SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No. 0-23866
September 30, 1998
VARI-L COMPANY, INC.
(Exact name of Registrant as specified in its charter.)
Colorado 06-067934
---------------------- ---------------------------------
(State of Incorporation) (I.R.S. Employer identification No.)
4895 Peoria Street
Denver, Colorado 80239
-----------------------
(Address of principal executive offices)
(303) 371-1560
-------------
(Registrant's telephone number, including area code)
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
The number of shares outstanding of each of the issuer's classes
of common stock, as of September 30, 1998:
Class of Securities Outstanding Securities
------------------ ----------------------
$0.01 par value 5,459,934 shares
Common shares
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
VARI-L COMPANY, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
9/30/98 12/31/97
ASSETS (UNAUDITED) (AUDITED)
- ------ ----------- ---------
<TABLE>
<CAPTION>
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,421,196 $ 5,970,582
Trade receivables, less $18,000
allowance for doubtful accounts 5,942,460 5,172,874
Inventories 7,868,145 6,936,890
Prepaid expenses and other 1,406,092 887,272
----------- -----------
Total Current Assets 21,637,893 18,967,618
----------- -----------
Property and Equipment:
Machinery and equipment 19,343,513 15,730,870
Furniture and fixtures 1,393,083 1,200,453
Leasehold improvements 7,221,279 4,707,324
----------- -----------
27,957,875 21,638,647
Less accumulated depreciation
and amortization (4,141,941) (3,313,483)
----------- -----------
Net Property and Equipment 23,815,934 18,325,164
----------- -----------
Other Assets:
Long-term inventories 375,000 375,000
Covenant not to compete 41,495 66,389
Patents, net of accumulated
amortization of $127,810 and $88,210 554,340 504,895
Other 1,328,858 1,317,238
----------- -----------
Total Other Assets 2,299,693 2,263,522
----------- -----------
TOTAL ASSETS $47,753,520 $39,556,304
- ------------ =========== ===========
</TABLE>
(Continued)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
VARI-L COMPANY, INC.
BALANCE SHEETS, CONTINUED
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
9/30/98 12/31/97
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (AUDITED)
- ------------------------------------ ----------- ---------
<S> <C> <C>
Current Liabilities:
Current installments of long-term debt $ 812,921 $ 596,645
Financed insurance premiums 133,834 23,730
Trade accounts payable 1,352,671 1,851,057
Accrued expenses 309,978 628,718
Income taxes payable 1,320,776 0
----------- -----------
Total Current Liabilities 3,930,180 3,100,150
Bank line of credit 4,606,909 1,813,409
Long-term debt 5,260,667 4,464,021
Deferred income taxes 2,259,874 2,343,654
----------- -----------
Total Liabilities 16,057,630 11,721,234
----------- -----------
Stockholders' Equity:
Common stock, $.01 par value,
50,000,000 shares authorized;
5,459,934 and 5,251,288 shares
outstanding, respectively 54,599 52,513
Paid-in capital 22,089,160 20,211,589
Retained earnings 9,570,831 7,589,668
Less loans for purchase of stock (18,700) (18,700)
----------- -----------
Total Stockholders' Equity 31,695,890 27,835,070
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $47,753,520 $39,556,304
- ------------------------ =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
VARI-L COMPANY, INC.
STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
AND
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/98 9/30/97 9/30/98 9/30/97
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 4,805,149 $ 4,530,656 $13,181,436 $11,835,551
Cost of
products sold 2,145,948 2,150,829 5,923,499 5,874,066
----------- ----------- ----------- -----------
Gross profit 2,659,201 2,379,827 7,257,937 5,961,485
----------- ----------- ----------- -----------
Other costs and expenses:
General and
administrative 491,919 486,398 1,461,299 1,262,097
Engineering 280,542 244,969 827,705 673,389
Selling 503,721 569,415 1,443,446 1,469,871
Interest expense 211,610 148,152 417,131 528,790
Interest income (88,620) (52,586) (247,150) (111,952)
Other 10,639 6,692 53,567 52,014
----------- ----------- ----------- -----------
1,409,811 1,403,040 3,955,998 3,874,209
----------- ----------- ----------- -----------
Income before taxes 1,249,390 976,787 3,301,939 2,087,276
Income taxes 499,756 410,251 1,320,776 876,656
----------- ----------- ----------- -----------
NET INCOME $ 749,634 $ 566,536 $ 1,981,163 $ 1,210,620
=========== =========== =========== ===========
Basic earnings
per share $ 0.14 $ 0.11 $ 0.37 $ 0.29
========== ========== ========== ==========
Basic weighted
average shares
outstanding 5,459,784 4,972,832 5,377,713 4,163,945
========== ========== ========== ==========
Diluted earnings
per share $ 0.14 $ 0.11 $ 0.36 $ 0.26
========== ========== ========== ==========
Diluted weighted
average shares
outstanding 5,528,980 5,348,187 5,562,606 4,717,767
========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
VARI-L COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
9/30/98 9/30/97
(Unaudited) (Unaudited)
---------- ----------
<S> <C> <C>
Net cash provided by (used in)
operating activities (Note 8) $ 1,581,492 $(175,875)
----------- -----------
Cash flows from investing activities:
Net purchases of property and equipment (6,319,228) (3,347,925)
----------- -----------
Net cash used in investing
activities (6,319,228) (3,347,925)
------------ -----------
Cash flows from financing activities:
Lease acquisition costs advanced 0 45,232
Net increases (repayments) in long-term debt 1,012,922 (48,840)
Net repayments of
capital lease obligations 0 (14,300)
Net borrowings (repayments)
under bank line of credit 2,793,500 (247,000)
Net proceeds from insurance financing 110,104 21,711
Net proceeds from debenture offering 0 6,862,500
Net proceeds from warrant conversions 807,508 0
Net proceeds from stock issuances,
net of income tax benefits 464,316 496,513
----------- -----------
Net cash provided by
financing activities 5,188,350 7,115,816
----------- -----------
Net increase in cash 450,614 3,592,016
Beginning cash and cash equivalents 5,970,582 1,224,727
----------- -----------
ENDING CASH AND CASH EQUIVALENTS $6,421,196 $4,816,743
=========== ===========
Supplemental disclosure of cash flows
information:
Cash paid for interest $ 392,171 $ 521,129
=========== ===========
Cash paid for income taxes $ 0 $ 0
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
Vari-L Company, Inc. (the Company), was founded in 1953 and is a
manufacturer of electronic components used in commercial and military
communications systems where electrical processing of radio frequency
signals is required.
NOTE 1 - FINANCIAL PRESENTATION
These financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1997 and notes
thereto.
In the opinion of management, the accompanying interim, unaudited
financial statements contain all the adjustments necessary to present
fairly the financial position of the Company as of September 30, 1998, the
results of its operations for the three-month and nine-month periods ended
September 30, 1998 and September 30, 1997, and its cash flows for the nine-
month periods ended September 30, 1998 and September 30, 1997. All
adjustments made are of a normal recurring nature.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
9/30/98 12/31/97
(Unaudited) (Audited)
---------- ---------
<S> <C> <C>
Finished goods $1,130,406 $1,173,847
Work in process 2,426,306 2,405,396
Raw materials 4,153,495 3,202,454
Gold bullion 157,938 155,193
---------- ----------
$7,868,145 $6,936,890
========== ==========
Long-term inventories $ 375,000 $ 375,000
========== ==========
</TABLE>
NOTE 3 - INCOME TAXES
Income tax expense reflects effective tax rates of 40% for 1998 and 42%
for 1997.
NOTE 4 - CREDIT FACILITY
The Company has two credit facilities. The first consists of a line of
credit. The second consists of a term loan and a revolving equipment term
loan.
On April 23, 1998, the Company renegotiated its line of credit. The line
of credit now provides for borrowings of up to $5.0 million. Interest is
payable monthly, calculated at prime. The line of credit matures April
30, 2000. At September 30, 1998, the outstanding balance due under the
line of credit was $4,606,909.
On August 21, 1998, the Company renegotiated its term loan and revolving
equipment term loan. The Company extended its term loan for an additional
year and converted the loan to a floating rate of Libor plus 1.50% and
then obtained fixed rate protection by executing an interest rate swap
which resulted in an all-in fixed rate of 7.75% through the maturity date
of February 24, 2002. Monthly principal and interest payments of
approximately $64,000 are required. At September 30, 1998, the balance
due under the term loan was $4,190,650.
The Company renewed its revolving equipment term loan for one year and
increased the borrowing provision to $4.0 million. Interest accrues on
the outstanding principal balance of the revolving equipment term loan at
prime plus .25% when advances are made under the revolver. These
borrowings can be converted to term notes at rates which adjust to the 3-
year treasury note rate plus 1.95%. When converted, the term debt
requires monthly principal and interest payments calculated on a seven-
year amortization basis with a 42-month maturity.
The revolving loan matures on August 13, 1999. As of September 30, 1998,
the balance of the outstanding advances under the revolving loan that had
been converted to term notes totaled $1,853,862. Interest accrues on the
outstanding principal balances of these term notes at rates ranging from
6.32% to 7.72%, and monthly principal and interest payments totaling
$29,713 are required.
(Continued)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE 5 - SECURITIES PURCHASE AGREEMENT
On March 4, 1997, the Company entered into an agreement to sell up to 75
units of debentures and warrants. The units consisted of an aggregate of
$7,500,000 in 4-year, 7%, subordinated, convertible debentures and 750,000
non-redeemable warrants to purchase common stock at a price of $9.50 per
share, exercisable for a period of three years. All of the debentures
plus accrued interest were converted into common stock during 1997. As of
September 30, 1998, 85,000 of the warrants had been exercised and 665,000
warrants were still outstanding.
NOTE 6 - EARNINGS PER SHARE
The following is a reconciliation of the net income (numerator) and number
of shares (denominator) for the computations of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
For the quarter ended Income Shares Per Share
September 30, 1997 (Numerator) (Denominator) Amount
- --------------------- ---------- ------------ ---------
<S> <C> <C> <C>
Basic earnings
per share $ 566,536 4,972,832 $0.11
=====
Effect of dilutive
stock options
and debentures 5,450 375,355
----------- ----------
Diluted earnings
per share $ 571,986 5,348,187 $0.11
=========== ========== =====
For the quarter ended Income Shares Per Share
September 30, 1998 (Numerator) (Denominator) Amount
- --------------------- ---------- ------------ ---------
Basic earnings per share $ 749,634 5,459,784 $0.14
=====
Effect of dilutive
stock options
and warrants 0 69,196
----------- ----------
Diluted earnings
per share $ 749,634 5,528,980 $0.14
=========== ========== =====
For the nine months ended Income Shares Per Share
September 30, 1997 (Numerator) (Denominator) Amount
- ------------------------- ---------- ------------ ---------
Basic earnings
per share $ 1,210,620 4,163,945 $0.29
=====
Effect of dilutive
stock options
and debentures 39,533 553,822
----------- ----------
Diluted earnings
per share $ 1,250,153 4,717,767 $0.26
=========== ========== =====
For the nine months ended Income Shares Per Share
September 30, 1998 (Numerator) (Denominator) Amount
- ------------------------- ---------- ------------ ---------
Basic earnings
per share $ 1,981,163 5,377,713 $0.37
=====
Effect of dilutive
stock options
and warrants 0 184,893
----------- ----------
Diluted earnings
per share $ 1,981,163 5,562,606 $0.36
=========== ========== =====
</TABLE>
At September 30, 1998, the Company had 5,459,934 common shares
outstanding. During the nine months ended September 30, 1998, the Company
issued 208,646 shares. For purposes of computing earnings per share, the
shares issued during the period were weighted for the period of time they
were outstanding.
(Continued)
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE 7 - STOCK COMPENSATION PLANS
The Company has three stock-based compensations plans: a stock option
plan, an employee stock purchase plan and a stock grant plan.
STOCK OPTION PLAN
The Company has reserved 3,000,000 shares of its common stock for issuance
upon exercise of rights and options under the stock option plan.
Typically, rights and options have been granted subject to a vesting
schedule, vesting at the rate of 20 percent per year, becoming fully
vested upon the change of control of the Company, and expiring 10 years
from the date of issuance. Certain options granted to senior management
are fully vested upon issuance.
In the third quarter of 1998, the Company granted 4,500 options pursuant
to the plan. No options were exercised during the quarter.
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's employee stock purchase plan, eligible employees may
contribute up to 10 percent of their earnings, through payroll deductions,
to purchase shares of the Company's common stock. The purchase price is
equal to 85 percent of the fair value of the stock on specified dates. A
total of 800,000 shares were reserved under the plan and the maximum
number of shares to be issued is 200,000 per year. For the plan year
1997, a total of 13,530 shares were issued in January 1998 at $6.91 per
share.
STOCK GRANT PLAN
During 1996, the Company adopted a stock grant plan under which stock
grants can be made to the Company's officers, directors, employees,
consultants, and advisors. The Company reserved 100,000 shares of its
common stock for issuance under the stock grant plan. The plan provides
for automatic grants of 50 shares per month to nonmanagement members of
the Compensation and Audit Committees of the Company's Board of Directors.
During the third quarter of 1998, the nonmanagement members of the
Compensation and Audit Committees received grants totaling 450 shares.
Compensation cost was measured by the fair market value of the stock on
the date of the grants and is being charged to operations over the period
of service.
NOTE 8 - RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
The reconciliation of net income to net cash provided by (used in)
operating activities for the nine-month periods ended September 30, 1998
and September 30, 1997 is as follows:
(Continued)
VARI-L COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE 8 - RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES, CONTINUED
<TABLE>
<CAPTION>
Nine months Nine months Ended
Ended
9/30/98 9/30/97
(Unaudited) (Unaudited)
---------- ----------
<S> <C> <C>
Net Income $ 1,981,163 $ 1,210,620
----------- -----------
Adjustments to reconcile net
income to net cash provided by
(used in)operating activities:
Depreciation and amortization 828,458 490,327
Amortization of covenant
not to compete 24,894 24,894
Changes in assets and liabilities:
(Increase) in accounts receivable (769,586) (1,445,085)
(Increase) in inventories (931,255) (373,438)
Decrease (increase) in prepaid
expenses and other 5,233 (369,076)
(Increase) decrease in patents and
other assets (61,065) 135,866
Decrease in accounts payable (498,386) (234,301)
Decrease in accrued expenses (318,740) (367,713)
Decrease in amounts due to
related parties 0 (53,222)
Increase in income taxes payable 1,320,776 805,253
---------- ----------
Total adjustments (399,671) (1,386,495)
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $1,581,492 $ (175,875)
========== ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company continued to achieve record financial results during the three-
month period ended September 30, 1998. Net sales were up 6%, to $4.8
million, over the same quarter last year. Net income was up 32%, to
$750,000, over the same quarter last year. Basic and diluted earnings per
share were 14 cents per share versus 11 cents per share for the same
quarter last year, notwithstanding a 10% and 3% increase in basic and
diluted weighted average shares outstanding, respectively, from the prior
year.
Bookings of new customer orders were $10.7 million and $9.2 million,
respectively, for the nine months ended September 30, 1998 and 1997. The
Company received $4.6 million in firm customer orders during the third
quarter of 1998, up 58%, from $2.9 million, in the third quarter of 1997.
