of
September 26, 1998. The credit agreement expires January 15, 1999.
The Company also had a term note outstanding at September 26, 1998. The
total principal outstanding on this note was $616,000 with interest payable at
prime plus 1.25%. Interest payments are made on a monthly basis. The term note
has a maturity date of August 31, 1999.
At September 26, 1998, the Company had an outstanding balance of $1.2
million related to 6.5% Convertible debentures due March 1, 2001 payable to
EchoStar.
The Company's exposure to market risk due to fluctuations in interest
rates primarily relates to the Company's credit facility, term note and
convertible debentures. If market interest rates were to increase immediately
and uniformly by 10% from levels prevailing at September 26, 1998, the fair
value of the debt obligations would not change materially. The company does not
use derivative financial instruments to mitigate interest rate risk.
Notwithstanding the foreign analysis of the direct effects of interest
rate risk, the indirect effects of fluctuations could have a material adverse
effect on the Company's business, financial condition and results of
operations. For example, worldwide demand for the Company's products could be
effected by interest rate fluctuations that could change the buying patterns
of the Company's customers.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders of
SSE Telecom, Inc.
We have audited the accompanying consolidated balance sheet of SSE
Telecom, Inc. and subsidiaries ("Company") as of September 26, 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended. Our audit also included the financial statement
schedule for the year ended September 26, 1998 listed at Item 14(a)2. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such 1998 consolidated financial statements present
fairly, in all material respects, the financial position of SSE Telecom, Inc.
and subsidiaries at September 26, 1998 and the results of their operations and
their cash flows for the then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule for the year ended September 26, 1998, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
San Jose, California /s/ Deloitte & Touche LLP
November 25, 1998
13
<PAGE> 14
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
SSE Telecom, Inc.
We have audited the accompanying consolidated balance sheet of SSE
Telecom, Inc. as of September 27, 1997 and the related consolidated statements
of operations, cash flows, and stockholders' equity for each of the two 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 the consolidated results of its
operations and its cash flows for each of the two 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
14
<PAGE> 15
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
September 26, 1998 September 27, 1997
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,327 $ 408
Accounts receivable 5,396 10,096
(net of allowance for doubtful accounts of $781
and $622 in 1998 and 1997 respectively)
Related party accounts receivable 306 965
Inventories 8,894 12,888
Deferred tax assets 2,762 3,067
Other current assets 198 1,123
-------- --------
Total current assets 20,883 28,547
Property, equipment, and leasehold improvements, at cost
Equipment 7,520 9,055
Furniture, fixtures and leasehold improvements 4,172 3,349
-------- --------
11,692 12,404
Less accumulated depreciation and amortization 8,109 8,063
-------- --------
Property, equipment, and leasehold improvements, net 3,583 4,341
Long-term investments 6,583 14,519
Other assets -- 150
-------- --------
Total assets $ 31,049 $ 47,557
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 2,229 $ 4,095
Accounts payable 3,028 3,833
Related party accounts payable 717 2,237
Accrued salaries and employee benefits 1,217 1,503
Warranty 1,696 1,745
Other accrued liabilities 454 755
Income taxes payable 342 --
Current portion of capital lease liability 109 79
Current portion of convertible notes payable 82 272
Current portion of bank note payable 616 304
-------- --------
Total current liabilities 10,490 14,823
Deferred tax liabilities 930 4,461
Convertible notes payable 1,139 3,803
Capital lease liability 312 368
Bank note payable -- 559
Commitments and contingencies (Notes 9 & 10)
Stockholders' Equity:
Common stock $.01 par value per share 60 60
(30,000,000 shares authorized; 5,984,281 and 5,955,187 shares
issued and outstanding 1998 and 1997, respectively)
Additional paid in capital 12,579 12,486
Treasury stock (at cost, 224,643 shares in 1998 and 1997) (1,782) (1,782)
Retained earnings 5,503 4,835
Net unrealized gain on available for sale investments 1,818 7,944
-------- --------
Total stockholders' equity 18,178 23,543
-------- --------
Total liabilities & stockholders' equity $ 31,049 $ 47,557
======== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
15
<PAGE> 16
Consolidated Statements of Operations
For years ended September 26, 1998, September 27, 1997, and September 28, 1996
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue $ 36,739 $ 45,764 $ 46,220
Cost of revenue 34,618 36,431 33,697
-------- -------- --------
Gross margin 2,121 9,333 12,523
Operating Expenses
Research and development 5,622 5,071 4,179
Marketing, general and administrative 8,681 9,512 7,721
Write-off of acquired in-process R&D -- -- 1,404
Acquisition-related asset writedown -- -- 1,105
Restructuring 1,236 850 --
-------- -------- --------
Operating loss (13,418) (6,100) (1,886)
-------- -------- --------
Gain on sale of long term investments (10,020) (3,730) (2,584)
Gain on sale of assets, net (5,094) -- --
Net interest expense 411 524 479
Other expense 133 14 --
-------- -------- --------
Income (loss) before income taxes 1,152 (2,908) 219
Provision (benefit) for income taxes 484 (1,018) 88
-------- -------- --------
Net income (loss) $ 668 $ (1,890) $ 131
======== ======== ========
Basic net income (loss) per share $ 0.12 $ (0.32) $ 0.02
Diluted net income (loss) per share $ 0.12 $ (0.32) $ 0.02
======== ======== ========
Shares used in computing basic net income (loss) per
Share 5,743 5,820 5,368
======== ======== ========
Shares used in computing diluted net income (loss) per
Share 5,744 5,820 5,595
======== ======== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
16
<PAGE> 17
Consolidated Statements of Cash Flows
For years ended September 26, 1998, September 27, 1997, and September 28, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Operating Activities: 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) $ 668 $ (1,890) $ 131
Adjustments to reconcile net income (loss)
to net cash provided (used)by operating activities:
Depreciation and amortization 1,503 1,372 1,149
Non-cash portion of restructuring charge 461 517 --
Non-cash portion of special warranty reserve -- 1,157 --
Acquisition related charges -- -- 2,509
Gain on sale of long-term investments (10,020) (3,730) (2,584)
Gain on sale of assets (5,094) -- --
Deferred income taxes 72 (1,068) (1,329)
Changes in operating assets and liabilities:
Accounts receivable 5,358 (20) (2,238)
Inventories 3,994 (864) (3,250)
Other current assets 834 133 (579)
Accounts payable (2,605) 1,795 28
Accrued salaries and employee benefits (286) 56 358
Income taxes payable 342 (983) 361
Other accrued liabilities (46) 162 (551)
-------- -------- --------
Net cash provided (used) by operating activities (4,819) (3,363) (5,995)
-------- -------- --------
Investing Activities:
Purchases of equipment (1,428) (1,303) (2,392)
Purchases of short-term investments -- -- (8,794)
Proceeds from sales of short-term investments -- -- 13,145
Proceeds from sale of long term investments 10,964 4,056 2,974
Acquisition of net assets of Fairchild Data -- -- (4,400)
Proceeds from sale of assets 5,831 -- --
Purchases of Media4 debentures/equity (2,425) (96) (700)
Other assets -- -- (90)
-------- -------- --------
Net cash used by investing activities 12,942 2,657 (257)
-------- -------- --------
Financing Activities:
Borrowings/(payment) under debt obligations (2,141) 1,617 3,342
Payments on convertible debentures (3,156) (675) (4,000)
Proceeds from sale of common stock to Alcatel Telspace -- -- 6,729
Proceeds from other issuance of common stock net of tax benefit 93 211 1,253
Repurchase of common stock -- (1,280) (3,379)
-------- -------- --------
Net cash provided (used) by financing activities (5,204) (127) 3,945
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 2,919 (833) (2,307)
Cash and cash equivalents beginning of period 408 1,241 3,548
-------- -------- --------
Cash and cash equivalents end of period $ 3,327 $ 408 $ 1,241
======== ======== ========
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
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
17
<PAGE> 18
Consolidated Statements of Stockholders' Equity
For years ended September 26, 1998, September 27, 1997, and September 28, 1996
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Net
unrealized
COMMON STOCK TREASURY STOCK gain on
------------------ --------------------
Additional available Total
Number of Paid-in Number of Retained for sale Stockholders'
Shares Amount Capital shares Amount Earnings investments Equity
--------- ------ ---------- --------- ------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1995 5,531 $ 55 $ 6,746 143 $ (889) $ 6,594 $ 7,051 $ 19,557
Issuance of common stock
upon exercise of options
and warrants 206 2 632 -- -- -- -- 634
Issuance of common stock
and warrants upon acquisition
of Fairchild Data 100 1 1,108 -- -- -- -- 1,109
Issuance of common stock
and warrants to
Alcatel Telspace 75 1 2,961 (450) 3,767 -- -- 6,729
Issuance of warrants to
Echostar -- -- 208 -- -- -- -- 208
Tax benefit of stock option
exercises -- -- 621 -- -- -- -- 621
Repurchase of common stock -- -- -- 364 (3,380) -- -- (3,380)
Change in net unrealized gain
on available-for -sale
investments -- -- -- -- -- -- 5,679 5,679
Net income -- -- -- -- -- 131 -- 131
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, SEPTEMBER 28, 1996 5,912 59 12,276 57 (502) 6,725 12,730 31,288
Issuance of common stock
upon exercise of options 43 1 180 -- -- -- -- 181
Issuance of warrants to
Echostar -- -- 30 -- -- -- -- 30
Repurchase of common stock -- -- -- 168 (1,280) -- -- (1,280)
Change in net unrealized gain
on available-for-sale
investments -- -- -- -- -- -- (4,786) (4,786)
Net loss -- -- -- -- -- (1,890) -- (1,890)
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, SEPTEMBER 27, 1997 5,955 60 12,486 225 (1,782) 4,835 7,944 23,543
Issuance of common stock
Under Employee Stock
Purchase Plan 29 -- 93 -- -- -- -- 93
Change in net unrealized gain
on available-for-sale
investments -- -- -- -- -- -- (6,126) (6,126)
Net income -- -- -- -- -- 668 -- 668
======== ======== ======== ======== ======== ======== ======== ========
BALANCE, SEPTEMBER 26, 1998 5,984 $ 60 $ 12,579 225 (1,782) $ 5,503 $ 1,818 $ 18,178
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements
18
<PAGE> 19
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 its wholly owned subsidiary SSE
Telecom Inc.
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 that approximates actual
cost on a first-in, first-out (FIFO) basis.
At September 26, 1998 and September 27, 1997 inventories consisted of:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
------- -------
<S> <C> <C>
Raw materials $ 3,440 $ 5,000
Work-in-process 3,657 5,703
Finished goods 1,797 2,185
------- -------
Total $ 8,894 $12,888
======= =======
</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 an
expense in the period in which they are incurred. Advertising expenses for
fiscal 1998, 1997, and 1996 were approximately $341,000, $515,000, and $365,000,
respectively.
Net income (loss) per share: In 1997, the Financial Accounting Standards
Board (FASB) issued SFAS 128 "Earning Per Share." SFAS 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic earnings per share is computed using the
weighted average number of common shares. Diluted earning per share is computed
using the weighted average number of common shares and potentially dilutive
common shares outstanding during the period. Potentially dilutive common shares
consist of employee stock options, restricted stock, warrants, and convertible
securities. The effects of options and warrants were not included in 1997 as
they are anti-dilutive. The effects of the convertible debentures were not
included in any of the fiscal years presented as they are anti-dilutive. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to SFAS 128 requirements.
The following table sets forth the computations of basic and diluted
income (loss) per share:
(dollars and shares in thousands, except per share)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
BASIC:
Net income/(loss): $ 668 $(1,890) $ 131
Weighted common average shares outstanding 5,743 5,820 5,368
Basic net income (loss) per share: $ 0.12 $ (0.32) $ 0.02
------- ------- -------
DILUTED:
Weighted-average common shares outstanding 5,743 5,820 5,368
Increase in weighted-average shares due to dilutive
Stock options and warrants 1 -- 227
------- ------- -------
Diluted shares 5,744 5,820 5,595
Diluted net income/ (loss) per share $ 0.12 $ (0.32) $ 0.02
------- ------- -------
</TABLE>
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock-based compensation: The Company accounts for employee stock options
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees."
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 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 1998, five customers accounted for 42% 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.
Long-lived Assets: Effective September 28, 1996 the Company adopted
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which requires recognition of impairment loss of long-lived assets and
certain identifiable intangibles assets in the event the net book value of such
assets exceeds the estimated future cash flows. The adoption of SFAS 121 had no
material impact on the Company's financial position or 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, recoverability of
deferred tax assets, inventory reserves, accrued liabilities, and other
reserves. Actual results could differ from those estimates.
Effect of New Accounting Standards: The Financial Accounting Standards
Board recently 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
presentation of earlier periods as well. Had SFAS 130 been adopted for the year
ended September 26, 1998 the comprehensive income would be $944,000. If adopted
for the year ending September 27, 1997 comprehensive loss would be $4,252,000.