Commercial orders continue to drive growth, accounting for $4.1 million in
the quarter, an increase of 109%, while military/aerospace orders totaled
$500,000, a decrease of 51%. Domestic orders increased 95% in the quarter
to $3.7 million and international orders were $900,000 in the three-month
period, a decrease of 14%. As evidenced by the mix of new customer
orders, unsettled economic conditions in the Pacific Rim have dampened
short-term bookings from the international commercial market, although the
domestic commercial market has provided offsetting increases.
During the quarter, the Company continued to develop its new high-speed,
automated assembly line on the second floor of its corporate headquarters
facility for its new line of products being developed for the subscriber
(pagers and handsets) marketplace. Further enhancements to this line will
be installed in the fourth quarter. The subscriber products produced by
this line are expected to carry a lower gross profit margin but have the
potential for much higher volumes. During the quarter, small
preproduction runs were built, utilizing the pick and place equipment in
this facility, but final assembly, including testing and shipping, was
performed in another facility. The Company hopes to have full utilization
of the new production line by year end.
RESULTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
TOTAL REVENUES
Sales revenue increased approximately $274,000 (6%) in the three months
ended September 30, 1998 as compared with the three months ended September
30, 1997, from $4,530,656 to $4,805,149. Sales revenue increased
approximately $1,346,000 (11%) in the nine months ended September 30, 1998
as compared with the nine months ended September 30, 1997, from
$11,835,551 to $13,181,436. The growth in sales revenue continues to
reflect the Company's ongoing success in selling to the commercial
marketplace with its narrow-band VCOs and PLLs. While the Company has
been able to sustain, and in some cases, increase its share of the
business in its traditional markets for military products over the past
several years, the military's increasing utilization of lower-priced
commercial products for military applications may result in a lower dollar
volume of military sales in the future.
The Company has six major product lines, including the new subscriber
line, which is currently being introduced to the global market:
1. Discrete signal processing components for industrial, military and
aerospace.
2. Hybrid signal source components, primarily wide-band VCOs, for
industrial, military and aerospace.
3. Assemblies that combine Discrete signal processing and Hybrid signal
source components.
4. Commercial signal source components including PLLs and narrow-band
VCOs.
5. Optoelectronic components and subassemblies used in magnetic and
fiberoptic products for CATV applications.
6. Subscriber products components used in hand-held telephone sets,
pagers and other consumer-oriented products. While the Company still
hopes that this line will commence full-scale production in the
fourth quarter of 1998, it appears more likely that, as a result of
the worldwide economic uncertainty in much of 1998, the Company's
entry into this market will be delayed until sometime in 1999.
In the first nine months of 1998, the composition of sales revenue was 12%
Discrete, 21% wide-band VCOs, 1% "Combination" sales of wide-band VCO and
Discrete products, 56% narrow-band VCOs, 5% PLL and 5% Optoelectronic
products. In the first nine months of 1997, the composition of sales
revenue was 12% Discrete, 30% wide-band VCOs, 0% "Combination" sales of
wide-band VCO and Discrete products, 45% narrow-band VCOs, 6% PLLs and 7%
Optoelectronic products.
COST OF GOODS SOLD
Cost of goods sold, as a percent of sales revenue, was 45% and 47% in the
three months ended September 30, 1998 and 1997, respectively. Cost of
goods sold, as a percent of sales revenue, was 45% in the nine months
ended September 30, 1998 and 50% in the nine months ended September 30,
1997. The improvement in these ratios for the three and nine month
periods ended September 30, 1998 resulted from the Company's continuing
efforts to make additional efficiencies in its processes and install
additional automated production facilities.
SELLING AND ENGINEERING EXPENSE
Selling expenses decreased approximately $66,000, or 12%, for the three
months ended September 30, 1998 as compared to the three months ended
September 30, 1997. Selling expenses decreased approximately $26,000, or
2%, for the nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997. The decrease in selling expenses in the
quarter and year-to-date periods is attributed primarily to decreased
travel costs. Because the international, commercial market was
successfully expanded in 1997, the required frequency of trips and number
of personnel traveling internationally decreased in 1998. The Company
continues to actively advertise and travel to promote its product lines.
Engineering expenses increased approximately $36,000, or 15%, for the
three months ended September 30, 1998 as compared to the three months
ended September 30, 1997. Engineering expenses increased approximately
$154,000, or 23%, for the nine months ended September 30, 1998 as compared
to the nine months ended September 30, 1997. These increases reflect
ongoing improvements to the engineering department, including increased
engineering staff and related equipment costs and expenses, to support new
product development and expansion of existing product lines.
GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES
General and administrative expenses increased approximately $6,000, or 1%,
for the three months ended September 30, 1998 as compared to the three
months ended September 30, 1997. General and administrative expenses
increased approximately $199,000, or 16%, in the nine months ended
September 30, 1998 as compared with the nine months ended September 30,
1997. Increases to G&A primarily reflect increased staffing costs in the
personnel and accounting departments, which costs leveled off during the
third quarter of 1998, as well as increasing shareholder and other
expenses related to being a public company.
Other expenses increased approximately $4,000 in the three months ended
September 30, 1998 as compared to the three months ended September 30,
1997. Other expenses increased approximately $2,000 in the nine months
ended September 30, 1998 as compared with the nine months ended September
30, 1997.
INTEREST INCOME AND EXPENSE
The Company manages its credit facility and mutual fund in tandem.
Interest income is earned on the Company's short-term investments in a
U.S. government securities mutual fund purchased with proceeds from the
March 1997 convertible debenture and warrant offering. Interest income
increased approximately $36,000, or 68%, to approximately $89,000, in the
three months ended September 30, 1998 compared to the three months ended
September 30, 1997. Interest income increased approximately $135,000, or
121%, to approximately $247,000, in the nine months ended September 30,
1998 compared to the nine months ended September 30, 1997. This increase
reflects higher levels of these mutual fund investments during 1998.
Interest expense increased approximately $63,000 (43%) for the three
months ended September 30, 1998 as compared with the three months ended
September 30, 1997. Interest expense decreased approximately $112,000
(21%) for the nine months ended September 30, 1998 as compared with the
nine months ended September 30, 1997. The increase in the quarter is
attributable to increased borrowings to support the equipment purchases in
the new production facility in the Company's corporate headquarters. The
decrease in the nine-month periods is primarily attributable to the
elimination of interest expense on $5,000,000 in subordinated debentures
that were converted to common stock during 1997, which amount was
partially offset by increased borrowings for the new production facility.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $338,000 (69%) for
the nine months ended September 30, 1998 as compared with the nine months
ended September 30, 1997. The increase reflects depreciation on increased
investments in property, equipment and leasehold improvements.
Depreciation and amortization expense is expected to continue to increase
as a result of these and future capital investments.
FINANCIAL CONDITION
LIQUIDITY
At September 30, 1998, the Company's working capital was $17.7 million
compared to $15.9 million at December 31, 1997. The Company's current
ratio was 5.5 to 1 as of September 30, 1998 and 6.1 to 1 at December 31,
1997. The reduction in the Company's current ratio from December 31, 1997
to September 30, 1998 is primarily attributable to the current provision
in the period for corporate income taxes.
CAPITAL RESOURCES
On August 13, 1997, the Company restructured its credit facilities,
renewing its line of credit agreement, which is secured by accounts
receivable, inventory and general intangibles, with its present banking
institution and taking its existing term loan, plus increasing its credit
facility, which is secured by all of the Company's fixed assets, to a
second banking institution. In April 1998, the Company renegotiated its
line of credit agreement increasing the available line and extending the
maturity date.
The line of credit provides for borrowings of up to $5 million and matures
April 30, 2000. Interest is payable monthly, calculated at prime. At
September 30, 1998, the outstanding balance of the line of credit was
$4,606,909.
On August 21, 1998, the Company extended its term loan for an additional
year and converted the loan to a floating rate of Libor plus 1.5% and then
obtained fixed rate protection by executing an interest rate swap which
resulted in an all-in fixed rate of 7.75% through the maturity date of
February 24, 2002. Monthly principal and interest payments of
approximately $64,000 are required. The balance on the term loan at
September 30, 1998 was $4,190,650.
The Company renewed its revolving equipment term loan for one year and
increased the borrowing provision to $4.0 million. Interest accrues on
the outstanding principal balance of the revolving line at prime plus .25%
when advances are made under the revolver. These borrowings can be
converted to term notes at rates which adjust to the 3-year treasury note
rate plus 1.95%. When converted, the term debt requires monthly principal
and interest payments calculated on a seven-year amortization basis with a
42-month maturity. The revolving loan matures on August 13, 1999. As of
September 30, 1998, the balance of the outstanding advances under the
revolving loan that had been converted to term notes totaled $1,853,862.
Interest accrues on the outstanding principal balances of these term notes
at rates ranging from 6.32% to 7.72%, and monthly principal and interest
payments totaling $29,713 are required.
The Company finances certain of its annual insurance premiums through a
financing company. The amounts due under these loans totaled $133,834 as
of September 30, 1998 and are paid in monthly installments of $16,781 with
interest rates of 6.86% and 8.41%.
On March 4, 1997, the Company entered into an agreement to sell up to 75
units of debentures and warrants. The units consisted of an aggregate of
$7.5 million in four year, 7% convertible debentures and 750,000 non-
redeemable common stock purchase warrants exercisable at $9.50 per share
for a period of three years. All of the debentures plus accrued interest
were converted into common stock during 1997. During April 1998, 85,000
warrants were exercised. 665,000 warrants remained outstanding as of
September 30, 1998.
The Company believes that it has sufficient financial resources available
to meet its short-term working capital needs through cash flows generated
by operating activities and through the management of its sources of
financing. The Company also believes that, as the result of the sales of
the convertible debentures, it has adequate capital resources to continue
its growth plans.
BACKLOG
Total backlog of unfilled firm customer orders ("backlog") at September
30, 1998 was $14.2 million compared with $11.8 million at September 30,
1997. Backlog at December 31, 1997 was $16.6 million.
YEAR 2000 ISSUES
The Company has given serious attention to the potential problems that
could arise from the rollover of computer clocks with two-digit year
fields when the year 2000 arrives. Assessment of the affect on both IT
(information technology) and non-IT issues is progressing rapidly. IT
assessment is approximately 85% complete. Non IT assessment is
approximately 50% complete. The Company currently expects to have all
assessment, remediation and testing completed by the end of August 1999.
Fortunately, in the area of business and operations, the Company has
completed most of its automation in recent years. Accordingly, the
computers and software that have been acquired during those years
incorporated Year 2000 compliant technology. This compliance is being
continuously confirmed in the Company's various business applications as a
byproduct of another technology project the Company initiated early this
year, a licensing audit designed to ensure that all software utilized by
Company personnel is properly licensed by the software provider. The same
software used to verify the software installed on each PC also verifies
Year 2000 readiness. The Company has also instituted a policy prohibiting
the purchase of any new computers or other devices that have clocks
without empirical proof that they can recognize the year 2000 without
malfunctioning.
In the non-IT area, which includes test equipment--a significant element
of the Company's operations--, the Company's principal hardware vendor has
provided certification and warranty as to Year 2000 compliance. In
addition, as routine, scheduled maintenance and calibration is performed
on this equipment, veracity of that certification is tested and confirmed.
To address the other non-IT issues, such as elevators, heating systems,
utilities, etc., an outside consultant will be brought in by the Company
to run independent tests of these systems and the various vendors will be
providing certification as to Year 2000 compliance.
In addition, the Company will continue to investigate whether its
customers and vendors are also becoming Year 2000 compliant. Like other
businesses, the Company has been providing information to its customers,
upon their request, concerning the Company's efforts in this matter.
To date, the costs that the Company has incurred which are specific to the
assessment and remediation of Year 2000 issues have not been material. No
special expenditures have been required in the area of software or
hardware. Some legal fees and educational expenses have been incurred to
heighten awareness and to help organize business activities to incorporate
assessment and remediation. For the most part, however, Year 2000 issues
have been incorporated into other management routines, thereby minimizing
extraordinary costs. It is presently anticipated that future, separately
identifiable costs of assessment and remediation will also be nominal, and
it is very likely that such costs will be less than $10,000 in any one
reporting period.
In order to minimize the impact of any unanticipated Year 2000 "non-
readiness" problems, the Company plans to have manual backup systems in
place to forestall any interruption of operations resulting from the
failure of automated systems. In addition, the data generated and
collected in those systems is continuously being archived as a part of the
Company's existing business practices.
The Company does not foresee any serious Year 2000 problems occurring with
its vendors or customers. While it is not possible to predict what kinds
of minor Year 2000 issues might arise that have not been addressed as a
priority by the Company, or by some other company with which the Company
does business, the Company believes that it has multiple sources for the
vast majority of the raw materials and services that it presently procures
from vendors or third-party contractors. Unless a major problem of a
national or global scope occurs, the Company believes it will be able to
maintain sufficient inventory levels to continue production while it seeks
to rectify any smaller problems that may arise. Most of the Company's
significant customers are very large, well-capitalized, multi-national
companies with substantial resources. The Company believes that these
customers are doing everything possible to protect themselves and,
indirectly, the Company, from business losses resulting from Year 2000
issues.
While there is no guarantee that the Company will reach Year 2000
compliance by the necessary deadline, the Company believes that it is
applying the resources and effort sufficient to do so.
FORWARD LOOKING STATEMENTS
Some of the statements contained in this document are forward-looking
statements. The accuracy of these statements cannot be guaranteed as they
are subject to a variety of risks including, but not limited to the
success of the products into which the Company's products are integrated,
governmental action relating to wireless communications licensing and
regulation, internal projections as to the demand for certain types of
technological innovation, competitive products and pricing, the success of
new product development efforts, the timely release for production and the
delivery of products under existing contracts, future economic conditions
generally, as well as other factors, including any events that result from
the year 2000 computer clock rollover.
VARI-L COMPANY, INC.
PART II--OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
None
Item 2 CHANGES IN SECURITIES
None
Item 3 DEFAULTS UPON SENIOR SECURITIES
None
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5 OTHER INFORMATION
None
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Executive Employment Agreement with Joseph H. Kiser dated
effective June 1, 1997.
10.2 Executive Employment Agreement with David G. Sherman dated
effective June 1, 1997.
10.3 Amendment to Business Loan Agreement between the Company
and Bank One, Colorado, N.A., dated effective August 21,
1998 (Term loan.)
10.4 Amendment to Business Loan Agreement between the Company
and Bank One, Colorado, N.A., dated effective August 13,
1998 (Equipment revolver.)
10.5 Second Amendment to Lease Agreement dated July 14, 1995
between the Company and Joseph H. Kiser and Nora L. Kiser
for the facility located at 15556 East 17th Avenue, Denver,
Colorado, as amended September 1, 1995 and July 31, 1998.
10.6 Third Amendment to Lease Agreement dated January 1, 1987,
between the Company and J.C. Enterprises for the facility
located at 5165 Peoria Street, Denver, Colorado, as amended
December 6, 1990, March 23, 1993, and October 30, 1998.
10.7 Tandem Stock Option and Appreciation Rights Plan, effective
as of June 19, 1998.
10.8 Stock Grant Plan, effective as of June 19, 1998.
10.9 Employment Agreement with Daniel J. Wilmot dated January 1,
1997.
10.10 Employment Agreement with Derek L. Bailey dated January 1.
1997.
10.11 Employment Agreement with Jon L. Clark dated January 1,
1997.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VARI-L COMPANY, INC.
Date: November 12, 1998 By:/s/ Jon L. Clark
Jon L. Clark, V.P. Finance
and Principal Financial Officer
EXHIBIT INDEX
Exhibit Description Method of Filing
- ------- ----------- ----------------
10.1 Executive Employment Agreement
with Joseph H. Kiser dated
effective June 1, 1997. Filed herewith electronically
10.2 Executive Employment Agreement
with David G. Sherman dated
effective June 1, 1997. Filed herewith electronically
10.3 Amendment to Business Loan Agreement
between the Company and Bank One,
Colorado, N.A., dated effective
August 21, 1998 (Term loan.) Filed herewith electronically
10.4 Amendment to Business Loan Agreement
between the Company and Bank One,
Colorado, N.A., dated effective
August 13, 1998
(Equipment revolver.) Filed herewith electronically
10.5 Second Amendment to Lease Agreement
dated July 14, 1995 between the
Company and Joseph H. Kiser and
Nora L. Kiser for the facility
located at 15556 East 17th Avenue,
Denver, Colorado, as amended September 1,
1995 and July 31, 1998. Filed herewith electronically
10.6 Third Amendment to Lease Agreement
dated January 1, 1987, between the
Company and J.C. Enterprises for the
facility located at 5165 Peoria Street,
Denver, Colorado, as amended December 6,
1990, March 23, 1993, and
October 30, 1998. Filed herewith electronically
10.7 Tandem Stock Option and Appreciation
Rights Plan, effective as of June 19,
1998 Filed herewith electronically
10.8 Stock Grant Plan, effective as of
June 19, 1998. Filed herewith electronically
10.9 Employment Agreement with Daniel J.
Wilmot dated January 1, 1997 Filed herewith electronically
10.10 Employment Agreement with Derek L.
Bailey dated January 1. 1997 Filed herewith electronically
10.11 Employment Agreement with Jon L.
Clark dated January 1, 1997 Filed herewith electronically
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VARI-L'S
UNAUDITED FINANCIAL STATEMEMTS PREPARED AS OF SEPTEMBER 30, 1998 AND FOR THE
NINE-MONTH PERIOD THEN ENDED, INCLUDED WITH ITS 10-KSB FILING WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE QUARTER ENDED SEPTEMBER 30, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,421
<SECURITIES> 0
<RECEIVABLES> 5,960
<ALLOWANCES> 18
<INVENTORY> 7,868
<CURRENT-ASSETS> 21,638
<PP&E> 27,958
<DEPRECIATION> 4,142
<TOTAL-ASSETS> 47,754
<CURRENT-LIABILITIES> 3,930
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 31,640
<TOTAL-LIABILITY-AND-EQUITY> 47,754
<SALES> 13,181
<TOTAL-REVENUES> 13,428
<CGS> 5,923
<TOTAL-COSTS> 5,923
<OTHER-EXPENSES> 3,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 417
<INCOME-PRETAX> 3,302
<INCOME-TAX> 1,321
<INCOME-CONTINUING> 1,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,981
<EPS-PRIMARY> .37
<EPS-DILUTED> .36
</TABLE>
VARI-L COMPANY, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective June 1, 1997, is made and entered into by
and between VARI-L COMPANY, INC. (the "Company") and JOSEPH H. KISER
("Employee").
WHEREAS, Employee's diligent efforts on behalf of the Company have
greatly contributed to the tremendous growth of the Company, in terms of
revenues, profitability, technological developments, customer base and
shareholder value; and
WHEREAS, the Compensation Committee of the Board of Directors,
comprised solely of disinterested directors, has determined to provide
Employee with this employment agreement, including the severance package
and other benefits provided hereby, for the purpose of rewarding Employee
for the success of the Company resulting from his efforts and as a method
of encouraging Employee to remain with the Company for the foreseeable
future and to continue to provide such diligent and efficacious services
to the Company during that employment.
NOW, THEREFORE, for good and valuable consideration, the parties
hereto agree as follows:
I. EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment, upon the terms and conditions hereinafter set
forth.
II. TERM. Subject to the provisions for termination as
hereinafter provided, the term of this Agreement is for a period
commencing June 1, 1997, and expiring June 1, 2001 (the "Initial Term").
On June 1 of each year, beginning in 1998, the term of this Agreement
shall be automatically extended for an additional year without any further
action on the part of the Company or Employee unless the Company or
Employee gives written notice more than sixty (60) days before May 31 of
any such year of its or his intention not to extend the term of this
Agreement.
III. DUTIES. Employee is engaged as Chairman of the Board, Chief
Scientific Officer and Secretary of the Company, to have complete
responsibility for the management of all technical, scientific and
engineering operations of the Company, including, but not limited to, all
research and development activities of the Company, and to have full
authority and responsibility, subject only to the general direction and
control of the Board of Directors, for formulating policies and
administering the operations of the Company in all respects. His power
shall include authority to hire and fire personnel of the Company and to
retain consultants when he deems necessary to implement the Company's
policies. If Employee is elected or appointed a director of the Company
during the term of this Agreement, Employee shall serve in such capacity
or capacities without further compensation; but nothing herein shall be
construed as requiring the Company, or anyone else, to cause the election
or appointment of Employee as a director.
IV. EXTENT OF SERVICES. Employee shall faithfully, industriously,
and to the best of his ability, experience, and talents, perform all of
the duties that may be required of and from him pursuant to this
Agreement. Nothing herein shall be construed as preventing Employee from
(a) investing his assets in such form or manner as will not require any
services on the part of Employee in the operations or the affairs of the
companies in which such investments are made or (b) serving as a director,
advisor, or consultant; provided, however, that such investments or
services may not be in connection with a business which is in competition
with the Company (excluding (i) indirect investments through mutual funds
or other broad based investment vehicles, (ii) investments in debt
instruments, and (iii) investments in less than 5% of the stock of any
publicly held business).
V. COMPENSATION AND EMPLOYEE BENEFITS.
A. STOCK BONUS. Upon executing this Agreement, Employee
shall receive a one time bonus of twenty-five thousand (25,000) shares of
the Company's common stock ("STOCK BONUS") pursuant to the terms of the
Company's Stock Grant Plan; provided, however, that such STOCK BONUS shall
be subject to the following vesting schedule:
1. Twelve thousand five hundred (12,500) shares of the
STOCK BONUS shall vest immediately upon execution of this Agreement as a
signing bonus;
2. The remaining twelve thousand five hundred (12,500)
shares shall vest according to the following schedule, in each case
subject to the requirement that Employee achieves the performance goals
established by the Compensation Committee for the preceding year: six
thousand two hundred and fifty (6,250) shares shall vest on April 15,
1999; and the remaining six thousand two hundred fifty (6,250) shares
shall vest on April 15, 2000. The STOCK BONUS and all unvested stock
options and stock appreciation rights previously granted to Employee shall
fully vest in the event of a CHANGE OF CONTROL or an INVOLUNTARY
TERMINATION. In order to avoid Employee being forced to sell a portion of
the shares received under the STOCK BONUS to pay the taxes thereon, all
income and other taxes attributable to the STOCK BONUS, including the
taxes on such taxes, shall be paid by the Company upon vesting thereof.
3. In the event that Employee violates any of his
noncompetition or nonsolicitation obligations as set forth in Section VII,
any unvested STOCK BONUS granted to Employee hereby shall be rescinded,
and all or a portion of Employee's vested STOCK BONUS shall be forfeited
by Employee and returned to the Company according to the following
schedule:
a. 100% of any vested STOCK BONUS shall be
forfeited if such violation occurs prior to June 1, 1999;
b. 75% of any vested STOCK BONUS shall be
forfeited if such violation occurs prior to June 1, 2000;
c. 50% of any vested STOCK BONUS shall be
forfeited if such violation occurs prior to June 1, 2001; or
d. 25% of any vested STOCK BONUS shall be
forfeited if such violation occurs prior to June 1, 2002.
4. In the event of a forfeiture of a STOCK BONUS under
the preceding paragraph, Employee may, at his option, repay the applicable
portion of the STOCK BONUS in any of the following ways:
a. by tendering an amount of cash equal to the
FAIR MARKET VALUE (as defined in Section VIII.E.9 below) of the forfeited
portion of the STOCK BONUS on the date(s) of its vesting; or
b. by tendering an amount of cash equal to the
FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the
effective date of this Agreement; or
c. by tendering an amount of cash equal to the
FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the date
of repayment; or
d. by tendering a number of shares of the
Company's common stock with a FAIR MARKET VALUE on the date of repayment
equal to the FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS
on the date of its vesting or on the effective date of this Agreement,
whichever is lower; or
e. by tendering a number of shares of the
Company's Common Stock equal to the number of shares of the STOCK BONUS
being forfeited.
5. Employee's STOCK BONUS shall be fully vested and not
subject to forfeiture after June 1, 2002
6. The forfeiture of any portion of the STOCK BONUS by
Employee pursuant to paragraph 3 above shall be in addition to, and not a
substitute for, any other remedies to which the Company may be entitled
under this Agreement or applicable law for Employee's breach of the
noncompetition and nonsolicitation provisions of Section VII, including
but not limited to an injunction against further violations or other
equitable relief.
B. ANNUAL BASE SALARY. For all services rendered by
Employee under this Agreement, the Company shall pay Employee an annual
base salary of at least $295,000, payable in equal bi-weekly installments.
The amount of such base salary shall be determined at the beginning of
each fiscal year by the Compensation Committee of the Company's Board of
Directors in its sole discretion on the basis of merit and the Company's
financial success and progress but in no event shall such base salary be
less than the annual base salary indicated in this paragraph.
C. BONUS COMPENSATION. Employee may receive such additional
bonuses, payable in cash or shares of the Company's stock, as determined
at the beginning of each fiscal year of the Company by the Compensation
Committee of the Board of Directors in its sole discretion on the basis
of merit and the Company's financial success and progress in the prior
fiscal year.
D. VACATION. Employee shall be entitled to eight weeks of
paid vacation each year.
E. EMPLOYEE BENEFITS. Employee shall be entitled to receive
all of the rights, benefits, and privileges of an employee and an
executive officer under any retirement, pension, profit-sharing,
insurance, health and hospital, and other employee benefit plans which may
be now in effect or hereafter adopted by the Company.
F. WORKING FACILITIES. Employee shall be furnished with a
private office, stenographic help, and such other facilities and services
suitable to Employee's position and adequate for the performance of the
duties required by this Agreement.
G. EXPENSES. Employee is authorized to incur reasonable
expenses in connection with his responsibilities in conducting the
business of the Company, including expenses for entertainment, travel, and
similar items. The Company will reimburse Employee for all such expenses
upon the presentation by Employee, from time to time, of an itemized
account of such expenditures.
H. AUTOMOBILE. Employer shall provide Employee with an
automobile, and shall reimburse Employee for expenses associated with such
automobile, including gasoline, insurance, maintenance, repairs, and all
costs incident thereto. The Company will reimburse Employee for all such
expenses upon the presentation by Employee, from time to time, of an
itemized account of such expenditures. The Company shall provide Employee
with a new automobile every four years or, at Employee's option, a used
automobile after two years, provided, however, that upon Employee's
RETIREMENT, then the Company shall provide a new automobile at such time
irrespective of the number of years since the previous new or used
vehicle, which automobile Employee shall retain so long as Employee
continues to abide by Sections VI and VII of this Agreement.
VI. PROPRIETARY INTERESTS OF COMPANY.
Employee and the Company recognize that the Company is in a
highly competitive business in a highly technical industry. The parties
acknowledge that the success or failure of the Company depends largely on
the development and use of certain proprietary and confidential
information and trade secrets, including without limitation, information
concerning any of the Company's patented components, research and
development projects and in patent process components, and personal
relationships with present and potential customers, suppliers,
contractors, and governmental agencies as well as technology, procedures,
systems, and techniques relating to the products developed or distributed
by the Company (hereinafter collectively referred to as "Confidential
Information"). Confidential Information is a substantial asset of the
Company. Confidential Information will be disclosed to Employee in the
normal course of operation. Employee acknowledges that Confidential
Information is extremely valuable to the Company and must be protected
from unauthorized use by the Company's competitors or other persons.
Therefore, Employee agrees not to disclose or use, whether for the benefit
of Employee or any other person or entity, at any time during or after his
employment, any Confidential Information to any person or entity other
than the Company or persons authorized by the Company to receive such
Confidential Information.
Employee recognizes that, during the term of his employment
with the Company, he may develop new products, technology, processes,
devices, inventions, or methods of production, including but not limited
to computer hardware, software or "firmware," and may enhance, improve or
perfect existing products, technology, processes, devices, inventions or
methods of production (hereinafter collectively referred to as
"Inventions"). As partial consideration for the salary and other benefits
provided by the Company to the Employee, Employee hereby agrees that his
entire work product while in the employ of the Company, including any
Inventions, is the exclusive property of the Company. Employee also
agrees to cooperate fully with the Company and to do whatever acts are
reasonably necessary in order to obtain United States or foreign letters
patent or copyrights, or both, and to vest the entire right and title
thereto in the Company. Employee further agrees that the Company shall
have the royalty-free right to use in its business, and to make, use, and
sell such Inventions whether or not patentable, regardless of whether they
are conceived or made by the Employee during the hours which he is
employed by the Company or with the use of or assistance of the Company's
facilities, materials or personnel.
Except as required in his duties to the Company, Employee will
not, directly or indirectly, use, disseminate, disclose, lecture upon, or
publish articles concerning any Confidential Information without the prior
written consent of the Company.
Upon termination of his employment with the Company, all
documents, records, notebooks, and similar repositories of or containing
Confidential Information, including copies thereof, then in Employee's
possession, whether prepared by Employee or others, will be left with the
Company, and no copies thereof will be retained by the Employee.
It is agreed that any breach of this section of the Agreement
will cause immediate irreparable harm to the Company and monetary damages
would be difficult if not impossible to ascertain. Therefore, the parties
agree that upon any breach of any covenant in this section that the
Company may obtain from the district court for the City and County of
Denver, Colorado, or any other court of competent jurisdiction, an
appropriate restraining order, preliminary injunction or other form of
equitable relief with respect thereto. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other available
remedies for such breach, including the recovery of damages, costs, and
attorney fees.
VII. NONCOMPETE AND NONSOLICITATION. During the term of this
Agreement and for a period of the greater of (a) one year after
termination or expiration of this Agreement or (b) the period during which
a SEVERANCE AMOUNT, consulting arrangement or retirement benefit is being
paid to Employee by the Company (the "Noncompete Period"), the Employee
will not, directly or indirectly, own, manage, operate, control, provide
services to, be employed by, participate in, or be connected in any manner
with the ownership, management, operation, or control of any business
which is similar to the type of business conducted by the Company and
which conducts such business or sells its products within and to the same
market as the Company's market at the time of Employee's activity or,
after the termination of this Agreement, at the time of such termination.
Employee certifies that his employment with the Company will not breach a
previous employment agreement. Employee agrees not to engage in the
unauthorized use of the proprietary assets of others during the term of
his employment by the Company. Employee agrees not to enter into any
other employment agreement, oral or written, which will run concurrently,
in whole or in part, with Employee's employment by the Company. Employee
agrees not to solicit any other Company employee during the Noncompete
Period to leave the employ of the Company or to provide services to
another person or business in lieu of providing services to the Company,
including but not limited to services to a competitor of the Company,
except when such other employee's departure is determined by management of
the Company to be in the Company's best interests.