In June 1997, the FSAB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement requires that financial
information be reported on the basis used internally for evaluating segment
performance and deciding how to allocate resources to segments. SFAS 131 will be
effective for the Company's fiscal year 1999 and requires restatement of all
previously reported information for comparative purposes. The Company has not
yet evaluated the effects of this change on its reporting of segments.
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivatives Instruments and Hedging Activities" was issued
which defines derivatives, requires all derivatives be carried at fair value,
and provides for hedging accounting when certain conditions are met. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Although the Company has not fully assessed the implications of
this new statement, the Company does not believe adoption of this statement will
have a material impact on the Company's financial statements.
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 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.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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>
(in thousands except 1996*
per share amounts)
<S> <C>
Revenues $ 50,502
Net income $ 1,314
Basic net income per share $ 0.24
Diluted net income per share $ 0.23
</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 quoted market
price at the date of exercise but not less than $11.00 per share. The Company
received aggregate proceeds of $6,751,500 in connection with this transaction.
Additionally, in September 1996, 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 of these transactions
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 506,880 shares and 176,937
shares of Echostar at net realized gains before taxes of $10,020,000 and
$3,730,000 in fiscal 1998 and fiscal 1997, respectively. As of September 26,
1998, the Company had 118,905 of Echostar shares remaining. The quoted market
price of Echostar stock on the NASDAQ exchange on September 26, 1998 was $25.38.
During fiscal 1998, the Company invested $2,425,000 in Media4. As of
September 26, 1998, the Company had invested approximately $965,000 in Media4
common stock and held $2.6 million in Media4 convertible 7% and 9.5% debentures.
As of September 27, 1997, the Company had invested approximately $965,000 in
Media4 common stock and held $175,000 in Media4 convertible 7% debentures due
May 2000. On October 14, 1998 Echostar announced it had signed a non-bending
letter of intent to acquire Media4 through the exchange of common stock. The
Company does not anticipate making any further investment in Media4 and believes
the Echostar common stock received from Echostar's acquisition of Media4, if
such transaction is consummated, will be of approximately of equal value to the
Media4 common stock and debentures reported by the Company as of September 26,
1998. The Company's investment in Media4 is valued at cost.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a summary of available-for-sale securities at September,
26 1998:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
------ ------ ------ ------
<S> <C> <C> <C> <C>
Convertible debenture - Media4 $2,601 $ -- $ -- $2,601
Common stock - Echostar 220 2,797 -- 3,017
------ ------ ------ ------
Total available-for-sale
Securities $2,821 $2,797 $ -- $5,618
------ ------ ------ ------
</TABLE>
The following is a reconciliation of the investment categories and their balance
sheet classifications at September 26, 1998:
<TABLE>
<CAPTION>
Cash and Long-term
(in thousands) Cash Equivalents Investments Total
---------------- ----------- --------
<S> <C> <C> <C>
Cash $ 752 $ -- $ 752
Certificates of deposit 2,575 -- 2,575
Available-for-sale securities -- 5,618 5,618
Non-marketable equity
investments -- 965 965
-------- -------- --------
$3,327 $6,583 $9,910
-------- -------- --------
</TABLE>
The following is a summary of available-for-sale securities at September 27,
1997:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
------- ------- ------- -------
<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
(in thousands) Cash Equivalents Investments Total
---------------- ----------- -------
<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>
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 44% of revenue in 1998, 45% of revenue in 1997 and 56%
of revenue in 1996. Export revenues are primarily to Western Europe, Asia
Pacific, Latin America, Mexico, and Canada. In 1998 the U.S. Government and
Loral/Orion, Inc. each accounted for 10% of the Company's revenue. In 1997, the
U.S. Government accounted for 11% of the Company's total revenue. Nortel Dasa
accounted for 13% of the Company's revenue in 1996. No other customers accounted
for more than 10% during 1998, 1997, or 1996. All export sales were denominated
in U.S. dollars.
6. CREDIT FACILITIES AND NOTES PAYABLE
At September 26, 1998, the Company was operating under a $3.0 million
line-of-credit facility with outstanding borrowings of $2.2 million. Borrowings
under this line-of-credit bear interest at prime (8.5% at September 26, 1998)
plus 1.25%. The Company is required under this line-of-credit to be in
compliance with certain financial covenants and certain assets of the Company
secure the line-of-credit. The Company is in compliance with the covenants. The
line-of-credit expires January 15, 1999.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company also had a bank note payable outstanding at September 26, 1998.
The total principal outstanding on this note was $616,000 with interest payable
at prime plus 1.25%. The term note has a maturity date of August 31, 1999. The
term loan requires the Company to make $50,000 monthly principal payments.
At September 26, 1998, the Company had an outstanding balance of $1.2
million related to its 6 1/2% convertible subordinated debentures due March 1,
2001, payable to Echostar, the holder of the debentures. 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 1998, the Company repaid $2,854,000 of debenture principal and paid
$302,000 of debenture interest.
Neither these debentures or the common shares issueable on exercise of the
conversion right have been 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 with
respect to common stock acquired on conversion of the debentures by Echostar.
At September 26, 1998 and September 27, 1997, long term debt obligations,
excluding capital lease obligations disclosed in Note 9, consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Bank note payable $ 616 $ 863
6 1/2 % convertible debenture 1,221 4,075
------- -------
1,837 4,938
Less: Current portion 698 576
------- -------
Total long-term debt $ 1,139 $ 4,362
======= =======
</TABLE>
Interest paid in fiscal 1998, 1997, and 1996 was approximately $768,000,
$385,000, and $1,341,000, respectively.
The 6 1/2% convertible debentures are due in full in fiscal year 2001 and
minimum principal payments of $82,000 are due annually from fiscal year 1997
through fiscal year 2000.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal
Current $ (254) $ 73 $ 1,198
Deferred 504 (1,091) (1,050)
------- -------- --------
250 (1,018) 148
------- -------- --------
State
Current 596 -- 219
Deferred (362) -- (279)
------- -------- --------
234 -- (60)
------- -------- --------
Total $ 484 $ (1,018) $ 88
======= ======== ========
</TABLE>
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 35% to the income before income taxes:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax at the statutory
US rate $403 $(989) $ 74
State taxes (net
of federal benefit) 152 -- (40)
Research and
development credits -- -- (30)
Warrant
conversion costs -- -- 71
Other (71) (29) 13
---- ------- -----
$484 $(1,018) $ 88
---- ------- -----
</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>
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Inventories $1,379 $1,200
Accruals and reserves 1,383 1,388
Basis difference of
acquired assets of
Fairchild Data -- 479
------ -------
Total deferred tax assets 2,762 3,067
Deferred tax liabilities:
Available-for-sale
securities (730) (4,277)
Tax over book
depreciation (200) (184)
------ -------
Net deferred taxes $1,832 $(1,394)
====== =======
</TABLE>
Income taxes paid were $ 567,500, $1,053,000, and $427,000 in 1998, 1997, and
1996, respectively.
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. RETIREMENT PLAN
The Company maintains a 401(k) tax deferred plan that is available to all
eligible employees. In fiscal year 1998, the Company's matching amount with
respect to employees' contributions was $1,000, subject to a cap of 3% of the
employees' salary, whichever is lower. The Company's contribution to this plan
totaled $148,000 in 1998, $137,000 in 1997, and $74,000 in 1996.
9. CAPITAL LEASES
At September 26, 1998 equipment under capital leases amounted to $535,000
(before accumulated depreciation of $105,000). Lease terms range from three to
five years.
The following is a schedule of future minimum lease payments under capital
leases as of September 26, 1998 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 142
2000 142
2001 122
2002 85
-----
Total minimum lease payments 491
Less amount representing interest 70
-----
421
Less current portion 109
-----
$ 312
=====
</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 2001. At September 26, 1998, the future
minimum payment obligations under these leases were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 660
2000 517
2001 304
------
Total $1,481
======
</TABLE>
The total rent expense under all operating leases was approximately
$806,000, $1,103,000, and $1,056,000 for fiscal years 1998, 1997, and 1996,
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 $532,000 remains accrued as of September 26, 1998, 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.
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 are 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. The Company also has a 1992 Incentive Stock Option Plan which has
terms similar to the 1997 plans.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 are 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.
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 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 287,333 -- --
available to grant
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
Additional shares 175,000 -- --
available to grant
Options granted (500,444) 500,444 $3.49
Options exercised -- (374) $3.76
Options canceled 282,606 (282,606) $6.25
-------- --------
BALANCE AT SEPTEMBER 26, 1998 115,600 826,150 $5.15
======== ========
</TABLE>
The following table summarizes the information about options outstanding at
September 26, 1998:
<TABLE>
<CAPTION>
Outstanding options Exercisable options
--------------------------------- -------------------
Weighted
average Weighted
Contractual Weighted Average
Number of life Exercise Number of exercise
Range of Exercise Prices shares (in years) Price shares Price
- ------------------------ ------ ---------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$1.31 - $1.31 61,900 5.00 $1.31 $--
$3.75 - $4.00 219,250 5.15 3.95 -- --
$4.06 - $4.06 162,500 4.97 4.06 -- --
$5.00 - $6.25 110,750 2.94 5.94 72,754 6.00
$6.88 - $6.88 84,375 3.68 6.88 55,125 6.88
$7.00 - $7.38 132,375 3.75 7.15 72,875 7.18
$8.00 - $9.35 55,000 2.93 8.45 37,500 8.51
- ------------- ------ ---- ---- ------ ----
$1.31 - $9.35 826,150 4.28 $5.15 238,254 $6.92
</TABLE>
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
941,750 shares of common stock were reserved for future issuance as of
September 26, 1998. At September 27, 1997, and September 28, 1996, options
exercisable were 173,124, and 144,558, respectively.
Employee Stock Purchase Plan: The Company established an Employee Stock
Purchase Plan (the "Purchase Plan") in 1997 under which 150,000 shares of common
stock were reserved for purchase. At September 27, 1998, 121,281 shares remain
reserved for future purchases. Each eligible employee may purchase shares of
common stock through the accumulation of payroll deductions of up to 10% of each
participating employee's gross wages not to exceed a maximum of $5,040 per
purchase period. The Purchase Plan authorizes the purchase of shares of common
stock at the end of semi-annual purchase periods beginning May 1 and November 1
of each year. The purchase price is the lower of 85% of its fair value
determined as of the beginning of an offering period or the end of a purchase
period. Employees purchased 28,719 shares in fiscal 1998 for $91,542 or a
weighted average of $3.19 per share. The Purchase Plan will expire upon either
the issuance of all shares reserved for issuance or at the discretion of the
Board of Directors.
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
Company's option plans 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 that do not
have vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective 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 1998, 1997 and 1996 was estimated at the date of grant assuming no
expected dividends and the following weighted average assumptions:
<TABLE>
<CAPTION>
Years Ended
-----------
September 26, September 27, September 28,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected life (years) 4.50 4.50 4.50
Expected stock price volatility 0.53 0.50 0.50
Risk-free interest rate 5.66% 6.39% 5.63%
</TABLE>
The weighted-average fair value of stock options granted during 1998, 1997
and 1996 was $1.80, $3.44, and $4.56 per share, respectively. The
weighted-average estimated fair value of options granted under the Purchase Plan
during 1998 was $2.32 per share. For purposes of pro forma disclosures, the
estimated fair value of stock-based awards is amortized against pro forma net
income over the options' vesting period of four years and the Purchase Plan
purchase period of six months. Because FASB 123 is applicable to only the
Company's awards granted subsequent to September 30, 1995, the pro forma effect
under the fair value method will not be fully reflected until approximately
fiscal 2000. Had the Company accounted for stock-based awards to employees under
the fair value method on a pro forma basis, the Company's net income for 1998
would have been $178,000 and $.03 per basic and diluted share: the Company's net
loss would have been $2,326,000 and $65,000 in 1997 and 1996, respectively, and
the net loss per basic and diluted share would have been $.40 and $.01 in 1997
and 1996, respectively.
Treasury stock: The Company acquired no shares of its common stock on the
open market in fiscal 1998. In 1997 and 1996, the Company acquired 167,600, and
363,768 shares of its common stock on the open market. As of September 28, 1998,
the Company had 224,643 shares of treasury stock.
Warrants: Warrants issued in 1998, 1997, and 1996 to acquire common stock
were zero, 10,125, and zero, respectively. At September 26, 1998, 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>
27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. RELATED PARTY TRANSACTIONS
The Company has significant investments in Echostar and Media4, and also
debentures due to Echostar In addition Alcatel Telespace owns approximately 10%
of the Company's outstanding common stock (see notes 3, 4 and 6).
The Company had revenue from Alcatel Telspace of $917,000 and purchases
from Alcatel Telspace of $1.8 million, during fiscal 1998. As of September 26,
1998, the Company had trade receivables and payables with Alcatel Telspace of $
81,000 and $680,000, respectively. During fiscal 1997, revenue from Alcatel
Telspace were $2.2 million and purchases from Alcatel Telspace were $3.5
million. As of September 27, 1997, the Company had trade receivables and
payables with Alcatel Telspace of $ 795,000 and $2,237,000, respectively. During
fiscal 1996, revenue from Alcatel Telspace were $1.3 million and purchases from
Alcatel Telspace were $1.5 million. Gross margins realized on related party
transactions in fiscal 1998, 1997, and 1996 have not been materially different
from gross margins realized on similar types of transactions with unaffiliated
companies.
During fiscal 1998, the Company purchased $55,000 of products for resale to
Media4 and purchased $36,000 from Media4. At September 26, 1998, the Company had
receivables and payables with Media4 of $225,000 and $38,000, respectively.
During fiscal 1997, purchases for resale to Media4 were $156,000. At September
27, 1997, the Company had receivables of $170,000 from Media4. During fiscal
1996, purchases for resale to Media4 were $36,000.
13. RESTRUCTURING CHARGES
On June 25, 1998, the Company announced a program designed to focus the
Company on its strengths in satellite communication transceivers and modems. As
a result of this decision, the Company has recognized a restructuring charge of
$1.2 million before taxes in the third quarter of fiscal 1998. The restructuring
charge includes: $670,000 for personnel actions (36 technical and support
personnel) of which $211,000 has been paid and the remaining amount will be paid
in fiscal 1999: $429,000 for the write-off of certain fixed assets and for the
write-off of intangibles assets associated with the acquisition of Fairchild
Data: and $137,000 for facility closing costs in Arizona and Virginia. In
addition, the Company charged $3,855,000 to cost of revenue for certain
inventory write-offs. The costs associated with these charges are estimates and
actual amounts may differ. Total remaining restructuring expenses accrued at
September 26, 1998 was $710,000, consisting of $376,000 for personnel actions,
$256,000 for fixed asset disposal, and $78,000 for facility closing cost.
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. DISPOSAL OF ASSETS
In 1989, Corporate Telecom Services ("CTSI") a wholly-owned subsidiary of
the Company, was an applicant before the Federal Communications Commission for
the award of certain cellular telephone licenses for certain rural statistical
areas ("RSA"). In 1989, in order to comply with certain FCC rules, the Company
transferred its ownership interest in CTSI to a former Board of Director of the
Company (the "Trustee"), pursuant to a trust agreement among SSE Telecom, CTSI
and the Trustee. On December 22, 1997, CTSI entered into an agreement with
Western Wireless Corporation ("Western") under which agreement the parties
agreed to seek FCC approval for the transfer by CTSI of its authorization to
operate a cellular telephone system in Boone, Nebraska RSA. The application was
approved and the transfer by CTSI to Western was effected June 22, 1998. Upon
the transfer of the license to Western, CTSI received $6,960,000. After the
payment of all expenses and liabilities arising from the obtaining of the
license and its transfer, the termination of the trust, and all expenses
associated with such termination, CTSI had net assets of approximately $5.8
million, before provision for taxes. In July 1998, the Company, CTSI and the
Trustee determined that the trust agreement should be terminated. On July 16,
1998, pursuant to an Agreement for Termination by and among SSE Telecom, CTSI
and the Trustee, the trust was terminated and the ownership interest of CTSI was
conveyed by the Trustee to the Company.
The Company recognized a loss of $661,000 for the disposal of fixed assets
in fiscal year 1998.
28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal 1998 1st 2nd 3rd 4th
(in thousands except per share data)
<S> <C> <C> <C> <C>
Sales $12,337 $11,095 $6,160 $7,148
Gross margin 3,232 2,269 (3,920) 540
Net income (loss) 1,786 1,652 (5,989) 3,220
Income (loss) per share:
Basic 0.30 0.29 (1.04) 0.56
Diluted 0.29 0.28 (1.04) 0.54
</TABLE>
The results of operations for the third quarter in fiscal 1998 reflect the
effects of a $1.2 million restructuring (refer to Note 13 of the Notes to
Consolidated Financial Statements) and the Gain on sale in the 4th quarter of
fiscal 1998 of $5.8 million relating to the CISI transaction (refer to Note 14
of the Notes to Consolidated Financial Statements).
<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:
Basic 0.30 (0.07) (0.67) 0.12
Diluted 0.29 (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).
29
<PAGE> 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company dismissed Ernst & Young LLP as its independent auditors for the
fiscal year ending September 26, 1998. Such dismissal was approved by the
Company's Board of Directors on April 24, 1998.
The reports of Ernst & Young LLP on the Company's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the audits of the Company's financial
statements for each of the two fiscal years ended September 27, 1997, and
September 28, 1996 and in the subsequent interim period, there were no
disagreements with Ernst & Young LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Ernst & Young LLP would have
caused Ernst & Young LLP to make reference to the matter in their reports.
There has not occurred, during the two fiscal years ended September 27,
1997, and September 28, 1996 or any subsequent interim period prior to September
26, 1998, any reportable events, as defined in paragraph(a)(1)(v) of Item 304,
with respect to Ernst & Young LLP, except as set forth in a letter from Ernst &
Young LLP to Company's Audit Committee, dated December 4, 1997, noting a
material weakness in Company's internal control structure relative to the
preparation of accurate financial statements for the Company's fiscal year ended
September 27, 1997. The Company believes that it has effectively addressed the
issues raised in such letter.
The Company requested Ernst & Young LLP to furnish it a letter addressed to
the Commission stating whether it agrees with the above statements. Ernst &
Young LLP responded to the Company's request and a copy of the response of Ernst
& Young LLP is filed as Exhibit 1 to Form 8-K, dated April 17, 1998, File
#33-10965.
30
<PAGE> 31
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
within 120 days of the company's fiscal year end 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: Reference Page
COVERED BY REPORT OF INDEPENDENT AUDITORS
Report of Deloitte & Touche LLP, Independent Auditors 13
Report of Ernst & Young LLP, Independent Auditors 14
Consolidated Balance Sheets - September 26, 1998 and
September 27, 1997 15
Consolidated Statements of Operations - Fiscal Years Ended
September 26, 1998, September 27, 1997, and September 28, 1996 16
Consolidated Statements of Cash Flows - Fiscal
Years Ended September 26, 1998, September 27, 1997,
and September 28, 1996 17
Consolidated Statement of Stockholders' Equity - Fiscal
Years Ended September 26, 1998, September 27, 1997,
and September 28, 1996 18
Notes to Consolidated Financial Statements 19-29
NOT COVERED BY REPORT OF INDEPENDENT AUDITORS
Note 15 of Notes to Consolidated Financial Statements 29
2. Financial Statement Schedule: The following financial statement
schedule of SSE Telecom for the fiscal years ended September 26, 1998,
September 27, 1997, and September 28, 1996 is filed as part of this
Report and should be read in conjunction with the Consolidated
Financial Statements of SSE Telecom, Inc.
Schedule II Valuation and Qualifying Accounts 33
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
See Exhibits Index.
(b) Reports on Form 8-K:
Current report on Form 8-K dated July 16, 1998 reporting under Item 2
the fact that the Company has conveyed its ownership interest in
Corporate Telecom Services, Inc.
31
<PAGE> 32
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 28, 1998 /s/ Leon F. Blachowicz
-----------------------
Leon F. Blachowicz
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:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Daniel E. Moore Director & December 28, 1998
- ------------------- Chairman of the Board
Daniel E. Moore
/s/ Leon F. Blachowicz Director & December 28, 1998
- ---------------------- Chief Executive Officer
Leon F. Blachowicz
/s/ James J. Commendatore Chief Financial Officer December 28, 1998
- -------------------------
James J. Commendatore
/s/ Joseph T. Pisula Director December 28, 1998
- --------------------
Joseph T. Pisula
/s/ Erik H. van der Kaay Director December 28, 1998
- ------------------------
Erik H. van der Kaay
/s/ Olin L. Wethington Director December 28, 1998
- ----------------------
Olin L. Wethington
/s/ Lawrence W. Roberts Director December 28, 1998
- -----------------------
Lawrence W. Roberts
/s/ Jerome deVitry Director December 28, 1998
- ------------------
Jerome deVitry
32
<PAGE> 33
SCHEDULE II
SSE TELECOM
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Balance
Beginning Additions at End
of Period Charged Write-offs of Period
--------- ------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended
September 26, 1998 $ 622 $ 653 $(494) $ 781
----- ----- ------ -----
Year Ended
September 27, 1997 $ 420 $ 447 $(245) $ 622
----- ----- ------ -----
Year Ended
September 28, 1996 $ 223 $ 300 $(103) $ 420
----- ----- ------ -----
</TABLE>
33
<PAGE> 34
Exhibit Index
-------------
These Exhibits are numbered in accordance with
the Exhibit Table of Item 601 of Regulation S-K.
Exhibit
Number Description
------ -----------
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, filed with Form 8-K dated January 28,
1996, #33-10965)
3.1 Certificate of Incorporation of Registrant
(Incorporated by reference to Exhibit 3.1, filed
with Form S-8, #33-10965)
3.2 Certificate of Amendment to Certificate of
Incorporation of Registrant (Incorporated by
reference to Exhibit 3.2, filed with Form S-8
#33-10965)
3.3 Bylaws of Registrant (Incorporated by reference to
Exhibit 3.3, with Form S-8 #33-10965)
3.4 Certificate of Amendment to Certificate of
Incorporation of Registrant (Incorporated by
reference to Exhibit 3.4, filed with Form 10-K dated
September 30, 1989, #33-10965)
4.1 Specimen Stock Certificate (Incorporated by
reference to Exhibit 4.1, filed with Form 10-K dated
September 26, 1992 #33-10965)
4.4 Specimen Form of Debenture (Incorporated by
reference to Exhibit 4.4, filed with Form 8-K dated
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 dated 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, filed with Form 8-K dated
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, filed with Form 8-K dated
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, filed
with Form 8-K dated 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,
filed with Form 8-K dated September 6, 1996,
#33-10965)
10.14 Employment Agreement by and between the Company and
Frederick Toombs (Incorporated by reference to
Exhibit 10.14, 10-K September 26, 1992, #33-10965)
10.14.1 Amendment to Employment Agreement by and between the
Company and Frederick C. Toombs dated May 21, 1997
(Incorporated by reference to Exhibit 10.14.1, filed
with Form 10-K dated September 27, 1997, #0-16473)
10.16 Employment Agreement by and between the Company and
Daniel Moore (Incorporated by reference to Exhibit
10.16, filed with Form 10-K dated October 1, 1994,
#33-10965)
10.16.1 Amendment to Employment Agreement by and between the
Company and Daniel E. Moore dated June 3, 1997
(Incorporated by reference to Exhibit 10.16.1, filed
with Form 10-K dated September 27, 1997, #0-16473)
10.18 Non-Qualified Stock Option Agreement (Incorporated
by reference, Exhibit 10.18, filed with Form 10-K,
dated September 30, 1988, #33-10965)
<PAGE> 35
10.19 1992 Stock Option Plan Agreement (Incorporated by
reference, Exhibit 10.18.1, filed with Form 10-K
dated September 25, 1993, #33-10965)
10.20 1997 Equity Participation Pan (Incorporated by
reference to Exhibit 10.18.2 Proxy Statement, Form
14A, dated April 15, 1997, #33-10965)
10.21 Directors' Stock Option Plan (Incorporated by
reference to Exhibit 10.18.3 Proxy Statement, Form
14A, dated April 15, 1997, #33-10965)
10.22 SSE Telecom 401(k) Profit Sharing Plan and Trust
(Incorporated by reference to Exhibit 10.19, filed
with Form 10-K dated September 25, 1988, #33-10965)
10.23 Lease regarding SSE Technologies' offices at 47823
Westinghouse Drive, Fremont, CA dated February 19,
1991 between SSE Technologies and Warm Springs
Associates I Ltd. Partnership (Incorporated by
reference to Exhibit 10.20, filed with Form 10-K
dated September 26, 1992, #33-10965)
10.24 Lease regarding SSE Technologies' offices at 47823
Westinghouse Drive, Fremont, CA dated February 19,
1991 between SSE Technologies and Warm Springs
Associates II Ltd. Partnership (Incorporated by
reference to Exhibit 10.20.1, filed with Form 10-K
dated September 26, 1992, #33-10965)
10.24.1 Amendment to lease regarding SSE Technologies
offices at 47823 Westinghouse Drive, Fremont, CA
between SSE Technologies and Warm Springs Associated
II Ltd. Partnership (Incorporated by reference to
Exhibit 10.20.2, filed with Form 10-K dated
September 27, 1997, #0-16473)
10.25 Lease regarding SSE Technologies, Inc. offices at
47436 Fremont Blvd., Fremont, CA between SSE
Technologies and Phylon Communications, Inc.