It is agreed that any breach of this section of the Agreement
will cause immediate irreparable harm to the Company and that monetary
damages for such breach would be difficult if not impossible to ascertain.
Therefore, the parties agree that upon any breach of the covenants of this
section the Company may obtain from the district court for the City and
County of Denver, Colorado, or any other court of competent jurisdiction,
an appropriate restraining order, preliminary injunction or other form of
equitable relief with respect thereto. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other available
remedies for such breach, including the recovery of damages, costs, and
attorney fees.
The foregoing agreement not to compete shall not be held
invalid because of the scope of the territory or the actions restricted
thereby; but any judgment by a court of competent jurisdiction may define
the maximum territory and actions subject to, and restricted by, this
paragraph.
Notwithstanding the foregoing, in the event of a CHANGE OF
CONTROL, as hereinafter defined, not recommended by a majority of the
Board of Directors of the Company as constituted prior to the date of such
CHANGE OF CONTROL, this noncompete agreement shall terminate upon the date
of such CHANGE OF CONTROL.
VIII. TERMINATION OF EMPLOYMENT.
A. TERMINATION BY MUTUAL AGREEMENT. The Company and
Employee may agree to terminate this Agreement on terms and conditions
mutually acceptable to them as of the date of termination.
B. DEATH. In the event of Employee's death, the Company
shall pay to any beneficiary designated by Employee or, if no such
beneficiary has been designated, to his estate, an amount equal to the
then annual base salary for the greater of (a) one (1) year or (b) the
remaining term of this Agreement without additional extensions, together
with any bonuses which the Company's Board of Directors shall determine
in its sole discretion to be due and payable to Employee. If Employee's
beneficiary or estate receives any proceeds from any life insurance
policies the premiums of which were being paid for by the Company at the
time of Employee's death other than the Group Life Insurance referred to
in Section IX.A hereof, then the payments of annual base salary and
bonuses shall be reduced by the amount of such proceeds from such life
insurance policies.
In the event of Employee's death, the Company agrees to
purchase, and the Employee agrees to sell, all shares of the Company's
stock BENEFICIALLY OWNED, as hereinafter defined, by Employee or
Employee's spouse at the time of his death and all shares obtainable
through exercise of stock options owned by Employee, up to a maximum of
750,000 shares, as adjusted by any stock split, reverse stock split or
similar recapitalization (the "EMPLOYEE'S SHARES"). The purchase price
will be the FAIR MARKET VALUE of the shares BENEFICIALLY OWNED by
Employee, and the FAIR MARKET VALUE per share, less the exercise price per
share, for Employee's stock options. Notwithstanding the foregoing, the
Company's obligation to purchase the Employee's Shares shall be limited to
the number of shares which may be purchased with the amount of insurance
proceeds received from the KEY MAN POLICIES, as defined below, after
funding the annual base salary death benefit noted above.
C. DISABILITY. If Employee becomes DISABLED during the term
of employment or during the CONSULTING PERIOD, Employee's base salary and
other benefits shall continue at the same rate and in the same manner as
on the date of such DISABILITY. If Employee remains DISABLED for six
consecutive months, the Company, at its option, may thereafter, upon
written notice to Employee or Employee's personal representative,
terminate the employment, subject, however, to Employee's right to receive
disability benefits under the Company's general employee disability
insurance policy and under the supplemental disability policy provided to
Employee and the Company's obligation to pay to the Employee the SEVERANCE
AMOUNT for an INVOLUNTARY TERMINATION not involving a CHANGE OF CONTROL.
If Employee receives any disability payments from any insurance policies
paid for by the Company, the annual base salary, the SEVERANCE AMOUNT, and
bonuses due to Employee hereunder shall be reduced by the amount of any
payments received by Employee from such disability insurance policies.
D. VOLUNTARY or INVOLUNTARY TERMINATION. If prior notice is
given of any VOLUNTARY or INVOLUNTARY TERMINATION as defined herein,
Employee, if requested by the Company, shall continue to render his
services and shall be paid the then annual base salary up to the date of
such VOLUNTARY or INVOLUNTARY TERMINATION, any bonuses which the Company's
Board of Directors shall determine in its sole discretion to be due and
payable to Employee and the SEVERANCE AMOUNT as provided herein.
In the event of an INVOLUNTARY TERMINATION, the STOCK
BONUS and all unvested stock options and stock appreciation rights that
have previously been granted to Employee will fully vest, and the Company
agrees to purchase, at Employee's option, at FAIR MARKET VALUE, the number
of shares of the Company's common stock necessary to provide Employee with
sufficient cash, net of taxes, to fund Employee's remaining obligations,
if any, pursuant to the December 31, 1991 Settlement Agreement between
Carolyn Y. Kiser, the Company, David G. Sherman, Alwin E. Branson and
Employee, as amended (the "SETTLEMENT AGREEMENT").
E. DEFINITIONS. All the terms defined in this Section shall
have the meanings given below throughout this Agreement.
1. "CHANGE IN DUTIES, COMPENSATION, OR BENEFITS" shall
mean any one or more of the following:
a. a significant and detrimental change in the
nature or scope of Employee's authority, responsibilities or duties from
those currently applicable to him;
b. a reduction in Employee's annual base salary
from that currently provided to him;
c. a diminution in Employee's eligibility to
participate in bonus, stock option, incentive award or any other
compensation plan which provides opportunities to receive compensation
from those currently applicable to him, except for: (i) changes in the
eligibility requirements for plans that are applicable to employees
generally; (ii) changes in plans that are applicable to all executives and
result in a diminution of Employee's benefits under such plan that is fair
and proportional as compared to the diminution of benefits for all
executives; and (iii) changes that are required by applicable law;
d. a material diminution in employee benefits
(including but not limited to medical, dental or life insurance and long-
term disability plans) and perquisites currently applicable to Employee,
except for: (i) changes in the eligibility requirements for benefits that
are applicable to employees generally; (ii) changes in benefits and
perquisites that are applicable to all executives and result in a
diminution of Employee's benefits that is fair and proportional as
compared to the diminution for all executives; and (iii) changes that are
required by applicable law;
e. a change in the location of Employee's
principal place of employment by the Company (including its subsidiaries)
by more than twenty-five (25) miles from the location where he was
principally employed immediately prior to the date on which a CHANGE OF
CONTROL occurs; or
f. a reasonable determination by a majority of
those persons comprising the Board of Directors of the Company prior to a
CHANGE OF CONTROL (even if such determination is made after such CHANGE OF
CONTROL) that, as a result of a CHANGE OF CONTROL and a change in
circumstances thereafter significantly affecting his position, Employee is
unable to exercise the functions or duties attached to his position
immediately prior to the date on which a CHANGE OF CONTROL occurs.
2. "CHANGE OF CONTROL" shall be deemed to have occurred
if:
a. any "person," including a "group" as determined
in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
b. as a result of, or in connection with, any
tender offer 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 the
Company before the TRANSACTION shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the Company;
c. the Company is merged or consolidated with
another corporation or entity and, as a result of the merger or
consolidation, less than 80% of the outstanding voting securities of the
surviving corporation or entity is then owned in the aggregate by the
former stockholders of the Company;
d. a tender offer or exchange offer is made and
consummated for the ownership of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
voting securities; or
e. the Company transfers all or substantially all
of its assets to another corporation which is not a wholly-owned
subsidiary of the Company.
3. "DISABLED" or "DISABILITY" shall mean mental or
physical illness or condition rendering Employee incapable of performing
any portion of Employee's normal duties with the Company, provided,
however, that any determination that Employee is not DISABLED under the
definition used in this Agreement shall have no effect on whether Employee
is entitled to receive disability benefits under any disability insurance
policy.
4. "INVOLUNTARY TERMINATION" shall mean any termination
except:
a. VOLUNTARY TERMINATION;
b. termination by mutual agreement;
c. termination as a result of death; or
d. Employee's voluntary retirement from employment
or mandatory retirement from employment pursuant to a retirement plan to
which Employee was subject prior to any CHANGE OF CONTROL.
("RETIREMENT").
5. "SEVERANCE AMOUNT" is equal to:
a. in the case of an INVOLUNTARY TERMINATION, the
greater of the Employee's annual base salary multiplied by the remaining
term of this Agreement or 2.99 times the Employee's average annual
compensation over the last five years payable on regular bi-weekly payroll
dates over the three (3) year period following such INVOLUNTARY
TERMINATION, provided, however, that if such INVOLUNTARY TERMINATION
follows a CHANGE OF CONTROL, then the SEVERANCE AMOUNT shall be payable in
a lump sum no later than ten (10) days following the date of termination.
b. in the case of a VOLUNTARY TERMINATION or
RETIREMENT, one-half of Employee's annual base salary payable on regular
bi-weekly payroll dates over a six month period, provided, however, that
if Employee provides post-termination consulting services to the Company
pursuant to Section XII hereof after VOLUNTARY TERMINATION or RETIREMENT,
the SEVERANCE AMOUNT shall be based upon the annual base salary at the
time of termination of employment but shall not be payable to Employee
until after termination of the consulting services.
6. "VOLUNTARY TERMINATION" shall mean any termination
which results from a resignation by the Employee other than a resignation
following a CHANGE IN DUTIES, COMPENSATION, OR BENEFITS as defined herein.
7. "VOTING SECURITIES" shall mean any securities which
ordinarily possess the power to vote in the election of directors without
the occurrence of any pre-condition or contingency other than the passage
of time.
8. "BENEFICIALLY OWNED" shall mean beneficial ownership
by the Employee, the Employee's spouse, or a trust or similar arrangement
established by or for the benefit of the Employee, the Employee's spouse,
or the Employee's minor children as well as the meaning of such term under
Section 13 or Section 16 of the Securities Exchange Act.
9. "FAIR MARKET VALUE" shall mean (a) if there is an
established market for the Company's common stock, the average of the mean
of the highest and lowest quoted selling prices on each trading day for
the ninety (90) day period preceding the day of the event triggering an
obligation for the Company to purchase the shares of stock BENEFICIALLY
OWNED by the Employee; or (b) if there is no established market for the
Company's stock during such ninety (90) day period, then the average over
that ninety (90) day period of the value determined in accordance with
Treasury Reg. 10.2031-2 or successor regulations.
F. SECTION 280G PAYMENT. In the event that the SEVERANCE
AMOUNT payments under this Agreement are determined by an independent
accounting firm retained by Employee (but paid for by the Company) to
constitute "excess parachute payments" within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended, (the "Code") and any
regulations thereunder, the Company agrees to increase the SEVERANCE
AMOUNT by the amount necessary to put the Employee in the position he
would be in if Code 280G and 4999 or any successor provisions to the
Code which are designed to limit or restrict such "excess parachute
payments" did not exist.
G. MEDICAL AND DENTAL BENEFITS. If Employee's employment by
the Company or any subsidiary or successor of the Company is terminated
because of DISABILITY, RETIREMENT, VOLUNTARY TERMINATION, or INVOLUNTARY
TERMINATION, then to the extent that Employee or any of Employee's
dependents may be covered under the terms of any medical and dental plans
of the Company (or any subsidiary) immediately prior to the termination,
the Company will provide Employee and those dependents with the same or
equivalent coverages until the later of Employee's death or the death of
Employee's spouse, if any, at the time of Employee's death. The Company
may, at its election, procure such coverages apart from, and outside of
the terms of, the plans applicable to other employees. The Company's
obligation to provide such coverages will be limited by the requirement
that Employee and Employee's dependents comply with all of the conditions
of the medical or dental plans applicable to employees generally and the
Company is under no obligation to obtain special coverages for Employee
which would not be covered by the plans applicable to employees generally.
In consideration for these benefits, Employee must make contributions
equal to those required from time to time from other employees for
equivalent coverages under the medical or dental plans.
IX. LIFE INSURANCE.
A. GROUP LIFE INSURANCE. The Company shall provide Employee
with personal life insurance under the Company's group life insurance
policy as in effect from time to time.
B. KEY MAN LIFE INSURANCE. Employee hereby consents to the
purchase by the Company of one or more "key man" life insurance policies
on Employee's life naming the Company or its designee as beneficiary (the
"KEY MAN POLICIES") and the Company agrees to use its best efforts to
purchase and maintain such policies, as hereinafter set forth; provided,
however, that the Company shall not be liable to Employee for a failure to
purchase or maintain any KEY MAN POLICIES if such failure is due to
Employee's health, medical condition, or other similar reasons. Employee
agrees that he shall take any action which may be requested by the
Company, and otherwise fully cooperate with the Company, in its efforts to
purchase and maintain the KEY MAN POLICIES. While the KEY MAN POLICIES
will be owned by the Company and the proceeds made payable to the Company
or its designee, Employee may at any time by written notice to the Company
effect the transfer of up to $1 million in life insurance death benefit to
his estate or his designated beneficiary by agreeing to have subsequent
premiums attributable to such death benefit deducted by the Company from
his compensation, provided, however, that the cash value, if any, of the
life insurance so transferred to Employee at the time of the transfer
shall remain the property of the Company. The KEY MAN POLICIES shall be
purchased by the Company for the following purposes and the Company shall
make its best efforts to obtain KEY MAN POLICIES in amounts sufficient to
accomplish such purposes:
1. To fund the Company's obligation to pay the annual
base salary death benefit, as described in Section VIII.B of this
Agreement;
2. To fund the Company obligation to purchase
Employee's shares of the Company's common stock and stock options on
Employee's death, as described in Section VIII.B of this Agreement;
3. To fund all remaining obligations, if any, of
Employee to Carolyn Kiser under the SETTLEMENT AGREEMENT;
4. To fund any other obligation under this Agreement
arising as a result of Employee's separation of service from the Company;
5. To provide funds necessary to obtain or compensate a
replacement for Employee;
6. For any other reasonable business purpose as may
determined by the Company.
After an INVOLUNTARY TERMINATION or RETIREMENT or VOLUNTARY
TERMINATION (including the post-termination CONSULTING PERIOD, if any),
the Company's obligation to maintain the KEY MAN POLICIES shall terminate
six (6) months thereafter, provided, however, that Employee may, by a
written notice delivered to the Company no less than five (5) months after
such termination of employment, assume responsibility for paying the
premiums to continue some or all of the KEY MAN POLICIES. At such time,
Employee may also elect, by such written notice, to purchase some or all
of the KEY MAN POLICIES from the Company for their cash surrender value,
if any, or may pledge the policies to the Company as security for
Employee's agreement to pay such cash value to the Company, together with
accrued interest based on the Wall Street Journal's prime rate as
published on the date of such purchase, at the time of sale, redemption or
receipt of the death benefit of such policies.
In the event that the Company fails to pay the premiums
required to maintain the KEY MAN POLICIES while it is still obligated to
do so, Employee shall be entitled to assume responsibility for paying the
premiums to continue some or all of the KEY MAN POLICIES, and Employee
shall be entitled to reimbursement from the Company for any such payments
made by Employee. If Employee elects to cause the transfer of some or all
of the $1 million in death benefits from the KEY MAN POLICIES to his
estate or designated beneficiary as permitted by this Section IX, Employee
waives any claim against the Company for failing to maintain sufficient
KEY MAN POLICIES to the extent of such transfer.
The Company agrees to review on an annual basis the death
benefits payable under such policies and to attempt to procure additional
insurance as needed to meet its obligations to Employee hereunder.
X. DEFERRED PAYMENTS. In the event that the Company is
prohibited from deducting any payment made to Employee as a compensation
expense (excluding the Company's purchase of common stock and stock
options BENEFICIALLY OWNED by Employee and tax payments for the STOCK
BONUS made pursuant to Section V.A hereof) as a result of Code 162(m) or
any other provision of the Code and such payment would be deductible by
the Company if made in a future tax year, then the Company may defer
making the non-deductible portion of that payment until the first day of
the tax year in which any portion of that payment becomes deductible, at
which time the Company shall pay so much of the deferred payment as is
deductible. In the event that any payment obligation of the Company is
deferred as a result of this Article X, the Company shall pay interest to
the Employee on the deferred portion of the payment at a rate of ten
percent (10%) per annum.
XI. DIRECTORS AND OFFICER INSURANCE. The Company shall procure
directors and officers liability insurance coverage on all directors and
officers in such an amount as the Company deems reasonable and necessary
under the circumstances but in no event less than $1 million.
XII. POST-TERMINATION CONSULTING. In the event of Employee's
VOLUNTARY TERMINATION or RETIREMENT, the Company hereby agrees to engage
Employee as a consultant to the Company for a period of up to five years
(the "CONSULTING PERIOD"). While the CONSULTING PERIOD will only begin
after termination of employment under this Agreement, Employee shall
nevertheless continue to be an "employee" of the Company for purposes of
tax withholding and employee benefits (including any special or additional
benefits provided to Employee by this Agreement or otherwise) during the
CONSULTING PERIOD although the scope of Employee's services and
responsibilities shall be diminished in such manner and amounts as may be
agreed upon by the Company and Employee. During the CONSULTING PERIOD,
Employee will be paid a salary equal to 50% of his annual base salary on
the date of Employee's termination of employment under this Agreement.
For each year or part thereof that Employee provides consulting services
to the Company, Employee shall receive a retirement benefit of 25% of
Employee's annual base salary at the time of Employee's VOLUNTARY
TERMINATION or RETIREMENT for the same amount of time, which retirement
benefit shall then be paid to Employee in accordance with the Company's
existing payroll policies beginning at the end of the CONSULTING PERIOD
over a period of time equal to the number of years or parts thereof that
Employee provides consulting services. Employee shall have the right to
decline to provide any consulting services after a VOLUNTARY TERMINATION
or RETIREMENT. If Employee does elect to provide consulting services,
Employee may determine to cease providing such services to the Company at
any time by giving at least thirty (30) days prior written notice of such
determination to the Company. The Company agrees to engage Employee to
provide the consulting services for a period of not less than one (1) year
after a VOLUNTARY TERMINATION or RETIREMENT but the Company may terminate
such engagement at any time thereafter for good cause. For purposes
hereof, "good cause" shall mean misappropriation of Company funds or
property, conviction of a crime involving dishonesty or moral turpitude,
or willful disregard of any directive of the Company's Board of Directors.
XIII. DEFERRED COMPENSATION. During the term of this Agreement,
including the extension of such term pursuant to Section II hereof and the
CONSULTING PERIOD, if any, pursuant to Section XII hereof, the Company
shall deposit an amount equal to 10% of Employee's annual base salary into
a deferred compensation trust (the "Rabbi Trust") for the benefit of
Employee. The Company shall have no obligation to contribute to the Rabbi
Trust during the time Employee is receiving only retirement benefits or
disability benefits. Deposits to the Rabbi Trust shall be made and shall
vest, subject only to the claims of the Company's creditors, on January 1
of each year that Employee serves the Company in a full-time capacity.
The Rabbi Trust may distribute all or a portion of its balance to Employee
on January 1 of the first calendar year in which Employee will receive no
other benefit under this Agreement or in subsequent years but the entire
balance must be distributed on or before the date of Employee's death.
XIV. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and delivered in person
or sent by registered or certified mail to Employee's residence in the
case of Employee or to its principal office in the case of the Company.
XV. WAIVER. The waiver of any provision of this Agreement shall
not operate or be construed as a waiver of any other provision of this
Agreement. No waiver shall be valid unless in writing and executed by the
party to be charged therewith.
XVI. SEVERABILITY/MODIFICATION. In the event that any clause or
provision of this Agreement shall be determined to be invalid, illegal or
unenforceable, such clause or provision may be severed or modified to the
extent necessary, and, as severed and/or modified, this Agreement shall
remain in full force and effect.
XVII. ASSIGNMENT. Except for a transfer by will or by the laws of
descent or distribution, Employee's right to receive payments or benefits
under this Agreement shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise. In the event of any
attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred. Employee acknowledges that the services to be rendered under
this Agreement are unique and personal. Accordingly, Employee may not
assign such duties or obligations under this Agreement.
XVIII. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns (including, without
limitation, any company into or with which the Company may merge or
consolidate). The Company agrees that it will not effect the sale or
other disposition of all or substantially all of its assets unless either
(i) the person or entity acquiring the assets or a substantial portion of
the assets shall expressly assume by an instrument in writing all duties
and obligations of the Company under this Agreement or (ii) the Company
shall provide, through the establishment of a separate reserve or
otherwise, for the payment in full of all amounts which are or may
reasonably be expected to become payable to Employee under this Agreement.
XIX. ENTIRE AGREEMENT. This instrument contains the entire
agreement concerning the employment arrangement between the parties and
shall, as of the effective date hereof, supersede all other such
agreements between the parties including but not limited to the Executive
Employment Agreement dated November 12, 1992, as amended March 10, 1995,
provided, however, that nothing in this Agreement shall prevent the
Company from granting additional or special compensation or benefits to
Employee after the date of execution of this Agreement. This Agreement
may not be amended except by an agreement in writing signed by both
parties. Nothing in this paragraph shall be deemed to modify or amend the
SETTLEMENT AGREEMENT nor any agreements or instruments entered into
between the parties hereto as a result of that SETTLEMENT AGREEMENT.
XX. GOVERNING LAW AND JURISDICTION. This Agreement shall be
interpreted, construed, and enforced under the laws of the State of
Colorado. The courts of the State of Colorado shall have sole
jurisdiction and venue over all controversies which may arise with respect
to this Agreement.
XXI. TIME. In comparing any period of time prescribed or allowed
by this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall not be included. The last
day of the period so computed shall be included, unless it is a Sunday or
legal holiday, in which event the period runs until the end of the next
day which is not a Sunday or legal holiday. For purposes of this
paragraph a legal holiday shall mean any day which banks are required to
be closed in the State of Colorado. For purposes of calculating the
duration of the covenant not to compete the time period of such covenant
shall be extended by one day for each day that Employee competes with
Company in violation of such covenant.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year indicated below.
THE COMPANY:
VARI-L COMPANY, INC.
By:/s/David G. Sherman
David G. Sherman, President
EMPLOYEE:
/s/Joseph H. Kiser
Joseph H. Kiser
VARI-L COMPANY, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective June 1, 1997, is made and entered into by
and between VARI-L COMPANY, INC. (the "Company") and DAVID G. SHERMAN
("Employee").
WHEREAS, Employee's diligent efforts on behalf of the Company have
greatly contributed to the tremendous growth of the Company, in terms of
revenues, profitability, technological developments, customer base and
shareholder value; and
WHEREAS, the Compensation Committee of the Board of Directors,
comprised solely of disinterested directors, has determined to provide
Employee with this employment agreement, including the severance package
and other benefits provided hereby, for the purpose of rewarding Employee
for the success of the Company resulting from his efforts and as a method
of encouraging Employee to remain with the Company for the foreseeable
future and to continue to provide such diligent and efficacious services
to the Company during that employment.
NOW, THEREFORE, for good and valuable consideration, the parties
hereto agree as follows:
I. EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment, upon the terms and conditions hereinafter set
forth.
II. TERM. Subject to the provisions for termination as
hereinafter provided, the term of this Agreement is for a period
commencing June 1, 1997, and expiring June 1, 2001 (the "Initial Term").
On June 1 of each year, beginning in 1998, the term of this Agreement
shall be automatically extended for an additional year without any further
action on the part of the Company or Employee unless the Company or
Employee gives written notice more than sixty (60) days before May 31 of
any such year of its or his intention not to extend the term of this
Agreement.
III. DUTIES. Employee is engaged as President and Chief Executive
Officer of the Company, to have complete responsibility for and authority
over the management of the operations of the Company, including, but not
limited to, overall management of the Company's Sales, Marketing, Finance,
Administration, Manufacturing, Operations, Human Resources and Quality
Assurance departments or functions and supervision of the Vice Presidents
or other officers or managers assigned to those departments, areas or
functions, and to have full authority and responsibility, subject only to
the general direction and control of the Board of Directors, for
administering those operations of the Company in all respects. His power
shall include authority to hire and fire personnel of the Company and to
retain consultants when he deems necessary to implement the Company's
policies. If Employee is elected or appointed a director of the Company
during the term of this Agreement, Employee shall serve in such capacity
or capacities without further compensation; but nothing herein shall be
construed as requiring the Company, or anyone else, to cause the election
or appointment of Employee as a director.
IV. EXTENT OF SERVICES. Employee shall faithfully, industriously,
and to the best of his ability, experience, and talents, perform all of
the duties that may be required of and from him pursuant to this
Agreement. Nothing herein shall be construed as preventing Employee from
(a) investing his assets in such form or manner as will not require any
services on the part of Employee in the operations or the affairs of the
companies in which such investments are made or (b) serving as a director,
advisor, or consultant; provided, however, that such investments or
services may not be in connection with a business which is in competition
with the Company (excluding (i) indirect investments through mutual funds
or other broad based investment vehicles, (ii) investments in debt
instruments, and (iii) investments in less than 5% of the stock of any
publicly held business).
V. COMPENSATION AND EMPLOYEE BENEFITS.
A. STOCK BONUS. Upon executing this Agreement, Employee
shall receive a one time bonus of twenty-five thousand (25,000) shares of
the Company's common stock ("STOCK BONUS") pursuant to the terms of the
Company's Stock Grant Plan; provided, however, that such STOCK BONUS shall
be subject to the following vesting schedule:
1. Twelve thousand five hundred (12,500) shares of the
STOCK BONUS shall vest immediately upon execution of this Agreement as a
signing bonus;
2. The remaining twelve thousand five hundred (12,500)
shares shall vest according to the following schedule, in each case
subject to the requirement that Employee achieves the performance goals
established by the Compensation Committee for the preceding year: six
thousand two hundred and fifty (6,250) shares shall vest on April 15,
1999; and the remaining six thousand two hundred fifty (6,250) shares
shall vest on April 15, 2000. The STOCK BONUS and all unvested stock
options and stock appreciation rights previously granted to Employee shall
fully vest in the event of a CHANGE OF CONTROL or an INVOLUNTARY
TERMINATION. In order to avoid Employee being forced to sell a portion of
the shares received under the STOCK BONUS to pay the taxes thereon, all
income and other taxes attributable to the STOCK BONUS, including the
taxes on such taxes, shall be paid by the Company upon vesting thereof.
3. In the event that Employee violates any of his
noncompetition or nonsolicitation obligations as set forth in Section VII,
any unvested STOCK BONUS granted to Employee hereby shall be rescinded,
and all or a portion of Employee's vested STOCK BONUS shall be forfeited
by Employee and returned to the Company according to the following
schedule:
a. 100% of any vested STOCK BONUS shall be
forfeited if such violation occurs prior to June 1, 1999;
b. 75% of any vested STOCK BONUS shall be
forfeited if such violation occurs prior to June 1, 2000;
c. 50% of any vested STOCK BONUS shall be
forfeited if such violation occurs prior to June 1, 2001; or
d. 25% of any vested STOCK BONUS shall be
forfeited if such violation occurs prior to June 1, 2002.
4. In the event of a forfeiture of a STOCK BONUS under
the preceding paragraph, Employee may, at his option, repay the applicable
portion of the STOCK BONUS in any of the following ways:
a. by tendering an amount of cash equal to the
FAIR MARKET VALUE (as defined in Section VIII.E.9 below) of the forfeited
portion of the STOCK BONUS on the date(s) of its vesting; or
b. by tendering an amount of cash equal to the
FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the
effective date of this Agreement; or
c. by tendering an amount of cash equal to the
FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the date
of repayment; or
d. by tendering a number of shares of the
Company's common stock with a FAIR MARKET VALUE on the date of repayment
equal to the FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS
on the date of its vesting or on the effective date of this Agreement,
whichever is lower; or
e. by tendering a number of shares of the
Company's Common Stock equal to the number of shares of the STOCK BONUS
being forfeited.
5. Employee's STOCK BONUS shall be fully vested and not
subject to forfeiture after June 1, 2002
6. The forfeiture of any portion of the STOCK BONUS by
Employee pursuant to paragraph 3 above shall be in addition to, and not a
substitute for, any other remedies to which the Company may be entitled
under this Agreement or applicable law for Employee's breach of the
noncompetition and nonsolicitation provisions of Section VII, including
but not limited to an injunction against further violations or other
equitable relief.
B. ANNUAL BASE SALARY. For all services rendered by
Employee under this Agreement, the Company shall pay Employee an annual
base salary of at least $195,000, payable in equal bi-weekly installments.
The amount of such base salary shall be determined at the beginning of
each fiscal year by the Compensation Committee of the Company's Board of
Directors in its sole discretion on the basis of merit and the Company's
financial success and progress but in no event shall such base salary be
less than the annual base salary indicated in this paragraph.
C. BONUS COMPENSATION. Employee may receive such additional
bonuses, payable in cash or shares of the Company's stock, as determined
at the beginning of each fiscal year of the Company by the Compensation
Committee of the Board of Directors in its sole discretion on the basis of
merit and the Company's financial success and progress in the prior fiscal
year.
D. VACATION. Employee shall be entitled to six (6) weeks of
paid vacation each year.
E. EMPLOYEE BENEFITS. Employee shall be entitled to receive
all of the rights, benefits, and privileges of an employee and an
executive officer under any retirement, pension, profit-sharing,
insurance, health and hospital, and other employee benefit plans which may
be now in effect or hereafter adopted by the Company.
F. WORKING FACILITIES. Employee shall be furnished with a
private office, stenographic help, and such other facilities and services
suitable to Employee's position and adequate for the performance of the
duties required by this Agreement.
G. EXPENSES. Employee is authorized to incur reasonable
expenses in connection with his responsibilities in conducting the
business of the Company, including expenses for entertainment, travel, and
similar items. The Company will reimburse Employee for all such expenses
upon the presentation by Employee, from time to time, of an itemized
account of such expenditures.
H. AUTOMOBILE. Employer shall provide Employee with an
automobile, and shall reimburse Employee for expenses associated with such
automobile, including gasoline, insurance, maintenance, repairs, and all
costs incident thereto. The Company will reimburse Employee for all such
expenses upon the presentation by Employee, from time to time, of an
itemized account of such expenditures. The Company shall provide Employee
with a new automobile every four years or, at Employee's option, a used
automobile after two years, provided, however, that upon Employee's
RETIREMENT, then the Company shall provide a new automobile at such time
irrespective of the number of years since the previous new or used
vehicle, which automobile Employee shall retain so long as Employee
continues to abide by Sections VI and VII of this Agreement.