(Incorporated by reference to Exhibit 10.20.3, filed
with Form 10-K dated September 27, 1997 #0-16473)
10.26 Lease regarding SSE Datacom, Inc. offices at 5025
East Washington Drive, Phoenix, AZ between SSE
Technologies and 5025 East Washington Associates
(Incorporated by reference to Exhibit 10.20.4, filed
with Form 10-K dated September 27, 1997 #0-16473)
10.27 Sublease Agreement regarding SSE Technologies, Inc.
offices at 47835 Westinghouse Drive, Fremont, CA
between SSE Technologies and Boehringer Mannheim
(Incorporated by reference to Exhibit 10.20.5, filed
with Form 10-K dated September 27, 1997 #0-16473)
10.28 Lease Amendment regarding the Company offices at
8230 Leesburg Pike, Vienna, VA between SSE Telecom,
Inc. and NVC Limited Partnership (Incorporated by
reference to Exhibit 10.20.6, filed with Form 10-K
dated September 27, 1997 #0-16473)
10.29 Agreement dated March 14, 1994, between the Company
and Echostar Communications Corporation
(Incorporated by reference to Exhibit 10.21, filed
with Form 8-K dated March 29, 1994, #33-10965)
10.30 Sublease Agreement between SSE Datacom, Inc. and
Fairchild Data Corporation, dated January 28, 1996
(Incorporated by reference to Exhibit 10.22, filed
with Form 8-K dated January 28, 1996, #33-10965)
10.31 Registration Agreement between the Company and
Fairchild Data Corporation, dated January 28, 1996
(Incorporated by reference to Exhibit 10.23, filed
with Form 8-K, dated January 28, 1996, #33-10965)
10.32 Stock Purchase and Investment Agreement by and
between the Company and Alcatel Telspace, S.A.,
dated September 6, 1996 (Incorporated by reference
to Exhibit 10.25, filed with Form 8-K dated
September 6, 1996, #33-10965)
10.33 Registration Rights Agreement between the Company
and Alcatel Telspace, S.A., dated September 6, 1996
(Incorporated by reference to Exhibit 10.26, filed
with Form 8-K dated September 6, 1996, #33-10965)
10.34 Employment Agreement between the Company and Leon F.
Blachowicz dated April 28, 1998.
<PAGE> 36
10.35 Employment Agreement between the Company and Michael
Wytyshyn dated May 18, 1998.
10.36 Employment Agreement between the Company and Myron
Gilbert dated June 3, 1998.
10.37 Employment Agreement between the Company and James
J. Commendatore dated November 23, 1998.
10.38 Agreement dated July 16, 1998 among SSE Telecom,
Inc., Corporate Telecom Services Inc. and Wilbur L.
Pritchard
10.39 Trust Agreement among SSE Telecom, Inc., Corporate
Telecom Services Inc. and Wilbur L. Pritchard dated
February 23, 1989 (Incorporated by reference to
Exhibit 4 filed with Form 8-K dated March 2, 1989,
#33-10965)
10.40 Loan and Security Agreement by and between the
Company and Comerica Bank - California, dated
October 21, 1997.
10.40.1 First Modification to Loan and Security Agreement by
and between the Company and Comerica Bank -
California dated August 14, 1998.
16.1 Letter from Ernst & Young LLP, dated April 17, 1998
(Incorporated by reference to Exhibit 16.1, filed
with Form 8-K dated April 17, 1998 #33-10965)
21.2 Subsidiaries of Registrant
23.1 Consent of Deloitte & Touche LLP, Independent
Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule (Page 42)
<PAGE> 1
Exhibit 10.34
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into effective as of
the 28th day of April, 1998, 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 LEON F.
BLACHOWICZ, residing at the address set forth after his signature (the
"Executive").
WHEREAS, the Company wishes to employ the Executive as a full time
employee of the Company in an executive capacity; and
WHEREAS, the Executive wishes to be employed by the Company on the
terms and conditions set forth below;
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 April 29, 1998
(the "Effective Date") and subject to the provisions of Section 9 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. The Executive shall,
subject to appointment by Telecom's Board of Directors, serve as President and
Chief Executive Officer of Telecom. Executive, concurrent with the Effective
Date, shall become a member of Telecom's Board of Directors. While serving as a
director, the Executive will serve in such capacity without further
compensation. 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 a passive investor in any business venture which is not
competitive with the Company's business. The Company acknowledges that it is
aware that Executive holds a securities ownership interest in California
Microwave, Inc., and the Company consents to Executive's continuing to own and
hold such securities for investment purposes.
3. Compensation Plan; Base Salary; Annual Review.
(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 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, and bonuses in accordance with
Section 4 and stock options in accordance with Section 5.
(b) Base Salary for Current Fiscal Year. For all services
rendered by the Executive under this Agreement, the Executive shall be paid an
annual base salary. The annual base salary is Two Hundred Thirty-Five Thousand
Dollars ($235,000). 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
<PAGE> 2
Telecom, or by a subsidiary of Telecom, in accordance with the practice adopted
by such company for payment of wages to its 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 9, this is an at will employment
agreement.
4. Bonuses
(a) Bonus Compensation Plan. Bonus compensation shall be
payable in cash and/or stock options in accordance with a bonus compensation
plan put into effect by Telecom's Board of Directors for 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 October 1, 1998, and
each fiscal year thereafter, the Executive shall have the opportunity to earn a
bonus compensation with a target range of sixty percent (60%) of base salary
upon the Company's achieving certain pre-established goals in such areas as
Company profitability, advancement in the public market of the price of
Telecom's common stock, and operations. The pre-established goals, which are
subject to the approval of the Compensation Committee of Telecom's Board of
Directors, will be mutually determined by the Company and the Executive for each
fiscal year, prior to or within thirty (30) days of the commencement of each
fiscal year.
Notwithstanding the foregoing paragraph, the Company will pay the
Executive a bonus payment of $50,000 in January, 1999, $40,000 in January, 2000,
and $20,000 in January, 2001, each of such payments to be applied against any
bonus that may be earned by the Executive under the bonus compensation plan in
effect for such year.
(b) Commitment Bonus. In recognition of Executive's commitment
to be employed by the Company, in addition to any bonuses that may be earned by
the Executive under any bonus compensation plans established by the Company, the
Company will make a one-time payment of $50,000 to the Executive, on an agreed
date, but not later than January, 1999.
5. Stock Options. The Executive will be granted stock options for an
aggregate of 250,000 shares of Telecom's common stock, of which 150,000 shares
will be granted on the Effective Date, and 75,000 shares will be granted on the
first anniversary of the Effective Date, and 25,000 shares will be granted on
the second anniversary of the Effective Date. Subject to applicable Internal
Revenue Code limitations, the options will be issued, to the extent possible, as
incentive stock options. The options will be granted at fair market value on the
date of grant, and will
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<PAGE> 3
vest and be exercisable in accordance with the policies now in effect for the
granting by Telecom of options to its employees, except as otherwise provided
under subsection 9(c)(iii) below.
6. Purchase and Holding of Telecom Stock. Within 90 days of the
Effective Date, and subject to compliance with all applicable security law
matters, the Executive shall purchase not less than $100,000 worth of shares of
Telecom common stock in market transactions, and the Executive covenants to
retain all such shares throughout the term of Executive's employment with the
Company, and, if applicable, during any period that Executive receives
"Continuing Compensation" as provided under Section 9 below.
7. 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.
8. 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. The Company will give the Executive a vacation of fifteen (15)
days with pay each year during the term of this Agreement, the time for vacation
to be determined by mutual agreement between Company and Executive.
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<PAGE> 4
9. 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, if Executive is terminated without cause, (a) within
the first twelve (12) month period from the Effective Date, the Executive shall
be entitled to receive, and shall receive, "Continuing Compensation" as
hereafter defined in subsection (iii) for a period of twelve (12) months from
the date of termination, payable in monthly installments during the twelve (12)
month period following termination, (b) within the second twelve (12) month
period from the Effective Date, the Executive shall receive Continuing
Compensation for a period of nine (9) months from the date of termination,
payable in monthly installments during the twelve (12) month period following
termination; and (c) within the third twelve (12) month period from the
Effective Date, the Executive shall receive Continuing Compensation for a period
of six (6) months from the date of termination, payable in monthly installments
during the twelve (12) month period following termination.
(ii) Without cause, the Executive may terminate this
Agreement upon not less than sixty (60) days written notice to the Company. In
such event, unless otherwise directed by the Company, Executive shall continue
to render his services and shall be paid his regular compensation up to the date
of termination of employment. 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
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<PAGE> 5
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.
(c) Termination Upon Change of Control.
(i) If the Executive's employment is terminated by
the Company as a result of a "Change of Control" (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. For purposes of this
subsection (c)(i), the following shall also be deemed a termination of
Executive's employment: a material reduction in Executive's position,
responsibilities, title, salary or benefits, or if as condition of continued
employment, the Executive is required to relocate from the San Francisco area.
(ii) For purposes of this Section 9(c), a "Change of
Control" shall be deemed to have taken place if (A) a third person, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, acquires shares of Telecom having 50% or more of the total number of
votes that may be cast for the election of Directors of Telecom; or (B) as the
result of any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election or any combination of the
foregoing transactions (a "Transaction"), the persons who were directors of
Telecom before the Transaction shall cease to constitute a majority of the Board
of Telecom.
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<PAGE> 6
(iii) In the event of a Change of Control all
outstanding options held by Executive to acquire Telecom stock shall vest as of
the date of the Change of Control.
(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.
10. Protective Covenants; Remedies.
(a) Non-Disclosure of Confidential Information. Executive will
not, during the term of this Agreement, or at any time during the two (2) 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
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<PAGE> 7
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 10 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.
11. 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.
12. 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.
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13. 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.
14. 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.
15. 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.
16. Applicable Law. The validity, enforceability and interpretation of
this Agreement shall be determined and governed by the laws of the State of
Delaware.
17. Number of Agreements. This Agreement may be executed in any number
of counterparts, any one of which may be deemed original.
18. 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.
19. 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.
20. 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.
COMPANY:
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SSE TELECOM, INC.
April 28, 1998 By: /s/ Daniel Moore
- ----------------------- --------------------------
Date Daniel E. Moore, Chairman
EXECUTIVE:
April 28, 1998 /s/ Leon F. Blachowicz
- ----------------------- ------------------------------
Date Leon F. Blachowicz
1173 Nikulina Court
San Jose, California 95120
9
<PAGE> 1
Exhibit 10.35
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into effective as of
the 18th day of May, 1998, 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 MICHAEL B.
WYTYSHYN, residing at the address set forth after his signature (the
"Executive").
WHEREAS, the Company wishes to employ the Executive as a full time
employee of the Company in an executive capacity; and
WHEREAS, the Executive wishes to be employed by the Company on the
terms and conditions set forth below;
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 May 18, 1998 (the
"Effective Date") and subject to the provisions of Section 8 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. The Executive shall
serve as Executive Vice President, Business Development. 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 a passive investor in any
business venture. The Company acknowledges and consents to Executive's
continuing participation as a member of the Board of Directors of Web Silicon,
Inc.
3. Compensation Plan; Base Salary; Annual Review.
(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 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, and bonuses in accordance with
Section 4 and stock options in accordance with Section 5.
(b) Base Salary for Current Fiscal Year. 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 Eighty-Five Thousand
Dollars ($185,000). 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.
(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
<PAGE> 2
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 8, this is an at
will employment agreement.
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<PAGE> 3
4. Bonuses
(a) Bonus Compensation Plan. Bonus compensation shall be
payable in cash and/or stock options in accordance with a bonus compensation
plan put into effect by Telecom's Board of Directors for 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 October 1, 1998, and
each fiscal year thereafter, the Executive shall have the opportunity to earn a
bonus compensation with a target range of fifty percent (50%) of base salary
upon the Company's achieving certain pre-established goals in such areas as
Company profitability, advancement in the public market of the price of
Telecom's common stock, and operations. The pre-established goals, which are
subject to the approval of the Compensation Committee of Telecom's Board of
Directors, will be mutually determined by the Company and the Executive for each
fiscal year, prior to or within thirty (30) days of the commencement of each
fiscal year.
Notwithstanding the foregoing paragraph, the Company will pay the
Executive a bonus payment of $45,000 in January 1999, such payment to be applied
against any bonus that may be earned by the Executive under the bonus
compensation plan in effect for such year.
(b) Commitment Bonus. In recognition of Executive's commitment
to be employed by the Company, in addition to any bonuses that may be earned by
the Executive under any bonus compensation plans established by the Company, the
Company will make a one-time payment of $35,000 to the Executive, on an agreed
date, but not later than January, 1999.
5. Stock Options. The Executive will be granted stock options for an
aggregate of 100,000 shares of Telecom's common stock, of which 75,000 shares
will be granted on the Effective Date and 25,000 shares will be granted on the
first anniversary of the Effective Date. Subject to applicable Internal Revenue
Code limitations, the options will be issued, to the extent possible, as
incentive stock options. The options will be granted at fair market value on the
date of grant, and will vest and be exercisable in accordance with the policies
now in effect for the granting by Telecom of options to its employees, except as
otherwise provided under Section 8(c)(iii) below.