VI. PROPRIETARY INTERESTS OF COMPANY.
Employee and the Company recognize that the Company is in a
highly competitive business in a highly technical industry. The parties
acknowledge that the success or failure of the Company depends largely on
the development and use of certain proprietary and confidential
information and trade secrets, including without limitation, information
concerning any of the Company's patented components, research and
development projects and in patent process components, and personal
relationships with present and potential customers, suppliers,
contractors, and governmental agencies as well as technology, procedures,
systems, and techniques relating to the products developed or distributed
by the Company (hereinafter collectively referred to as "Confidential
Information"). Confidential Information is a substantial asset of the
Company. Confidential Information will be disclosed to Employee in the
normal course of operation. Employee acknowledges that Confidential
Information is extremely valuable to the Company and must be protected
from unauthorized use by the Company's competitors or other persons.
Therefore, Employee agrees not to disclose or use, whether for the benefit
of Employee or any other person or entity, at any time during or after his
employment, any Confidential Information to any person or entity other
than the Company or persons authorized by the Company to receive such
Confidential Information.
Employee recognizes that, during the term of his employment
with the Company, he may develop new products, technology, processes,
devices, inventions, or methods of production, including but not limited
to computer hardware, software or "firmware," and may enhance, improve or
perfect existing products, technology, processes, devices, inventions or
methods of production (hereinafter collectively referred to as
"Inventions"). As partial consideration for the salary and other benefits
provided by the Company to the Employee, Employee hereby agrees that his
entire work product while in the employ of the Company, including any
Inventions, is the exclusive property of the Company. Employee also
agrees to cooperate fully with the Company and to do whatever acts are
reasonably necessary in order to obtain United States or foreign letters
patent or copyrights, or both, and to vest the entire right and title
thereto in the Company. Employee further agrees that the Company shall
have the royalty-free right to use in its business, and to make, use, and
sell such Inventions whether or not patentable, regardless of whether they
are conceived or made by the Employee during the hours which he is
employed by the Company or with the use of or assistance of the Company's
facilities, materials or personnel.
Except as required in his duties to the Company, Employee will
not, directly or indirectly, use, disseminate, disclose, lecture upon, or
publish articles concerning any Confidential Information without the prior
written consent of the Company.
Upon termination of his employment with the Company, all
documents, records, notebooks, and similar repositories of or containing
Confidential Information, including copies thereof, then in Employee's
possession, whether prepared by Employee or others, will be left with the
Company, and no copies thereof will be retained by the Employee.
It is agreed that any breach of this section of the Agreement
will cause immediate irreparable harm to the Company and monetary damages
would be difficult if not impossible to ascertain. Therefore, the parties
agree that upon any breach of any covenant in this section that the
Company may obtain from the district court for the City and County of
Denver, Colorado, or any other court of competent jurisdiction, an
appropriate restraining order, preliminary injunction or other form of
equitable relief with respect thereto. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other available
remedies for such breach, including the recovery of damages, costs, and
attorney fees.
VII. NONCOMPETE AND NONSOLICITATION. During the term of this
Agreement and for a period of the greater of (a) one year after
termination or expiration of this Agreement or (b) the period during which
a SEVERANCE AMOUNT, consulting arrangement or retirement benefit is being
paid to Employee by the Company (the "Noncompete Period"), the Employee
will not, directly or indirectly, own, manage, operate, control, provide
services to, be employed by, participate in, or be connected in any manner
with the ownership, management, operation, or control of any business
which is similar to the type of business conducted by the Company and
which conducts such business or sells its products within and to the same
market as the Company's market at the time of Employee's activity or,
after the termination of this Agreement, at the time of such termination.
Employee certifies that his employment with the Company will not breach a
previous employment agreement. Employee agrees not to engage in the
unauthorized use of the proprietary assets of others during the term of
his employment by the Company. Employee agrees not to enter into any
other employment agreement, oral or written, which will run concurrently,
in whole or in part, with Employee's employment by the Company. Employee
agrees not to solicit any other Company employee during the Noncompete
Period to leave the employ of the Company or to provide services to
another person or business in lieu of providing services to the Company,
including but not limited to services to a competitor of the Company,
except when such other employee's departure is determined by management of
the Company to be in the Company's best interests.
It is agreed that any breach of this section of the Agreement
will cause immediate irreparable harm to the Company and that monetary
damages for such breach would be difficult if not impossible to ascertain.
Therefore, the parties agree that upon any breach of the covenants of this
section the Company may obtain from the district court for the City and
County of Denver, Colorado, or any other court of competent jurisdiction,
an appropriate restraining order, preliminary injunction or other form of
equitable relief with respect thereto. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other available
remedies for such breach, including the recovery of damages, costs, and
attorney fees.
The foregoing agreement not to compete shall not be held
invalid because of the scope of the territory or the actions restricted
thereby; but any judgment by a court of competent jurisdiction may define
the maximum territory and actions subject to, and restricted by, this
paragraph.
Notwithstanding the foregoing, in the event of a CHANGE OF
CONTROL, as hereinafter defined, not recommended by a majority of the
Board of Directors of the Company as constituted prior to the date of such
CHANGE OF CONTROL, this noncompete agreement shall terminate upon the date
of such CHANGE OF CONTROL.
VIII. TERMINATION OF EMPLOYMENT.
A. TERMINATION BY MUTUAL AGREEMENT. The Company and
Employee may agree to terminate this Agreement on terms and conditions
mutually acceptable to them as of the date of termination.
B. DEATH. In the event of Employee's death, the Company
shall pay to any beneficiary designated by Employee or, if no such
beneficiary has been designated, to his estate, an amount equal to the
then annual base salary for the greater of (a) one (1) year or (b) the
remaining term of this Agreement without additional extensions, together
with any bonuses which the Company's Board of Directors shall determine in
its sole discretion to be due and payable to Employee. If Employee's
beneficiary or estate receives any proceeds from any life insurance
policies the premiums of which were being paid for by the Company at the
time of Employee's death other than the Group Life Insurance referred to
in Section IX.A hereof, then the payments of annual base salary and
bonuses shall be reduced by the amount of such proceeds from such life
insurance policies.
In the event of Employee's death, the Company agrees to
purchase, and the Employee agrees to sell, all shares of the Company's
stock BENEFICIALLY OWNED, as hereinafter defined, by Employee or
Employee's spouse at the time of his death and all shares obtainable
through exercise of stock options owned by Employee, up to a maximum of
750,000 shares, as adjusted by any stock split, reverse stock split or
similar recapitalization (the "EMPLOYEE'S SHARES"). The purchase price
will be the FAIR MARKET VALUE of the shares BENEFICIALLY OWNED by
Employee, and the FAIR MARKET VALUE per share, less the exercise price per
share, for Employee's stock options. Notwithstanding the foregoing, the
Company's obligation to purchase the EMPLOYEE'S SHARES shall be limited to
the number of shares which may be purchased with the amount of insurance
proceeds received from the KEY MAN POLICIES, as defined below, after
funding the annual base salary death benefit noted above.
C. DISABILITY. If Employee becomes DISABLED during the term
of employment or during the CONSULTING PERIOD, Employee's base salary and
other benefits shall continue at the same rate and in the same manner as
on the date of such DISABILITY. If Employee remains DISABLED for six
consecutive months, the Company, at its option, may thereafter, upon
written notice to Employee or Employee's personal representative,
terminate the employment, subject, however, to Employee's right to receive
disability benefits under the Company's general employee disability
insurance policy and under the supplemental disability policy provided to
Employee and the Company's obligation to pay to the Employee the SEVERANCE
AMOUNT for an INVOLUNTARY TERMINATION not involving a CHANGE OF CONTROL.
If Employee receives any disability payments from any insurance policies
paid for by the Company, the annual base salary, the SEVERANCE AMOUNT, and
bonuses due to Employee hereunder shall be reduced by the amount of any
payments received by Employee from such disability insurance policies.
D. VOLUNTARY or INVOLUNTARY TERMINATION. If prior notice is
given of any VOLUNTARY or INVOLUNTARY TERMINATION as defined herein,
Employee, if requested by the Company, shall continue to render his
services and shall be paid the then annual base salary up to the date of
such VOLUNTARY or INVOLUNTARY TERMINATION, any bonuses which the Company's
Board of Directors shall determine in its sole discretion to be due and
payable to Employee and the SEVERANCE AMOUNT as provided herein.
In the event of an INVOLUNTARY TERMINATION, the STOCK
BONUS and all unvested stock options and stock appreciation rights that
have previously been granted to Employee will fully vest, and the Company
agrees to purchase, at Employee's option, at FAIR MARKET VALUE, the number
of shares of the Company's common stock necessary to provide Employee with
sufficient cash, net of taxes, to fund Employee's remaining obligations,
if any, pursuant to the December 31, 1991 Settlement Agreement between
Carolyn Y. Kiser, the Company, Joseph H. Kiser, Alwin E. Branson and
Employee, as amended (the "SETTLEMENT AGREEMENT").
E. DEFINITIONS. All the terms defined in this Section shall
have the meanings given below throughout this Agreement.
1. "CHANGE IN DUTIES, COMPENSATION, OR BENEFITS" shall
mean any one or more of the following:
a. a significant and detrimental change in the
nature or scope of Employee's authority, responsibilities or duties from
those currently applicable to him;
b. a reduction in Employee's annual base salary
from that currently provided to him;
c. a diminution in Employee's eligibility to
participate in bonus, stock option, incentive award or any other
compensation plan which provides opportunities to receive compensation
from those currently applicable to him, except for: (i) changes in the
eligibility requirements for plans that are applicable to employees
generally; (ii) changes in plans that are applicable to all executives and
result in a diminution of Employee's benefits under such plan that is fair
and proportional as compared to the diminution of benefits for all
executives; and (iii) changes that are required by applicable law;
d. a material diminution in employee benefits
(including but not limited to medical, dental or life insurance and long-
term disability plans) and perquisites currently applicable to Employee,
except for: (i) changes in the eligibility requirements for benefits that
are applicable to employees generally; (ii) changes in benefits and
perquisites that are applicable to all executives and result in a
diminution of Employee's benefits that is fair and proportional as
compared to the diminution for all executives; and (iii) changes that are
required by applicable law;
e. a change in the location of Employee's
principal place of employment by the Company (including its subsidiaries)
by more than twenty-five (25) miles from the location where he was
principally employed immediately prior to the date on which a CHANGE OF
CONTROL occurs; or
f. a reasonable determination by a majority of
those persons comprising the Board of Directors of the Company prior to a
CHANGE OF CONTROL (even if such determination is made after such CHANGE OF
CONTROL) that, as a result of a CHANGE OF CONTROL and a change in
circumstances thereafter significantly affecting his position, Employee is
unable to exercise the functions or duties attached to his position
immediately prior to the date on which a CHANGE OF CONTROL occurs.
2. "CHANGE OF CONTROL" shall be deemed to have occurred
if:
a. any "person," including a "group" as determined
in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
b. as a result of, or in connection with, any
tender offer 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 the
Company before the TRANSACTION shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the Company;
c. the Company is merged or consolidated with
another corporation or entity and, as a result of the merger or
consolidation, less than 80% of the outstanding voting securities of the
surviving corporation or entity is then owned in the aggregate by the
former stockholders of the Company;
d. a tender offer or exchange offer is made and
consummated for the ownership of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
voting securities; or
e. the Company transfers all or substantially all
of its assets to another corporation which is not a wholly-owned
subsidiary of the Company.
3. "DISABLED" or "DISABILITY" shall mean mental or
physical illness or condition rendering Employee incapable of performing
any portion of Employee's normal duties with the Company, provided,
however, that any determination that Employee is not DISABLED under the
definition used in this Agreement shall have no effect on whether Employee
is entitled to receive disability benefits under any disability insurance
policy.
4. "INVOLUNTARY TERMINATION" shall mean any termination
except:
a. VOLUNTARY TERMINATION;
b. termination by mutual agreement;
c. termination as a result of death; or
d. Employee's voluntary retirement from employment
or mandatory retirement from employment pursuant to a retirement plan to
which Employee was subject prior to any CHANGE OF CONTROL.
("RETIREMENT").
5. "SEVERANCE AMOUNT" is equal to:
a. in the case of an INVOLUNTARY TERMINATION, the
greater of the Employee's annual base salary multiplied by the remaining
term of this Agreement or 2.99 times the Employee's average annual
compensation over the last five years payable on regular bi-weekly payroll
dates over the three (3) year period following such INVOLUNTARY
TERMINATION, provided, however, that if such INVOLUNTARY TERMINATION
follows a CHANGE OF CONTROL, then the SEVERANCE AMOUNT shall be payable in
a lump sum no later than ten (10) days following the date of termination.
b. in the case of a VOLUNTARY TERMINATION or
RETIREMENT, one-half of Employee's annual base salary payable on regular
bi-weekly payroll dates over a six month period, provided, however, that
if Employee provides post-termination consulting services to the Company
pursuant to Section XII hereof after VOLUNTARY TERMINATION or RETIREMENT,
the SEVERANCE AMOUNT shall be based upon the annual base salary at the
time of termination of employment but shall not be payable to Employee
until after termination of the consulting services.
6. "VOLUNTARY TERMINATION" shall mean any termination
which results from a resignation by the Employee other than a resignation
following a CHANGE IN DUTIES, COMPENSATION, OR BENEFITS as defined herein.
7. "VOTING SECURITIES" shall mean any securities which
ordinarily possess the power to vote in the election of directors without
the occurrence of any pre-condition or contingency other than the passage
of time.
8. "BENEFICIALLY OWNED" shall mean beneficial ownership
by the Employee, the Employee's spouse, or a trust or similar arrangement
established by or for the benefit of the Employee, the Employee's spouse,
or the Employee's minor children as well as the meaning of such term under
Section 13 or Section 16 of the Securities Exchange Act.
9. "FAIR MARKET VALUE" shall mean (a) if there is an
established market for the Company's common stock, the average of the mean
of the highest and lowest quoted selling prices on each trading day for
the ninety (90) day period preceding the day of the event triggering an
obligation for the Company to purchase the shares of stock BENEFICIALLY
OWNED by the Employee; or (b) if there is no established market for the
Company's stock during such ninety (90) day period, then the average over
that ninety (90) day period of the value determined in accordance with
Treasury Reg. 10.2031-2 or successor regulations.
F. SECTION 280G PAYMENT. In the event that the SEVERANCE
AMOUNT payments under this Agreement are determined by an independent
accounting firm retained by Employee (but paid for by the Company) to
constitute "excess parachute payments" within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended, (the "Code") and any
regulations thereunder, the Company agrees to increase the SEVERANCE
AMOUNT by the amount necessary to put the Employee in the position he
would be in if Code 280G and 4999 or any successor provisions to the
Code which are designed to limit or restrict such "excess parachute
payments" did not exist.
G. MEDICAL AND DENTAL BENEFITS. If Employee's employment by
the Company or any subsidiary or successor of the Company is terminated
because of DISABILITY, RETIREMENT, VOLUNTARY TERMINATION, or INVOLUNTARY
TERMINATION, then to the extent that Employee or any of Employee's
dependents may be covered under the terms of any medical and dental plans
of the Company (or any subsidiary) immediately prior to the termination,
the Company will provide Employee and those dependents with the same or
equivalent coverages until the later of Employee's death or the death of
Employee's spouse, if any, at the time of Employee's death. The Company
may, at its election, procure such coverages apart from, and outside of
the terms of, the plans applicable to other employees. The Company's
obligation to provide such coverages will be limited by the requirement
that Employee and Employee's dependents comply with all of the conditions
of the medical or dental plans applicable to employees generally and the
Company is under no obligation to obtain special coverages for Employee
which would not be covered by the plans applicable to employees generally.
In consideration for these benefits, Employee must make contributions
equal to those required from time to time from other employees for
equivalent coverages under the medical or dental plans.
IX. LIFE INSURANCE.
A. GROUP LIFE INSURANCE. The Company shall provide Employee
with personal life insurance under the Company's group life insurance
policy as in effect from time to time.
B. KEY MAN LIFE INSURANCE. Employee hereby consents to the
purchase by the Company of one or more "key man" life insurance policies
on Employee's life naming the Company or its designee as beneficiary (the
"KEY MAN POLICIES") and the Company agrees to use its best efforts to
purchase and maintain such policies, as hereinafter set forth; provided,
however, that the Company shall not be liable to Employee for a failure to
purchase or maintain any KEY MAN POLICIES if such failure is due to
Employee's health, medical condition, or other similar reasons. Employee
agrees that he shall take any action which may be requested by the
Company, and otherwise fully cooperate with the Company, in its efforts to
purchase and maintain the KEY MAN POLICIES. While the KEY MAN POLICIES
will be owned by the Company and the proceeds made payable to the Company
or its designee, Employee may at any time by written notice to the Company
effect the transfer of up to $1 million in life insurance death benefit to
his estate or his designated beneficiary by agreeing to have subsequent
premiums attributable to such death benefit deducted by the Company from
his compensation, provided, however, that the cash value, if any, of the
life insurance so transferred to Employee at the time of the transfer
shall remain the property of the Company. The KEY MAN POLICIES shall be
purchased by the Company for the following purposes and the Company shall
make its best efforts to obtain KEY MAN POLICIES in amounts sufficient to
accomplish such purposes:
1. To fund the Company's obligation to pay the annual
base salary death benefit, as described in Section VIII.B of this
Agreement;
2. To fund the Company obligation to purchase
EMPLOYEE'S SHARES of the Company's common stock and stock options on
Employee's death, as described in Section VIII.B of this Agreement;
3. To fund all remaining obligations, if any, of
Employee to Carolyn Kiser under the SETTLEMENT AGREEMENT;
4. To fund any other obligation under this Agreement
arising as a result of Employee's separation of service from the Company;
5. To provide funds necessary to obtain or compensate a
replacement for Employee;
6. For any other reasonable business purpose as may
determined by the Company.
After an INVOLUNTARY TERMINATION or RETIREMENT or VOLUNTARY
TERMINATION (including the post-termination CONSULTING PERIOD, if any),
the Company's obligation to maintain the KEY MAN POLICIES shall terminate
six (6) months thereafter, provided, however, that Employee may, by a
written notice delivered to the Company no less than five (5) months after
such termination of employment, assume responsibility for paying the
premiums to continue some or all of the KEY MAN POLICIES. At such time,
Employee may also elect, by such written notice, to purchase some or all
of the KEY MAN POLICIES from the Company for their cash surrender value,
if any, or may pledge the policies to the Company as security for
Employee's agreement to pay such cash value to the Company, together with
accrued interest based on the Wall Street Journal's prime rate as
published on the date of such purchase, at the time of sale, redemption or
receipt of the death benefit of such policies.
In the event that the Company fails to pay the premiums
required to maintain the KEY MAN POLICIES while it is still obligated to
do so, Employee shall be entitled to assume responsibility for paying the
premiums to continue some or all of the KEY MAN POLICIES, and Employee
shall be entitled to reimbursement from the Company for any such payments
made by Employee. If Employee elects to cause the transfer of some or all
of the $1 million in death benefits from the KEY MAN POLICIES to his
estate or designated beneficiary as permitted by this Section IX, Employee
waives any claim against the Company for failing to maintain sufficient
KEY MAN POLICIES to the extent of such transfer.
The Company agrees to review on an annual basis the death
benefits payable under such policies and to attempt to procure additional
insurance as needed to meet its obligations to Employee hereunder.
X. DEFERRED PAYMENTS. In the event that the Company is
prohibited from deducting any payment made to Employee as a compensation
expense (excluding the Company's purchase of common stock and stock
options BENEFICIALLY OWNED by Employee and tax payments for the STOCK
BONUS made pursuant to Section V.A hereof) as a result of Code 162(m) or
any other provision of the Code and such payment would be deductible by
the Company if made in a future tax year, then the Company may defer
making the non-deductible portion of that payment until the first day of
the tax year in which any portion of that payment becomes deductible, at
which time the Company shall pay so much of the deferred payment as is
deductible. In the event that any payment obligation of the Company is
deferred as a result of this Article X, the Company shall pay interest to
the Employee on the deferred portion of the payment at a rate of ten
percent (10%) per annum.
XI. DIRECTORS AND OFFICER INSURANCE. The Company shall procure
directors and officers liability insurance coverage on all directors and
officers in such an amount as the Company deems reasonable and necessary
under the circumstances but in no event less than $1 million.
XII. POST-TERMINATION CONSULTING. In the event of Employee's
VOLUNTARY TERMINATION or RETIREMENT, the Company hereby agrees to engage
Employee as a consultant to the Company for a period of up to five years
(the "CONSULTING PERIOD"). While the CONSULTING PERIOD will only begin
after termination of employment under this Agreement, Employee shall
nevertheless continue to be an "employee" of the Company for purposes of
tax withholding and employee benefits (including any special or additional
benefits provided to Employee by this Agreement or otherwise) during the
CONSULTING PERIOD although the scope of Employee's services and
responsibilities shall be diminished in such manner and amounts as may be
agreed upon by the Company and Employee. During the CONSULTING PERIOD,
Employee will be paid a salary equal to 50% of his annual base salary on
the date of Employee's termination of employment under this Agreement.
For each year or part thereof that Employee provides consulting services
to the Company, Employee shall receive a retirement benefit of 25% of
Employee's annual base salary at the time of Employee's VOLUNTARY
TERMINATION or RETIREMENT for the same amount of time, which retirement
benefit shall then be paid to Employee in accordance with the Company's
existing payroll policies beginning at the end of the CONSULTING PERIOD
over a period of time equal to the number of years or parts thereof that
Employee provides consulting services. Employee shall have the right to
decline to provide any consulting services after a VOLUNTARY TERMINATION
or RETIREMENT. If Employee does elect to provide consulting services,
Employee may determine to cease providing such services to the Company at
any time by giving at least thirty (30) days prior written notice of such
determination to the Company. The Company agrees to engage Employee to
provide the consulting services for a period of not less than one (1) year
after a VOLUNTARY TERMINATION or RETIREMENT but the Company may terminate
such engagement at any time thereafter for good cause. For purposes
hereof, "good cause" shall mean misappropriation of Company funds or
property, conviction of a crime involving dishonesty or moral turpitude,
or willful disregard of any directive of the Company's Board of Directors.
XIII. DEFERRED COMPENSATION. During the term of this Agreement,
including the extension of such term pursuant to Section II hereof and the
CONSULTING PERIOD, if any, pursuant to Section XII hereof, the Company
shall deposit an amount equal to 10% of Employee's annual base salary into
a deferred compensation trust (the "Rabbi Trust") for the benefit of
Employee. The Company shall have no obligation to contribute to the Rabbi
Trust during the time Employee is receiving only retirement benefits or
disability benefits. Deposits to the Rabbi Trust shall be made and shall
vest, subject only to the claims of the Company's creditors, on January 1
of each year that Employee serves the Company in a full-time capacity.
The Rabbi Trust may distribute all or a portion of its balance to Employee
on January 1 of the first calendar year in which Employee will receive no
other benefit under this Agreement or in subsequent years but the entire
balance must be distributed on or before the date of Employee's death.
XIV. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and delivered in person
or sent by registered or certified mail to Employee's residence in the
case of Employee or to its principal office in the case of the Company.
XV. WAIVER. The waiver of any provision of this Agreement shall
not operate or be construed as a waiver of any other provision of this
Agreement. No waiver shall be valid unless in writing and executed by the
party to be charged therewith.
XVI. SEVERABILITY/MODIFICATION. In the event that any clause or
provision of this Agreement shall be determined to be invalid, illegal or
unenforceable, such clause or provision may be severed or modified to the
extent necessary, and, as severed and/or modified, this Agreement shall
remain in full force and effect.
XVII. ASSIGNMENT. Except for a transfer by will or by the laws of
descent or distribution, Employee's right to receive payments or benefits
under this Agreement shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise. In the event of any
attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred. Employee acknowledges that the services to be rendered under
this Agreement are unique and personal. Accordingly, Employee may not
assign such duties or obligations under this Agreement.
XVIII. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns (including, without
limitation, any company into or with which the Company may merge or
consolidate). The Company agrees that it will not effect the sale or
other disposition of all or substantially all of its assets unless either
(i) the person or entity acquiring the assets or a substantial portion of
the assets shall expressly assume by an instrument in writing all duties
and obligations of the Company under this Agreement or (ii) the Company
shall provide, through the establishment of a separate reserve or
otherwise, for the payment in full of all amounts which are or may
reasonably be expected to become payable to Employee under this Agreement.
XIX. ENTIRE AGREEMENT. This instrument contains the entire
agreement concerning the employment arrangement between the parties and
shall, as of the effective date hereof, supersede all other such
agreements between the parties including but not limited to the Executive
Employment Agreement dated November 12, 1992, as amended March 10, 1995,
provided, however, that nothing in this Agreement shall prevent the
Company from granting additional or special compensation or benefits to
Employee after the date of execution of this Agreement. This Agreement
may not be amended except by an agreement in writing signed by both
parties. Nothing in this paragraph shall be deemed to modify or amend the
SETTLEMENT AGREEMENT nor any agreements or instruments entered into
between the parties hereto as a result of that SETTLEMENT AGREEMENT.
XX. GOVERNING LAW AND JURISDICTION. This Agreement shall be
interpreted, construed, and enforced under the laws of the State of
Colorado. The courts of the State of Colorado shall have sole
jurisdiction and venue over all controversies which may arise with respect
to this Agreement.
XXI. TIME. In comparing any period of time prescribed or allowed
by this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall not be included. The last
day of the period so computed shall be included, unless it is a Sunday or
legal holiday, in which event the period runs until the end of the next
day which is not a Sunday or legal holiday. For purposes of this
paragraph a legal holiday shall mean any day which banks are required to
be closed in the State of Colorado. For purposes of calculating the
duration of the covenant not to compete the time period of such covenant
shall be extended by one day for each day that Employee competes with
Company in violation of such covenant.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year indicated below.
THE COMPANY:
VARI-L COMPANY, INC.
By: /s/ Joseph H. Kiser
Joseph H. Kiser, Chairman of the Board and
Chief Scientific Officer
EMPLOYEE:
/s/ David G. Sherman
David G. Sherman
BANK1ONE
August 19, 1998
Mr. Jon Clark
VARI-L Company, Inc.
4895 Peoria Street
Denver, Colorado 80239
Dear Mr. Clark:
This confirmation sets out the terms and conditions of the Interest Rate
Swap entered into between us on the Trade Date specified below. This
constitutes a Confirmation as referred to in the ISDA Master Agreement
dated as of August 1, 1998, ("the "Agreement") between, VARI-L Company,
Inc., ("VARI-L Company") and Bank One, Colorado, N.A. ("Bank One").
THIS FACSIMILE TRANSMISSION WILL BE THE ONLY WRITTEN COMMUNICATION
REGARDING THIS SWAP TRANSACTION EXCHANGED BETWEEN US AND WILL BE DEEMED
FOR ALL PURPOSES AN ORIGINAL DOCUMENT, UNLESS YOU REQUEST THAT WE SIGN
HARD COPY VERSIONS OF THIS CONFIRMATION. PLEASE CONTACT THE INDIVIDUAL
INDICATED IN THE LAST PARAGRAPH OF THIS LETTER TO RECEIVE SUCH COPIES.
1. The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swap Dealers Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency
between those definitions and provisions and this Confirmation, this
Confirmation will govern. This Confirmation shall supplement, form part
of, and be subject to the Agreement.
Each party hereto represents and warrants to the other party hereto that,
in connection with the Transaction, (i) it has and will continue to
consult with its own legal, regulatory, tax, business, investment,
financial and accounting advisors to the extent it deems necessary, and it
has and will continue to make its own investment, hedging and trading
decisions (including without limitations decisions regarding the
appropriateness and/or suitability of the Transaction) based upon its own
judgment and upon any advice from such advisors as it deems necessary, and
not in reliance upon the other party hereto or any of its branches,
subsidiaries or affiliates or any of their respective officers, directors
or employees, or any view expressed by any of them, (ii) it has evaluated
and it fully understands all the terms, conditions and risks of the
Transaction, and it is willing to assume (financially and otherwise) all
such risks, (iii) it has and will continue to act as principal, and not
agent of any person, and the other party hereto and its branches,
subsidiaries and affiliates have not and will not be acting as a fiduciary
or financial, investment, commodity trading or other advisor to it and
(iv) it is entering into the Transaction for purposes of hedging its
assets or liabilities or in connection with a line of business, and not
for the purpose of speculation.
2. The terms of this particular transaction to which this Confirmation
relates are as follows:
Notional Amount: USD 4,228,723 (See Exhibit "A")
Trade Date: August 19, 1998
Effective Date: August 24, 1998
Termination Date: January 24, 2002, subject to adjustment in accordance
with the Modified Following Business Day Convention.*
Fixed Amounts:
Fixed Rate Payer: VARI-L Company
Fixed Rate Payer
Payment Dates: The 24th day of each month of each year,
commencing on September 24, 1998, up to and
including the Termination Date, subject to
adjustment in accordance with the Modified
Following Business Day Convention.*
Fixed Rate: 7.75%
Fixed Rate Day
Count Fraction: Actual/360
Fixed Rate Period
End Dates: The 24th day of each month of each year,
commencing on September 24, 1998, up to and
including the Termination Date, subject to
adjustment in accordance with the Modified
Following Business Day Convention.*
Floating Amounts
Floating Rate Payer: Bank One
Floating Rate Payer
Payment Dates: The 24th day of each month of each year,
commencing on September 24, 1998, up to and
including the Termination Date, subject to
adjustment in accordance with the Modified
Following Business Day Convention.*
Floating Rate
Option: USD-LIBOR-BBA
Floating Rate
Designated
Maturity: One Month
Floating Rate
Spread: Plus 150 Basis Points
Floating Rate
Reset Dates: The first day of each Calculation Period.
Floating Rate Day
Count Fraction: Actual/360
Floating Rate Period
End Dates: The 24th day of each month of each year,
commencing on September 24, 1998, up to and
including the Termination Date, subject to
adjustment in accordance with the Modified
Following Business Day Convention.*
Floating Initial
Rate: To Be Determined
Method of Averaging: Not Applicable
Compounding: Not Applicable
Business Days: New York and London
Calculation Agent: Bank One
Governing Law: Laws of New York
3. Account Details:
Payments to VARI-L Company: Norwest Bank Colorado, N.A.