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 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.
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7. 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. The Company will give the Executive a vacation of fifteen (15)
days with pay each year during the term of this Agreement, the time for vacation
to be determined by mutual agreement between Company and Executive.
8. 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, if Executive is terminated without cause, (a) within
the first twelve (12) month period from the Effective Date, the Executive shall
be entitled to receive, and shall receive, "Continuing Compensation" as
hereafter defined in subsection (iii) for a period of twelve (12) months from
the date of termination, payable in monthly installments during the twelve (12)
month period following termination, (b) within the second twelve (12) month
period from the Effective Date, the Executive shall receive Continuing
Compensation for a period of nine (9) months from the date of termination,
payable in monthly installments during the twelve (12) month period following
termination; and (c) within the third twelve (12) month period from the
Effective Date and thereafter the Executive shall receive Continuing
Compensation for a period of six (6) months from the date of termination,
payable in monthly installments during the twelve (12) month period following
termination.
(ii) Without cause, the Executive may terminate this
Agreement upon not less than sixty (60) days written notice to the Company. In
such event, unless otherwise directed by the
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<PAGE> 5
Company, Executive shall continue to render his services and shall be paid his
regular compensation up to the date of termination of employment. 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.
(c) Termination Upon Change of Control.
(i) If the Executive's employment is terminated by
the Company as a result of a "Change of Control" (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. For purposes of this
subsection (c)(i), the following shall also be deemed a termination of
Executive's employment: a material reduction in Executive's position,
responsibilities, title, salary or benefits, or if as condition of continued
employment, the Executive is required to relocate from the San Francisco area.
(ii) For purposes of this Section 8(c), a "Change of
Control" shall be deemed to have taken place if (A) a third person, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, acquires shares of Telecom having 50% or more of the total number of
votes that may be cast for the election of Directors of Telecom; or (B) as the
result of any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election or any combination of the
foregoing transactions (a "Transaction"), the persons who were directors of
Telecom before the Transaction shall cease to constitute a majority of the Board
of Telecom.
(iii) In the event of a Change of Control all
outstanding options held by Executive to acquire Telecom stock shall vest as of
the date of the Change of Control.
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(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.
9. Protective Covenants; Remedies.
(a) Non-Disclosure of Confidential Information. Executive will
not, during the term of this Agreement, or at any time during the two (2) 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 six month period following termination of
Executive's employment, as per Section 8(b), 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
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Executive acknowledges and understands that the covenants provided for in this
Section 9 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
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<PAGE> 8
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.
10. 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.
11. 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.
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.
8
<PAGE> 9
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
Delaware.
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.
[SIGNATURES ON FOLLOWING PAGE]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date set forth above.
COMPANY:
SSE TELECOM, INC.
May 14, 1998 By: /s/ Leon F. Blachowicz
- ----------------------- ----------------------------
Date Leon F. Blachowicz, President
and Chief Executive Officer
EXECUTIVE:
May 15, 1998 /s/ Michael B. Wytyshyn
- ----------------------- --------------------------------
Date Michael B. Wytyshyn
20759 Lowena Court
Saratoga, California 95070
10
<PAGE> 1
Exhibit 10.36
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into effective as of
the 16th day of May , 1998, 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 MYRON B.
GILBERT, residing at the address set forth after his signature (the
"Executive").
WHEREAS, the Company wishes to employ the Executive as a full time
employee of the Company in an executive capacity; and
WHEREAS, the Executive wishes to be employed by the Company on the
terms and conditions set forth below;
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 June 10, 1998
(the "Effective Date") and subject to the provisions of Section 8 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. The Executive shall
serve as Executive Vice President, Operations. 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 a passive investor in any business venture
which is not competitive with the Company's business.
3. Compensation Plan; Base Salary; Annual Review.
(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 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, and bonuses in accordance with
Section 4 and stock options in accordance with Section 5.
(b) Base Salary for Current Fiscal Year. For all services
rendered by the Executive under this Agreement, the Executive shall be paid an
annual base salary. The initial annual base salary is One Hundred Twenty-Five
Thousand Dollars ($125,000). The annual base salary 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) 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
<PAGE> 2
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 8, this is an at
will employment agreement.
4. Bonuses. Bonus compensation shall be payable in cash and/or stock
options in accordance with a bonus compensation plan put into effect by
Telecom's Board of Directors for 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 October 1, 1998, and each fiscal year thereafter,
the Executive shall have the opportunity to earn a bonus compensation with a
target range of forty percent (40%) of base salary upon the Company's achieving
certain pre-established goals in such areas as Company profitability,
advancement in the public market of the price of Telecom's common stock, and
operations. The pre-established goals, which are subject to the approval of the
Compensation Committee of Telecom's Board of Directors, will be mutually
determined by the Company and the Executive for each fiscal year, prior to or
within thirty (30) days of the commencement of each fiscal year.
Notwithstanding the foregoing paragraph, the Company will pay the
Executive a current fiscal year bonus payment of $20,000 by January 1999, such
payment to be in lieu of any bonus compensation plan for the fiscal year ending
September 30, 1998.
5. Stock Options. The Executive, subject to approval of the
Compensation Committee of Telecom's Board of Directors, will be granted stock
options for an aggregate of 50,000 shares of Telecom's common stock on the
Effective Date. Subject to applicable Internal Revenue Code limitations, the
options will be issued, to the extent possible, as incentive stock options. The
options will be granted at fair market value on the date of grant, and will vest
and be exercisable in accordance with the policies now in effect for the
granting by Telecom of options to its employees.
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 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.
7. 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.
2
<PAGE> 3
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. The Company will give the Executive a vacation of fifteen (15) days
with pay each year during the term of this Agreement, the time for vacation to
be determined by mutual agreement between Company and Executive.
8. 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, if Executive is terminated without cause, (a) within
the first twelve (12) month period from the Effective Date, the Executive shall
be entitled to receive, and shall receive, "Continuing Compensation" as
hereafter defined in subsection (iii) for a period of twelve (12) months from
the date of termination, payable in monthly installments during the twelve (12)
month period following termination, (b) within the second twelve (12) month
period from the Effective Date, the Executive shall receive Continuing
Compensation for a period of nine (9) months from the date of termination,
payable in monthly installments during the nine (9) month period following
termination; and (c) at any time after twenty-four (24) months from the
Effective Date, the Executive shall receive Continuing Compensation for a period
of six (6) months from the date of termination, payable in monthly installments
during the six (6) month period following termination.
(ii) Without cause, the Executive may terminate this
Agreement upon not less than sixty (60) days written notice to the Company. In
such event, unless otherwise directed by the Company, Executive shall continue
to render his services and shall be paid his regular compensation up to the date
of termination of employment. Bonus compensation that has been earned by the
Executive through the date of his termination shall be paid to Executive.
3
<PAGE> 4
(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.
(c) Termination Upon Change of Control.
(i) If the Executive's employment is terminated by
the Company as a result of a "Change of Control" (as defined below), such
termination shall be a termination without cause and Executive shall be entitled
to receive Continuing Compensation as defined in subsection (b)(iii) above for
the period provided in subsection (b)(i). For purposes of this subsection
(c)(i), the following shall also be deemed a termination of Executive's
employment without cause if such occurs following a change in control: a
material reduction in Executive's position, responsibilities, title, salary or
benefits, or if as condition of continued employment, the Executive is required
to relocate from the San Francisco area.
(ii) For purposes of this Section 8(c), a "Change of
Control" shall be deemed to have taken place if (A) a third person, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, acquires shares of Telecom having 50% or more of the total number of
votes that may be cast for the election of Directors of Telecom; or (B) as the
result of any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election or any combination of the
foregoing transactions (a "Transaction"), the persons who were directors of
Telecom before the Transaction shall cease to constitute a majority of the Board
of Telecom.
(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.
9. Protective Covenants; Remedies.
4
<PAGE> 5
(a) Non-Disclosure of Confidential Information. Executive will
not, during the term of this Agreement, or at any time during the two (2) 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 (i) the six (6) month period following termination of
Executive's employment, or (ii) the period of any Continuing Compensation
payable as provided in Section 8(b), whichever is longer, 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 9 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.
5
<PAGE> 6
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.
10. 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.
11. 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.
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
6
<PAGE> 7
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
Delaware.
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.
[SIGNATURES ON FOLLOWING PAGE]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date set forth above.
COMPANY:
SSE TELECOM, INC.
May 16, 1998 By: /s/ Leon F. Blachowicz
- --------------------- -----------------------------
Date Leon F. Blachowicz, President
and Chief Executive Officer
EXECUTIVE:
May 16, 1998 /s/ Myron B. Gilbert
- --------------------- ---------------------------------
Date Myron B. Gilbert
672 Ashby Lane
Cambria, California 93428
8
<PAGE> 1
Exhibit 10.37
EMPLOYMENT AGREEMENT
This agreement ("Agreement") is made and entered into effective as of
the November 23rd 1998, by and between SSE TELECOM, INC. ("Telecom") and its
affiliates and subsidiaries which are collectively referred to as the "Company",
unless the context requires otherwise or it is otherwise specifically provided
and JAMES J. COMMENDATORE, residing at the address set forth after his signature
(the "Executive").
WHEREAS, the Company wishes to employ the Executive as a full time
employee of the Company in an executive capacity; and
WHEREAS, the Executive wishes to be employed by the Company on the
terms and conditions set forth below,
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 November 23, 1998
(the "Effective Date") and subject to the provisions of Section 8 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. The Executive shall
serve as Executive Vice President and Chief Financial 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 a passive investor
in any business venture which is not competitive with the Company's business.
3. Compensation Plan; Base Salary; Annual Review.
(a) Compensation Plan. As compensation for the Executive's
<PAGE> 2
services under this Agreement, Executive shall be entitled to receive during his
employment the base salary 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, and bonuses in accordance with
Section 4 and stock options in accordance with Section 5.
(b) Base Salary for Current Fiscal Year Base Salary for
Current Fiscal Year. for all services rendered by the Executive under this
Agreement, the Executive shall be paid an annual base salary. The initial annual
base salary is One Hundred Forty Five Thousand Dollars ($145,000). The annual
base salary 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) 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 8, this is an at
will employment agreement.
4. Bonuses Bonus compensation shall be payable in cash and/or stock
options in accordance with a bonus compensation plan put into effect by
Telecom's Board of Directors for 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 October 1, 1998, and each fiscal year thereafter,
the Executive shall have the opportunity to earn a bonus compensation with a
target range of forty percent (40%) of base salary upon the Company's achieving
certain pre-established goals in such areas as Company profitability,
advancement in the public market of the price of Telecom's common stock, and
operations. The pre-established goals, which are subject to the approval of the
Compensation Committee of Telecom's Board of Directors, will be mutually
determined by the Company and the Executive for each fiscal year, prior to or
within thirty (30) days of the commencement of each fiscal year.
Notwithstanding the foregoing paragraph, the Company will pay the
Executive a current fiscal year minimum bonus payment of $30,000 for the fiscal
year ending September 30, 1999.
5. Stock Options. The Executive will be granted stock options for an
aggregate of 50,000 shares of Telecom's common stock on the Effective Date.
Subject to applicable Internal Revenue Code limitations, the options will be
issued, to the extent possible, as incentive stock options. The options will be
granted at fair market
2
<PAGE> 3
value on the date of grant, and will vest and be exercisable in accordance with
the policies now in effect for the granting by Telecom of options to its
employees.
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 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.
7. 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. The Company will give the Executive a vacation of fifteen (15)
days with pay each year during the term of this Agreement, the time for vacation
to be determined by mutual agreement between Company and Executive.
8. 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) day's' 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, if Executive is terminated without cause, (a) within
the first twelve (12) month period from the Effective Date, the Executive shall
be entitled to receive, and shall receive "Continuing Compensation" as hereafter
defined in subsection (III) for a period of twelve (12) months from the date of
termination, (b) within the second twelve (12) month period from the Effective
Date, the Executive shall receive Continuing Compensation for a period of nine
(9) months from the date of termination, payable in monthly installments during
the nine (9) month period following termination; and (c) at any time after
twenty-four (24) months from the Effective
3
<PAGE> 4
Date, the executive shall receive Continuing Compensation for a period of six
(6) months from the date of termination, payable in monthly installments during
the six (6) month period following termination.
(ii) Without cause, the Executive may terminate this
Agreement upon not less than sixty (60) days written notice to the Company. In
such event, unless otherwise directed by the Company, Executive shall continue
to render his services and shall be paid his regular compensation up to the date
of termination of employment. 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.
(c) Termination Upon Change of Control.