Account #: ----------
ABA #: --------
Payments to Bank One: Wire Transfer to:
Bank One, N.A.
ABA#: ------------
Account #: ---------
Atten: Swap Operations
5. Offices:
(a) The Office of Bank One, Colorado, N.A,, for this transaction is
150 E. Gay Street, 17th Floor, Columbus, Ohio 43271-0103.
(b) The Office of VARI-L Company, Inc. for this transaction is 4895
Peoria Street, Denver, Colorado 80239.
Please confirm that the foregoing correctly sets out the terms and
conditions of our agreement by responding within one (1) business day by
returning via facsimile an executed copy of this Confirmation on (614) 248-
1241, Attention: Felicia Cupoli, telephone: (614) 248-6519. Failure to
respond within such period shall not affect the validity or enforceability
of this transaction, and shall be deemed to be an affirmation of the terms
and conditions contained herein, absent manifest error.
Banc One Corporation signing on For on behalf of
behalf of Bank One, Colorado, N.A. VARI-L Company, Inc.
/s/ James J. Lukas /s/David G. Sherman
James J. Lukas Name: David G. Sherman
Vice President Title: President
Date: August 19, 1998 Date: August 19, 1998
Banc One Corporation signing on
behalf of Bank One, [Insert Affiliate], N.A.
/s/ Robert C. Peterson
- ------------------------
Robert C. Peterson
Vice President
Date: August 19,1998
*Modified Following is specified, that date will be the first following
day that is a Business Day unless that day falls in the next calendar
month, in which case that date will be the first preceding day that is a
Business Day.
PROMISSORY NOTE
SHADED AREA BEGINS
Principal Loan Date Maturity Loan No.
$4,228,723.63 08-21-1998
Call Collateral Account Officer Initials
092989 327 0933159571 00152
SHADED AREA ENDS
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: VARI-L COMPANY, INC., A Lender: Bank One, Colorado, NA
COLORADO CORPORATION Denver Banking Center
4895 Peoria Street 1125 17th Street
Denver, CO 80239 Denver, CO 80217
==========================================================================
Principal Amount: $4,228,723.63 Date of Note: August 21, 1998
PROMISE TO PAY. For value received, VARI-L COMPANY, INC., A COLORADO
CORPORATION ("Borrower") promises to pay to Bank One, Colorado, NA
("Lender"), or order, in lawful money of the United States of America, the
principal amount of Four Million Two Hundred Twenty Eight Thousand Seven
Hundred Twenty Three & 63/100 Dollars ($4,228,723.63), together with
interest on the unpaid principal balance from the data advanced until paid
in full.
PAYMENT. Borrower will pay this loan In accordance with the following
payment schedule:
Borrower shall make monthly payments as follows: commencing on
September 24, 1998, and continuing on the same day of each
calendar month thereafter until the maturity date, Borrower
shall pay to Lender monthly installments each in the sum of: (A)
the amount of principal set forth opposite the respective due
date in Exhibit "A" attached hereto, plus (B) accrued interest.
A final payment shall be due and payable on February 24, 2002 in
the amount of the outstanding principal balance of this Note,
plus all accrued but unpaid interest and any other unpaid
amounts due under this Note.
The annual interest rate for this Note is computed on a 365/360 basis;
that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower
will pay Lender at the address designated by Lender from time to time in
writing. If any payment of principal of or interest on this Note shall
become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day. As used herein, the term
"Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which national banking associations are authorized to be
closed. Unless otherwise agreed to, in writing, or otherwise required by
applicable law, payments will be applied first to accrued, unpaid
interest, then to principal, and any remaining amount to any unpaid
collection costs, late charges and other charges, provided, however, upon
delinquency or other default, Lender reserves the right to apply payments
among principal, interest, late charges, collection costs and other
charges at its discretion. The books and records of Lender shall be prima
facie evidence of all outstanding principal of and accrued but unpaid
interest on this Note. This Note may be executed in connection with a
loan agreement. Any such loan agreement may contain additional rights,
obligations and terms.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
fluctuation based upon the LIBOR Rate of interest in effect from time to
time (the "Index"). "LIBOR Rate" shall mean with respect to each Interest
Period, the offered rate for U.S. Dollar deposits of not less than
$1,000,000.00 as of 11:00 A.M. City of London, England time two London
Business Days prior to the first date of each Interest Period of this Note
as shown on the display designated as "British Bankers Assoc. Interest
Settlement Rates" on the Telerate System ("Telerate"), Page 3750 or Page
3740, or such other page or pages as may replace such pages on Telerate
for the purpose of displaying such rate. Provided, however, that if such
rate is not available on Telerate then such offered rate shall be
otherwise independently determined by Lender from an alternate,
substantially similar independent source available to Lender or shall be
calculated by Lender by a substantially similar methodology as that
theretofore used to determine such offered rate in Telerate. "London
Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions are generally authorized or obligated by law or
executive order to close in the City of London, England. Each change in
the rate to be charged on this Note will become effective without notice
on the commencement of each Interest Period based upon the Index then in
effect. "Interest Period" means each consecutive one month period (the
first of which shall commence on the date of this Note) effective as of
the first day of each Interest Period and ending on the last day of each
Interest Period, provided that if any Interest Period is scheduled to end
on a date for which there is no numerical equivalent to the date on which
the Interest Period commenced, then it shall end instead of the last day
of such calendar month. "Borrower" may prepay all or any portion of the
principal amount of this Note bearing interest at a LIBOR Rate, provided
that if Borrower makes any such prepayment other than on the last day of
an Interest Period, Borrower shall pay all accrued interest on the
principal amount prepaid with such prepayment and, on demand, shall
reimburse Lender and hold Lender harmless from all losses and expenses
incurred by Lender as a result of such prepayment, including, without
limitation, any losses and expenses arising from the liquidation or
reemployment of deposits acquired to fund or maintain the principal amount
prepaid. Such reimbursement shall be calculated as though Lender funded
the principal amount prepaid through the purchase of U.S. Dollar deposits
in the London, England interbank market having a maturity corresponding to
such Interest Period and bearing an interest rate equal to the LIBOR Rate
for such Interest Period, whether in fact that is the case or not.
Lender's determination of the amount of such reimbursement shall be
conclusive in the absence of manifest error.. Except as otherwise provided
herein, the unpaid principal balance of this Note will accrue interest at
a rate per annum which will from time to time be equal to the sum of the
Index, plus 1.500%. NOTICE: Under no circumstances will the interest rate
on this Note be more than the maximum rate allowed by applicable law.
Whenever increases occur in the interest rate, Lender, at its option, may
do one or more of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date,
(b) increase Borrower's payments to cover accruing interest, (c) increase
the number of Borrower's payments, and (d) continue Borrower's payments at
the same amount and increase Borrower's final payment.
PREPAYMENT. Borrower may pay without fee all or a portion of the
principal amount owed hereunder earlier than it is due. All prepayments
shall be applied to the indebtedness owing hereunder in such order and
manner as Lender may from time to time determine in its sole discretion.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be
charged 5.000% of the regularly scheduled payment or $25.00, whichever is
greater, up to the maximum amount of $250.00 per late charge.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower falls to make any payment of principal or interest when due under
this Note or any other indebtedness owing now or hereafter by Borrower to
Lender; (b) failure of Borrower or any other party to comply with or
perform any term, obligation, covenant or condition contained in this Note
or in any other promissory note, credit agreement, loan agreement,
guaranty, security agreement, mortgage, deed of trust or any other
instrument, agreement or document, whether now or hereafter existing,
executed in connection with this Note (the Note and all such other
instruments, agreements, and documents shall be collectively known herein
as the "Related Documents"); (c) Any representation or statement made or
furnished to Lender herein, in any of the Related Documents or in
connection with any of the foregoing is false or misleading in any
material respect; (d) Borrower or any other party liable for the payment
of this Note, whether as maker, endorser, guarantor, surety or otherwise,
becomes insolvent or bankrupt, has a receiver or trustee appointed for any
part of its property, makes an assignment for the benefit of its
creditors, or any proceeding is commenced either by any such party or
against it under any bankruptcy or insolvency laws; (e) the occurrence of
any event of default specified in any of the other Related Documents or in
any other agreement now or hereafter arising between Borrower and Lender;
(f) the occurrence of any event which permits the acceleration of the
maturity of any indebtedness owing now or hereafter by Borrower to any
third party; or (g) the liquidation, termination, dissolution, death or
legal incapacity of Borrower or any other party liable for the payment of
this Note, whether as maker, endorser, guarantor, surety, or otherwise.
LENDER'S RIGHTS. Upon default, Lender may at its option, without further
notice or demand (i) declare the entire unpaid principal balance on this
Note, all accrued unpaid interest and all other costs and expenses for
which Borrower is responsible for under this Note and any other Related
Document immediately due, (ii) refuse to advance any additional amounts
under this Note, (iii) foreclose all liens securing payment hereof, (iv)
pursue any other rights, remedies and recourses available to the Lender,
including without limitation, any such rights, remedies or recourses under
the Related Documents, at law or in equity, or (v) pursue any combination
of the foregoing. Upon default, including failure to pay upon final
maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest
rate on this Note to 4.500 percentage points over the Index, and (b) add
any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any
increased rate). The interest rate will not exceed the maximum rate
permitted by applicable law. Lender may hire an attorney to help collect
this Note if Borrower does not pay and Borrower will pay Lender's
reasonable attorneys' fees and all other costs of collection, unless
prohibited by applicable law. This Note has been delivered to Lender and
accepted by Lender in the State of Colorado. Subject to the provisions on
arbitration, this Note shall be governed by and construed in accordance
with the laws of the State of Colorado without regard to any conflict of
laws or provisions thereof.
PURPOSE. Borrower agrees that no advances under this Note shall be used
for personal, family, or household purposes and that all advances
hereunder shall be used solely for business, commercial, agricultural or
other similar purposes.
JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR
IN ANY WAY RELATED TO THIS NOTE OR THE OTHER RELATED DOCUMENTS. THIS
PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING
EVIDENCED BY THIS NOTE.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if
Borrower makes a payment on Borrower's loan and the check or preauthorized
charge with which Borrower pays is later dishonored.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render
a nontaxable account taxable, Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys, delivers,
pledges, and transfers to Lender all Borrower's right, title and interest
in and to, Borrower's accounts with Lender (whether checking, savings, or
any other account), including without limitation all accounts held jointly
with someone else and all accounts Borrower may open in the future.
Borrower authorizes Lender, to the extent permitted by applicable law, and
to the extent an event of default as defined under the Business Loan
Agreement shall have occurred, to charge or setoff all sums owing on this
Note against any and all such accounts.
ARBITRATION. Lender and Borrower agree that upon the written demand of
either party, whether made before or after the institution of any legal
proceedings, but prior to the rendering of any judgment in that
proceeding, all disputes, claims and controversies between them, whether
individual, joint, or class in nature, arising from this Note, any Related
Document or otherwise, including without limitation contract disputes and
tort claims, shall be arbitrated pursuant to the Commercial Rules of the
American Arbitration Association. Any arbitration proceeding held
pursuant to this arbitration provision shall be conducted in the city
nearest the Borrower's address having an AAA regional office, or at any
other place selected by mutual agreement of the parties. No act to take
or dispose of any collateral shall constitute a waiver of this arbitration
agreement or be prohibited by this arbitration agreement. This
arbitration provision shall not limit the right of either party during any
dispute, claim or controversy to seek, use, and employ ancillary,
provisional or preliminary rights and/or remedies, judicial or otherwise,
for the purposes of realizing upon, preserving, protecting, foreclosing
upon or proceeding under forcible entry and detainer for possession of,
any real or personal property, and any such action shall not be deemed an
election of remedies. This includes, without limitation, obtaining
injunctive relief or a temporary restraining order, invoking a power of
sale under any deed of trust or mortgage, obtaining a writ of attachment
or imposition of a receivership, or exercising any rights relating to
personal property, including taking or disposing of such property with or
without judicial process pursuant to Article 9 of the Uniform Commercial
Code. Any disputes, claims, or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right or remedy, concerning
any collateral, including any claim to rescind, reform, or otherwise
modify any agreement relating to the collateral, shall also be arbitrated;
provided however that no arbitrator shall have the right or the power to
enjoin or restrain any act of either party. Judgment upon any award
rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this arbitration provision shall preclude either
party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of any action for these purpose. The Federal Arbitration Act (Title 9 of
the United States Code) shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
RENEWAL AND EXTENSION. This Note is given in replacement, renewal and/or
extension of, but not extinguishing the indebtedness evidenced by, that
promissory note dated August 13, 1997 executed by Borrower in the original
principal amount of $4,700,000.00, and is not a novation thereof. All
interest evidenced by the note being replaced, renewed, and/or extended by
this instrument shall continue to be due and payable until paid.
ADDITIONAL PROVISION REGARDING LATE CHARGES. The "Late Charge" provision
set forth above in this Note is hereby deleted and the following provision
shall apply to this Note: Borrower agrees that if a payment is 10 days or
more late, Borrower will be charged 5.000% of the regularly scheduled
payment or Twenty Five Dollars ($25.00), whichever is greater, up to the
maximum amount of One Thousand Five Hundred Dollars ($1,500.00).
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this Note, or release any party or
guarantor or collateral; or unjustifiably impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this Note
without the consent of or notice to anyone other than the party with whom
the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF THE NOTE.
BORROWER:
VARI-L COMPANY, INC., A COLORADO CORPORATION
VARI-L COMPANY, INC., A COLORADO CORPORATION
By: /s/ David G. Sherman
David G. Sherman, President/Chief Executive Officer
FIRST AMENDMENT TO CREDIT AGREEMENT
This Amendment ("Amendment") is made as of the 13th day of August,
1998, by and between Vari-L Company, Inc, a Colorado Corporation, (the
"Borrower") and Bank One, Colorado, NA (the "Bank").
WHEREAS, the Borrower and the Bank entered into a Business Loan
Agreement/Credit Agreement/ dated August 13, 1997, as amended (if
applicable) (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as
set forth below:
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms not defined herein shall have the meaning
ascribed in the Credit Agreement.
2. Section "AFFIRMATIVE COVENANTS" /The Section bearing the heading
"Loan Fees and Charges" of the Credit Agreement is hereby amended and
restated to read as follows:
In addition to all other agreed upon fees and charges, pay the
following: A fee of .25% of the unused commitment payable quarterly in
arrears, subject to a cap of $1,000.00 per quarter.
3. The Borrower represents and warrants that (a) the representations and
warranties contained in the Credit Agreement are true and correct in all
material respects as of the date of this Amendment, (b) no condition, act
or event which could constitute an Event of Default under the Credit
Agreement exists, and (c) no condition, event, act or omission has
occurred, which, with the giving of notice or passage of time, would
constitute an Event of Default under the Credit Agreement.
4. The Borrower agrees to pay all fees and out-of-pocket
disbursements incurred by the Bank in connection with this Amendment,
including legal fees incurred by the Bank in the preparation,
consummation, administration and enforcement of this Amendment.
5. This Amendment shall become effective only after it is fully
executed by the