(i) If the executive's employment is terminated by
the Company as a result of a "Change of Control" (as defined below), such
termination shall be a termination without cause and Executive shall be entitled
to receive Continuing Compensation as defined in subsection (b) (iii) above for
the period provided in subjection (b) (i). For purposes of this subsection (c)
(i), the following shall also be deemed a termination of Executive's employment
without cause if such occurs following a change in control: a material reduction
in Executive's position, responsibilities, title, salary or benefits, or if as
condition of continued employment, the Executive is required to relocate from
the San Francisco area.
4
<PAGE> 5
(ii) For purposes of this Section 8 (c), a "Change of
Control" shall be deemed to have taken place if (A) a third person, including a
"group" as defined in Section 13 (d) (3) of the Securities Exchange Act of 1934,
as amended, acquires shares of Telecom having 50% or more of the total number of
votes that may be cast for the election of Directors of Telecom; or (B) as the
result of any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election or any combination of the
foregoing transactions (a "Transaction"), the persons who were directors of
Telecom before the Transaction shall cease to constitute a majority of the Board
of Telecom.
(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.
9. Protective Covenants; Remedies.
(a) Non-Disclosure of Confidential Information. Executive will
not, during the term of this Agreement, or at any time during the two (2) 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" business.
(b) Non-Competition. The Executives agree that during the term
of this Agreement and for (i) the six (6) month period following termination of
Executive's employment, or (ii) the period of any Continuing Compensation
payable as provided in Section 8 (b), whichever is longer, 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
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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) Acknowledgement Regarding Protective Covenants. The
Executive acknowledges and understands that the covenants provided for in this
Section 9 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.
10. 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.
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<PAGE> 7
11. 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.
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
Delaware.
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.
(SIGNATURES ON FOLLOWING PAGE)
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date set forth above.
COMPANY:
SSE TELECOM, INC.
November 23, 1998 By: /s/ Leon F. Blachowicz
- ---------------------------- -----------------------------
Date Leon F. Blachowicz, President
and Chief Executive Officer
EXECUTIVE:
November 23, 1998 /s/ James J. Commendatore
- ---------------------------- --------------------------------
Date James J. Commendatore
1271 Carmel Terrace
Los Altos, CA 94024
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<PAGE> 1
Exhibit 10.38
AGREEMENT
This agreement ("Agreement") is made and entered into effective the
16th day of July, 1998, by and among (i) SSE TELECOM, INC., a Delaware
corporation ("SSET"), (ii) CORPORATE TELECOM SERVICES, INC., a Maryland
corporation ("CTSI"), and (iii) WILBUR L. PRITCHARD ("Mr. Pritchard").
RECITALS
R-1. In 1988, and for periods prior thereto, SSET maintained its
principal executive offices in Bethesda, Maryland, and engaged, directly and
through subsidiary companies, in the business, among other things, of providing
to its customers engineering and related services in respect to applications
filed with the Federal Communications Commission (the "FCC" or the "Commission")
seeking authority to provide public cellular telecommunications radio service.
SSET had developed a reputation as a leading provider of satellite systems
engineering services, as a provider of other consulting and engineering services
to companies in the telecommunications industry, and had developed an expertise
in the providing of services to customers seeking authority to operate such
systems through the competitive process which had been in effect at the FCC
through 1986. Starting in 1986, the Commission developed a lottery process for
the selection of a particular applicant among multiple applicants for
metropolitan service areas ("MSAs"), and later for the award to an applicant
from multiple applications for rural service areas ("RSAs"). In the
establishment of the lottery process, the Commission promulgated various rules,
including rules intended, among other things, to reduce "speculation" in lottery
applications through the filing and subsequent sale of applications, and the
filing of multiple applications by the same applicant for the same market area.
R-2. In 1986, SSET caused the formation of CTSI as a wholly-owned
subsidiary of SSET, and then used CTSI as SSET's corporate entity as an
applicant for the award of cellular licenses in certain of the MSA markets, and
subsequently as the applicant for various RSA markets. SSET prepared
applications for CTSI and CTSI filed with the Commission for various RSA
markets, correctly disclosing, as required by applicable rules, the parent
subsidiary relationship between SSET and CTSI, and the principal officers of
SSET and CTSI.
R-3. In the summer of 1988, SSET had formed, as a wholly-owned
subsidiary, SSE Technologies Inc. ("SSE Tech") to engage in the business of
manufacturing satellite transceivers, and by the latter part of 1988, and
continuing into early 1989, SSET was seeking financing for the business of SSE
Tech and intended to make a private placement of shares of SSET common stock to
raise needed capital. In 1988, SSET was a public company, with shares of its
common stock publicly traded, and the public nature of SSET has continued to the
present.
R-4. At the time of the proposed private placement, SSET became
concerned in respect to the effect of the proposed private placement on the
various pending applications filed by CTSI with the FCC for the pending RSA
lotteries because, among other things, completion of the private placement would
materially change the stock ownership interest in SSET and one of the
prospective investors had, through another entity, filed applications with the
FCC for some of the
<PAGE> 2
same RSA markets as filed for by CTSI.
R-5. In February 1989, SSET and CTSI sought the advice of experienced
FCC legal counsel, and being unable to receive guidance from the FCC, such legal
counsel recommended the placing in trust by SSET of its stock ownership interest
in CTSI, with the expectation that a formal application could then be made to
the Commission when appropriate to seek an amendment to CTSI's applications.
R-6. In February 1989, SSET, CTSI and Mr. Pritchard, as Trustee,
entered into a trust agreement dated February 23, 1989, under which SSET placed
in trust with Mr. Pritchard, as Trustee, all of the stock ownership interest in
CTSI, pursuant to the said trust agreement as amended July 7, 1989 (the "Trust
Agreement"). Mr. Pritchard was the founder of SSET, and in February 1989 its
president and controlling stockholder. On May 5, 1989, following a lottery, the
Commission designated CTSI as the tentative selectee for the Nebraska-Boone No.
5 Rural Service Area (the "Boone RSA"), and on June 21, 1989, CTSI filed an
amendment to its application explaining the existence of the Trust Agreement and
seeking approval of the Commission to an amendment of CTSI's application and
confirmation of CTSI as the selectee of the Boone RSA. The Mobile Services
Division ("MSD") of the FCC denied CTSI's application, and further rejected CTSI
as the tentative selectee for the Boone RSA. CTSI appealed the decision of the
MSD to the Commission's Common Carrier Bureau (the "CCB"), and in October 1991,
the CCB affirmed the decision of the MSD. CTSI appealed such decision to the
full Commission, and on March 1, 1994, the Commission denied CTSI's application
for review, denied CTSI's request for waiver of certain of its rules, and
affirmed the order of the CCB. On March 29, 1994, CTSI appealed the decision of
the Commission to the United States Court of Appeals for the District of
Columbia Circuit. On June 2, 1995, the Court of Appeals reversed and remanded
the Commission's order and directed that the Commission reconsider the
application of CTSI. On remand and reconsideration, the Commission concluded
that CTSI's application did not violate the policy objectives of the Commission,
and that the application should, therefore, be granted, and effective May 7,
1997, the Commission granted CTSI's application and affirmed CTSI as the
selectee for the Boone RSA. Thereafter, CTSI completed the application process
with the FCC and obtained FCC authorization (the "Authorization") to construct,
own and operate the non-wireline cellular telephone system in the Boone RSA.
R-7. In December 1994, in order to obtain funds for the payment of
certain expenses of CTSI, including funds for the prosecution of the appeal in
the United States Court of Appeals, CTSI entered into a Loan and Pledge
Agreement dated December 13, 1994, with Global Communications Systems, Inc.
("Global") under which agreement (the "Loan and Pledge Agreement") Global lent
to CTSI $100,000.00, and Global acquired a put option right under which Global
obtained the right and option to match any offer received by CTSI for the
purchase from CTSI of the Authorization if CTSI gave notice to Global of its
intention to accept such an offer subject, however, to the proviso that Global
need not pay in excess of $40.00 "per pop" times the population in the Boone RSA
market (the "per pop put price").
R-8. Effective December 22, 1997, CTSI entered into an Asset Purchase
Agreement with
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Western Wireless Corporation ("Western"), the interim operator, under which
agreement (the "Asset Purchase Agreement") the parties agreed to seek the
approval of the FCC for the sale by CTSI of the Authorization for the Boone RSA
to Western, and, if such approval was obtained, for the sale by CTSI of such
Authorization to Western for the purchase price and upon the terms more
particularly set forth in the Asset Purchase Agreement. An application to the
FCC was duly filed by Western and CTSI, and the Commission granted such
application effective May 1, 1998. The Commission's Order granting the
application became final on June 15, 1998.
R-9. Throughout the period from February 1989, and through the date of
this Agreement, Mr. Pritchard has held, as Trustee, the stock ownership interest
in CTSI, and has diligently pursued the obtaining of the Authorization for CTSI
and the subsequent approval for the sale and transfer of the Authorization to
Western under the Asset Purchase Agreement.
R-10.CTSI is no longer a party or applicant before the FCC or the
holder of any license or permit granted by the FCC, and the parties hereto have
concluded that termination of the Trust Agreement and redeliver to SSET of the
stock ownership in CTSI is appropriate.
NOW, THEREFORE, in consideration of the foregoing, and the covenants
and agreements herein contained, and the benefits to be derived here from, the
parties, intending to be legally bound, hereby agree as follows:
1. RECITALS. The recitals set forth above are incorporated herein by
reference and constitute a part of this Agreement.
2. SATISFACTION OF GLOBAL. The parties acknowledge that all
obligations of CTSI arising from the Loan and Pledge Agreement with Global have,
prior to the date of this Agreement, been satisfied in full by the following
transactions:
(a) To induce CTSI to enter into the Asset Purchase Agreement with
Western, CTSI through Trustee, and Global entered into a first amendment to the
Loan and Pledge Agreement effective September 26, 1997 (the "First Amendment")
pursuant to which, among other things, the "per pop put price" was amended to
$48.00, rather than $40.00 as set forth in the Loan and Pledge Agreement,
effectively increasing the consideration to be received by CTSI under the Asset
Purchase Agreement with Western by $8.00 "per pop". Further, CTSI gave notice to
Global of CTSI"s receipt of an offer for the transfer of the Authorization for
the Boone RSA at $48.00 per pop based on the population of 145,000 in the Boone
RSA. Subsequent to the First Amendment, CTSI entered into the Asset Purchase
Agreement with Western.
(b) The First Amendment also provided for the repayment by CTSI to
Global of the term loan in the amount of $100,000, together with agreed interest
in the liquidated sum of $12,000, and such aggregate payment of $112,000 (the
"Global Debt") was paid by CTSI to Global concurrent with closing under the
Asset Purchase Agreement with Western.
(c) CTSI, Mr. Pritchard, Global and Global's president, Kent S.
Foster
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("Foster") executed and delivered a Mutual Release Agreement, a copy of which is
annexed hereto and identified as Exhibit 2(c) (the "CTSI-Global Release"). CTSI
and Mr. Pritchard hereby confirm that all conditions precedent to the
effectiveness of such release have been satisfied, and the CTSI-Global Release
is in full force and effect.
3. SALE TO WESTERN. Pursuant to the Asset Purchase Agreement, CTSI,
as Seller, and Western, as Purchaser, agreed to the sale and purchase of CTSI's
ownership interest in the Authorization for the Boone RSA for the purchase price
and upon the terms and conditions set forth in the Asset Purchase Agreement. A
copy of the Asset Purchase Agreement is annexed hereto as Exhibit 3. In respect
to the Asset Purchase Agreement with Western, the parties acknowledge:
(a) All conditions to closing under the Asset Purchase Agreement
were satisfied, and the Closing of the purchase and sale of the Authorization
occurred on June 22, 1998.
(b) Annexed hereto as Exhibit 3(b) is a copy of the confirmation
of closing and receipt of the purchase price.
(c) CTSI has fully performed all of its obligations and has
exercised all rights under the Asset Purchase Agreement with Western, and as of
the date of this Agreement, CTSI no longer has any interest in the
Authorization.
4. SATISFACTION OF LIABILITIES OF CTSI. The parties acknowledge that
during the period from in or about February 1989, and continuing to the period
immediately prior to the date of this Agreement, CTSI incurred, and Mr.
Pritchard, in his capacity as Trustee incurred, various liabilities and
commitments arising out of the pursuit by CTSI of the obtaining of the
Authorization for the Boone RSA. SSET also incurred and paid obligations in
respect to CTSI both prior to February 1989 and subsequent to February 1989.
Except as set forth in (c) and (d) below, all of such liabilities have been paid
and satisfied as of the date of this Agreement as follows:
(a) The liabilities to Global have been satisfied as provided in
Section 2 above.
(b) Except for the liabilities described in (c) and (d) below, all
other liabilities of CTSI incurred or accrued during the period February 1989,
through and including the date of this Agreement, are identified on the annexed
Exhibit 4(b) (the "Scheduled Liabilities"). Prior to or concurrent with
execution of this Agreement, the Scheduled Liabilities have been paid and
satisfied in full at the amounts reflected on such Schedule.
(c) The parties acknowledge that SSET advanced various funds to
CTSI from the period of CTSI's organization through February 1989, and that
after February 1989, SSET paid directly to third persons various expenses
incurred on behalf of CTSI in furtherance of the business of CTSI, including
expenses incurred in pursuing the obtaining of the Authorization for CTSI.
Amounts advanced to CTSI from SSET, and amounts advanced, paid or expensed on
behalf of CTSI by SSET, shall be resolved and satisfied as CTSI and SSET shall
agree separate from the terms of this Agreement.
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(d) Payment of amounts to Mr. Pritchard for his services as
Trustee shall be in accordance with the provisions of Section 6 below.
5. REASSIGNMENT OF CTSI STOCK TO SSET. The parties hereto have
concluded that the purpose for the conveyance by SSET of its stock ownership
interest in CTSI to Mr. Pritchard, as Trustee under the Trust Agreement, has
been satisfied and that the continued holding of the stock ownership interest in
CTSI by the Trustee is no longer necessary, and the parties, having considered
the advice of legal counsel, determined to terminate the holding of the stock
ownership interest in CTSI by Mr. Pritchard, as Trustee. Concurrent with the
execution of this Agreement, and without further act by any of the parties
hereto, the parties agree that the Trust Agreement is hereby terminated and the
stock ownership interest in CTSI is hereby redelivered to SSET. In furtherance
of such termination and redelivery, concurrent with the execution of this
Agreement, Mr. Pritchard has surrendered the certificate representing 100 shares
of the common stock of CTSI, being all of the issued and outstanding shares of
CTSI, and has executed and delivered to SSET an assignment separate from the
certificate conveying such shares to SSET.
6. COMPENSATION TO MR. PRITCHARD. SSET and CTSI acknowledge that Mr.
Pritchard diligently pursued the efforts to obtain the Authorization for CTSI,
was responsible, together with legal counsel, for the directions taken over the
preceding years in obtaining such Authorization, materially contributed to the
obtaining of an increase in the Aper pop put price@ resulting in substantial
benefit to CTSI, and has otherwise materially contributed to the transactions
which permitted the resultant sale of the Authorization and the return to SSET
of its ownership interest in CTSI. As compensation for all services rendered by
Mr. Pritchard arising out of the Trust Agreement, concurrent with the execution
of the Agreement, Mr. Pritchard shall be paid $728,489.00. The parties agree
that the amount paid to Mr. Pritchard pursuant to the preceding sentence
includes compensation for services rendered, and any incidental expenses
incurred by Mr. Pritchard not included in the Scheduled Liabilities. Such amount
has been paid concurrent with the execution of this Agreement, the receipt of
which is acknowledged by Mr. Pritchard. Mr. Pritchard acknowledges that the
amount so paid will be reported for federal and state income tax purposes as a
deductible expense on the separate tax return of CTSI and/or the consolidated
tax return of CTSI with SSET, and that the same is reportable by Mr. Pritchard
on his personal state and federal tax returns as income to Mr. Pritchard.
7. LEGAL COUNSEL. The parties acknowledge:
(a) At all times during the prosecution by CTSI of the proceedings
before the FCC, the law firm of Haley, Bader & Potts, P.L.C. has been legal
counsel for CTSI in all matters in respect to representation before the
Commission. Haley, Bader & Potts, P.L.C. perfected the appeal by CTSI to the
United States Court of Appeals, and in addition, Michael J. Hirrel, Esquire,
represented CTSI in the United States Court of Appeals.
(b) Throughout the period of the Trust Agreement, Mr. Pritchard,
individually and in his capacity as Trustee, has been represented by independent
counsel, initially by Reid &
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Priest, and since in or about February 1994, by Swidler & Berlin Chartered.
(c) SSET has, at all times, been represented by G. Donald Markle
(and law firms with whom he has been associated).
(d) In respect to this Agreement and the transactions herein
provided, the parties have received such legal advice as they have,
respectively, deemed necessary or appropriate.
8. INDEMNIFICATION.
(a) SSET and CTSI, jointly and severally (collectively, the
"Indemnitor") shall indemnify Mr. Pritchard, individually and in his capacity as
Trustee, and his heirs, administrators, successors and personal representatives
(the "Indemnitee") and hold the Indemnitee harmless from and against any and all
losses, costs, liabilities, damages or deficiencies (including, without
limitation, reasonable attorneys' fees and court costs) incurred by the
Indemnitee resulting from the assertion of any claim against Indemnitee arising
out of or relating to the Trust Agreement, any act or omission undertaken by Mr.
Pritchard under or pursuant to the Trust Agreement, or the redelivery by Mr.
Pritchard of the stock ownership interest in CTSI to SSET.
(b) Upon the assertion of any claim by third parties against
Indemnitee as to which Indemnitee is entitled to indemnification, Indemnitee
shall give reasonable notice to SSET after the Indemnitee has knowledge of the
commencement of any legal proceeding or the assertion of any claim, and shall
permit the Indemnitor to assume the defense of any such legal proceeding by
counsel reasonably acceptable to Indemnitee. If Indemnitor shall assume the
defense of any such claim or litigation resulting therefrom, Indemnitor shall
take all reasonable steps necessary in the defense or settlement of such claim
or litigation resulting therefrom, and the Indemnitee shall not admit any
liability with respect thereto or settle, compromise, pay or discharge the same
without the prior written consent of SSET so long as Indemnitor is contesting or
defending the same in good faith, and the Indemnitee shall cooperate with
Indemnitor in the contest or defense thereof, and shall accept any settlement
thereof recommended by Indemnitor so long as the amount of such settlement is
paid in full by SSET or CTSI, and otherwise complies with this Agreement.
(c) If both SSET and CTSI shall fail to assume the defense of any
such claim or litigation resulting therefrom, the Indemnitee may defend against
such claim or litigation in such manner as the Indemnitee may deem appropriate,
and may settle such claim or litigation on such terms as the Indemnitee may deem
appropriate, and SSET and CTSI, jointly and severally, shall promptly reimburse
the Indemnitee for the amount of such settlement and all expenses, legal or
otherwise, incurred by the Indemnitee in connection with the defense or
settlement of such claim or litigation.
9. NOTICES. All notices, requests, consents, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been duly given (a) on the date
of personal delivery or (b) on the third day after the date of deposit in the
United States Mail, postage prepaid, by certified mail, return receipt
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requested, or (c) on the date of transmission by telephonic facsimile
transmission with written confirmation, or (d) on the first business day after
the date of delivery to a nationally recognized overnight courier service, in
each case, addressed as follows or to such other person or address as any party
shall designate by notice to the other parties in accordance herewith:
If to SSET: SSE Telecom, Inc.
Attn: Chief Financial Officer
47823 Westinghouse Drive
Fremont, California 94539
Fax: (510) 651-8027
If to CTSI: Corporate Telecom Services, Inc.
Attn: Chief Financial Officer
47823 Westinghouse Drive
Fremont, California 94539
Fax: (510) 651-8027
With, when to
either SSET or
CTSI, a copy to: Surovell, Jackson, Colten & Dugan, P.C.
Attn: G. Donald Markle, Esquire
4010 University Drive, Suite 200
Fairfax, Virginia 22030
Fax: (703) 591-2149
If to Mr. Pritchard: Wilbur L. Pritchard
W. L. Pritchard & Co., Inc.
7315 Wisconsin Avenue
Bethesda, Maryland 20814
Fax: (301) 654-1814
With a copy to: Swidler & Berlin, Chartered
Attn: Joel Van Over, Esquire
3000 K Street N.W., Suite 300
Washington, D.C. 20007
Fax: (202) 424-7645
10. EXHIBITS; SCHEDULES; SECTIONS. All exhibits and schedules to this
Agreement shall be deemed to be incorporated herein by reference and made a part
hereof as if set out in full herein. When reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated.
11. BINDING EFFECT. This Agreement may not be assigned by any party
without the prior written consent of the other parties. Subject to the foregoing
and subject to the other express
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provisions of this Agreement to the extent otherwise providing, all of the
terms, provisions and conditions of this Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties hereto, and
their respective heirs, personal representatives, successors and assigns.
12. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, in such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. If it shall be determined at any time by any court of
competent jurisdiction that any provision of this Agreement or any portion
thereof is unenforceable, then such portions as shall have been determined to be
unenforceable shall thereupon be deemed to be so amended as to make such
restrictions reasonable in the determination of such court, and the provisions,
as so amended, shall be enforceable between the parties to the same extent as if
such amendment had been made prior to the date of any alleged breach of such
provision.
13. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. GOVERNING LAW. This Agreement shall be governed by, and shall be
construed in accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
SSE Telecom, Inc.
By: /s/ Daniel E. Moore
--------------------------------------
Daniel E. Moore, Chairman
Corporate Telecom Services, Inc.
By: /s/ Wilbur L. Pritchard
--------------------------------------
Wilbur L. Pritchard, President
/s/ Wilbur L. Pritchard
-----------------------------------------
Wilbur L. Pritchard, Individually
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Exhibit 10.40
[COMERICA LOGO]
[COMERICA BANK--CALIFORNIA LETTERHEAD]
October 8, 1997
Russ Kinsch
Chief Financial Officer
SSE Telecom Inc.
47823 Westinghouse Drive
Fremont, CA 94539
Dear Russ,
Comerica Bank -- California ("Bank") is pleased to commit to SSE Telecom Inc.
("Borrower") the following updated and amended credit facilities which
supersede the previous commitments:
FACILITY #1
TYPE/AMOUNT: $5,000,000 secured revolving line of credit including a within
line availability for letters of credit up to $1,000,000.
PURPOSE: To provide cash for short term operating needs and letters of
credit.
ADVANCE RATE: a) Borrowing availability is not subject to a formula until the
utilization, including letters of credit, exceeds $3,000,000 at
which time the maximum availability would be the lesser of the
commitment amount or the following borrowing formula:
i) 80% of eligible accounts receivables, and
ii) A percentage of raw material inventory, to be determined
based on an audit performed by the bank, up to a maximum amount
of $1,000,000, and
iii) 50% on Echostar stock pledged to the bank and available for
sale as evidenced by authorization from Echostar.
Major ineligible receivable categories are defined as contra,
foreign (unless backed by letter of credit or credit insurance
acceptable to the bank), affiliated, employee, consignment,
C.O.D., unbilled, government (unless specifically assigned to
the bank), over 90 day accounts, accounts from accounts debtors
with more than 25% of their accounts over 90 days as well as
concentrations in excess of 20% of the total. BORROWER IS TO
TAKE OUT INSURANCE COVERAGE OF FOREIGN RECEIVABLES, WHICH
INSURANCE IS TO BE ACCEPTABLE TO THE BANK.
<PAGE> 2
b) This facility may be converted to a nonformula line of
credit provided Borrower maintains a minimum of $6,000,000
of accounts receivable at all times and upon achieving two
consecutive quarters of increasing minimum profitability
defined as achieving operating and net profitability of at
least $100,000 in one fiscal quarter and $200,000 in the
subsequent fiscal quarter as well as being in compliance
with all terms and conditions of the loan agreement.
PRICING: Prime rate plus .75%
.25% p.a. fee. (15 month commitment fee of $15,625).
REPAYMENT: Interest to be paid monthly. Principal is limited to the
lesser of the commitment amount or the borrowing base and is
due at maturity.
EXPIRATION: February 1, 1999.
SECURITY: Perfected first security interest in accounts receivable,
inventory, fixed assets and intellectual property.
OTHER CONDITIONS:
This credit facility would be subject to a preloan audit of accounts receivable
and inventory and would be governed by a loan and security agreement that would
include, but would not be limited to the following:
1) Borrower is to maintain the following financial covenants:
a) Minimum quick ratio of .65 increasing to .75 on 3-31-98. These amounts
are to increase by .05 for every $1 million of after tax proceeds
received from the sale of Echostar stock.
b) Minimum tangible net worth of $23,000,000 increasing by 75% of
quarterly profits and 100% of new equity and subordinated debt raised
after the quarter ending 6-30-97. Since the net worth covenant
includes the before tax value of Echostar stock, the net worth
covenant will decrease by the amount of taxes paid on the sale of
Echostar. THE MINIMUM TANGIBLE NET WORTH COVENANT MAY DECREASE BY
$4,100,000 DUE TO THE RETIRING OF ECHOSTAR SUBORDINATED DEBENTURES
FROM THE PROCEEDS FROM THE SALE OF ECHOSTAR STOCK. (THE TANGIBLE NET
WORTH COVENANT AS OF 6-30-97 IS CALCULATED AS FOLLOWS: $21.1MM IN NET
WORTH - $.49 MM IN FAIRCHILD INTANGIBLES - $.56MM IN CAPITALIZED
SOFTWARE + $4.1 MM IN SUBORDINATED ECHOSTAR DEBENTURES = $24.2 MM
ACTUAL TANGIBLE NET WORTH).
c) Maximum debt to tangible net worth of 1.0:1.0.
d) Borrower is to be profitable on an operating and after tax basis
quarterly with the exception of the quarter ending 9-30-97 which may
be a loss of up to $500,000 and with the exception of any one quarter
which may be a loss of up to $250,000. Borrower is to be profitable on
an operating and after tax basis for the fiscal year 1998.
2) Borrower is to provide Bank with:
<PAGE> 3
a) Quarterly 10Q within 45 days of quarter end.
b) Annual 10K report and unqualified CPA audited financial statements.
c) Monthly borrowing base certificate, inventory report, accounts
receivable and payable agings when utilization exceeds $3,000,000.
Quarterly accounts receivable and accounts payable agings when on a
nonformula basis.
d) Budgets, sales projections or other financial exhibits which Bank may
reasonably request.
e) Copies of all SEC documents.
3) Without Bank's prior written approval, Borrower will not:
a) Pledge assets other than to Bank except for purchase money transactions
(leases).
b) Enter into direct borrowings or guaranties except for normal trade
credit.
c) Enter into merger or acquisition.
d) Declare or pay cash dividends.
e) Repurchase stock.
f) Expend more than $2,000,000 in annual capital expenditures.
g) INVEST MORE THAN AN ADDITIONAL $600,000 IN "OTHER INVESTMENTS" INCLUDING
MEDIA 4 WHICH INVESTMENT IS TO COME FROM THE PROCEEDS FROM THE SALE OF
ECHOSTAR STOCK. THIS INVESTMENT IS TO BE CLASSIFIED AS AN INTANGIBLE
ASSET FOR TANGIBLE NET WORTH COVENANT CALCULATION PURPOSES.
4) Bank shall have the right to audit Borrower's financial records. The cost
is for the account of the Borrower.
5) There shall be a cross default provision between this credit and any
existing or future credit arrangements.
6) Out of pocket costs including legal fees, filing fees, etc. incurred are
for the account of Borrower. However, if standard loan agreement
documentation is used there will be no legal fees associated with the loan
agreement portion of the documentation.
7) Borrower is to maintain its primary depository accounts with Bank.
FACILITY #2
TYPE/AMOUNT: $1,250,000 non-revolving equipment line of credit. Initially this
amount will be reserved under the collateral availability
(Borrowing Base) as defined under the Advance Rate section of the
revolving line of credit. This loan will amortize as scheduled
below and will be broken out from the collateral availability
formula after two consecutive quarters of increasing
profitability, meeting the debt service requirement and being in
compliance with the terms and conditions of the loan agreement.
PURPOSE: To provide financing for the refinancing of the existing Union
Bank
<PAGE> 4
capital equipment loan and an additional lease.
ADVANCE RATE: 100% of the take out amount for the existing equipment on the
term loan at Union Bank and an additional lease.
PRICING: Interest Rate: Prime rate plus .5%
.25% commitment fee. ($3,125)
REPAYMENT: Equal monthly principal payments with interest added during the
36 month amortization period.
MATURITY: September 30, 2000.
SECURITY: Lien on all fixed assets. This facility will be cross defaulted
and cross collateralized to the revolving line of credit
(Facility #1)
FACILITY #3
TYPE/AMOUNT: $500,000 non-revolving equipment line of credit. THIS
FACILITY BECOMES AVAILABLE AFTER THE COMPANY HAS ONE QUARTER OF
OPERATING PROFITABILITY, IS MEETING THE DEBT SERVICE REQUIREMENT
AND IS IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE LOAN
AGREEMENT.
PURPOSE: To provide financing for new equipment.
ADVANCE RATE: 80% of the invoice price on acceptable newly purchased equipment
excluding soft costs such as taxes, freight, installation etc.
PRICING: Interest Rate: Prime rate plus .5%
.25% commitment fee. ($1,250)
REPAYMENT: Interest only during the drawdown period followed by equal
monthly principal payments with interest added during the 36
month amortization period.
DRAWDOWN: Latest drawdown date June 30, 1998
MATURITY: June 30, 2001.
SECURITY: Lien on all fixed assets. This facility will be cross defaulted
and cross collateralized to the revolving line of credit
(Facility #1)
CONDITIONS:
The non-revolving equipment loans (FACILITIES #2 AND #3) will be governed by
the loan agreement
<PAGE> 5
used to document Facility #1. The loan agreement will include financial and
operating covenants including the conditions listed above in Facility #1. In
addition to the terms and conditions in Facility #1 the Borrower is to meet a
minimum quarterly debt service covenant of 1.5 beginning with the quarter ending
12-31-97 defined as follows:
NPAT + Depreciation + Amortization
-----------------------------------
current principal payments on all long term debt
Comerica Bank -- California is pleased to have this opportunity to work with SSE
Telecom Inc., and to provide these credit commitments. We are glad to assist
you in your growth plans and hope that this is the beginning of a long and
mutually beneficial relationship. If the above commitment is satisfactory please
acknowledge your acceptance by signing below and returning this commitment
letter to me along with the commitment fees by October 15, 1997 at which time
this commitment will expire. Upon receipt of the above we will immediately
proceed to schedule and audit, document the loans and review the accounts and
cash management services.
Borrower Bank
SSE Telecom Inc. Comerica Bank -- California
by: /s/ Russ Kinsch by: /s/ Alan Jepsen
--------------------------- -------------------------
Russ Kinsch Alan Jepsen
Chief Financial Officer Vice President and Assistant Manager
<PAGE> 1
Exhibit 10.40.1
M0DIFICATION TO LOAN & SECURITY AGREEMENT
This First Modification to Loan & Security Agreement (Accounts and
Inventory) (this "Modification") is entered into by and between SSE Telecom,
Inc. ("Borrower") and Comerica Bank--California ("Bank") as of this 14th day of
August 1998, at San Jose, California.
RECITALS
A. Bank and Borrower have previously entered into or are concurrently
herewith entering into a Loan & Security Agreement (the "Agreement") (Accounts
and Inventory) dated October 21, 1997.
B. Borrower has requested, and Bank has agreed, to modify the Agreement as
set forth below.
AGREEMENT
For good and valuable consideration, the parties agree as set forth below:
Incorporation by Reference. The Agreement as modified hereby and the
Recitals are incorporated herein by this reference.
SECTION 1.5 "Borrowing Base" as used in this Agreement means the sum of: (1)
seventy five percent (75.00%) of the net amount of Eligible
Accounts after deducting therefrom all payments, adjustments and
credits applicable thereto ("Accounts Receivable Borrowing Base");
(2) the amount, if any, of the advances against Inventory agreed
to be made pursuant to any Inventory Rider ("Inventory Borrowing
Base"), or other rider, amendment or modification to this
Agreement, that may now or hereafter be entered into by Bank and
Borrower.
SECTION 2.1 Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default
has occurred, Bank shall lend to Borrower an amount equal to the
Borrowing Base; provided, however, that in no event shall Bank be
obligated to make advances to Borrower under this Section 2.1
whenever the Daily Balance exceeds, at any time, either the
Borrowing Base or the sum of Three Million and 00/100 Dollars
1
<PAGE> 2
($3,000,000.00), such amount being referred to herein as an
"Overadvance".
SECTION 2.2 Except as hereinbelow provided, the Credit shall bear interest, on
the Daily Balance owing, at a rate of One and One Quarter (1.25%)
percentage points per annum above the Base Rate (the "Rate"). The
Credit shall bear interest, from and after the occurrence of an
Event of Default and without constituting a waiver of any such
Event of Default, on the Daily Balance owing, at a rate three (3)
percentage points per annum above the Rate. All interest
chargeable under this Agreement that is based upon a per annum
calculation shall be computed on the basis of a three hundred
sixty (360) day year for actual days elapsed.
The Base Rate as of the date of this Agreement is Eight and a One
Half percent (8.50%) per annum. In the event that the Base Rate
announced is, from time to time hereafter, changed, adjustment in
the Rate shall be made and based on the Base Rate in effect on the
date of such change. The Rate, as adjusted, shall apply to the
Credit until the Base Rate is adjusted again. The minimum interest
payable by the Borrower under this Agreement shall in no event be
less than n/a per month. All interest payable by Borrower under
the Credit shall be due and payable on the first day of each
calendar month during the term of this Agreement and Bank may, at
its option, elect to treat such interest and any and all Bank
Expenses as advances under the Credit, which amounts shall
thereupon constitute Obligations and shall thereafter accrue
interest at the rate applicable to the Credit under the terms of
the Agreement.
SECTION 6.16
(c) In addition to the financial statements requested above, the
Borrower agrees to provide Bank with the following schedules:
Accounts Receivable Agings on a monthly basis within 15 days
of month end;
Accounts Payable Agings on a monthly basis within 15 days of
month end;
Borrowing Base Certificates on a monthly basis
2
<PAGE> 3
within 15 days of month end;
Inventory Report on a monthly basis
within 15 days of month end;
10Q reports on a quarterly basis within
45 days of quarter end.
10K reports within 90 days of fiscal year end.
Copies of all SEC filings
SECTION 6.17
(b) A Tangible Net Worth in an amount not less than $12,000,000.00 to
increase to $14,000,000.00 on August 31, 1998 and by 75% of
quarterly profits and 100% of new equity. Monitored monthly.
(d) A quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than 0.40:1.00 steps up to 0.6:1.00 on
August 31, 1998 and to 0.70:1.00 on December 31, 1998. Monitored
monthly.
(e) A ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than 1.50:1.00, decreasing
to 1.00:1.00 on October 31, 1998. Measured monthly.
(f) A ratio of Cash Flow to Fixed Charges of not less than 1.50:1.00,
measured quarterly, beginning the quarter ending March 31, 1999
applies to term loan only.
(g) Net Income after taxes of greater than ($2,400,000.00) for
quarter ending September 30, 1998 and greater than
($1,500,000.00) for the quarter ending December 31, 1998.
(l) Annual Accounts Receivable and CED audits
(m) Without Bank's prior written approval Borrower will not: Pledge
assets other than to Bank except for purchase money transactions
(leases);
Enter into direct borrowing or guaranties except for normal trade
credit;
Enter into any merger or acquisitions;
Declare or pay any cash dividends
Repurchase stock
Invest more than an additional $250,000.00 a month in Media 4
through September 1998.
3
<PAGE> 4
Legal Effect. Except as specifically set forth in this Modification, all of
the terms and conditions of the Agreement remain in full force and effect.
Integration. This is an integrated Modification and supersedes all prior
negotiations and agreements regarding the subject matter hereof. All amendments
hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth
above.
COMERICA BANK-CALIFORNIA
By: /s/ Alan Jepsen
-------------------------------------
Alan Jepsen
Vice President
SSE TELECOM, INC.
By: /s/ R.I. Kinsch
-------------------------------------
Its: Chief Financial Officer
------------------------------------
4
<PAGE> 1
Exhibit 21.2
SSE TELECOM
SUBSIDIARIES OF REGISTRANT
SSE Technologies Inc.
SSE Datacom, Inc.
Corporate Telecom Services, Inc.
<PAGE> 1
Exhibit 23.1
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
33-57700, 33-65084, and 33-10965 of SSE Telecom, Inc. on Form S-8 and in
Registration Statement No. 33-57046 of SSE Telecom, Inc. on Form S-3 of our
report dated November 25, 1998, appearing in and incorporated by reference in
this Annual Report on Form 10-K for SSE Telecom, Inc. for the year ended
September 26, 1998.
/s/ Deloitte & Touche LLP
San Jose, California
December 28, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-57700, 33-65084, 33-10965, 333-51403, 333-51405, and
333-51407) pertaining to the SSE Telecom, Inc. 1988 Stock Option Plan, the SSE
Telecom, Inc. 1992 Stock Option Plan, the SSE Telecom, Inc. Directors' Stock
Option Plan, the SSE Telecom, Inc. 1997 Equity Participation Plan, and the SSE
Telecom, Inc. Employee Stock Purchase 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 26, 1998.
/s/ Ernst & Young LLP
San Jose, California
December 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> SEP-26-1998
<CASH> 3,327
<SECURITIES> 0
<RECEIVABLES> 6,483
<ALLOWANCES> 781
<INVENTORY> 8,894
<CURRENT-ASSETS> 20,883
<PP&E> 11,692
<DEPRECIATION> 8,109
<TOTAL-ASSETS> 31,049
<CURRENT-LIABILITIES> 10,490
<BONDS> 1,139
0
0
<COMMON> 60
<OTHER-SE> 18,118
<TOTAL-LIABILITY-AND-EQUITY> 31,049
<SALES> 36,739
<TOTAL-REVENUES> 36,739
<CGS> 34,618
<TOTAL-COSTS> 50,157
<OTHER-EXPENSES> (14,981)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 411
<INCOME-PRETAX> 1,152
<INCOME-TAX> 484
<INCOME-CONTINUING> 668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
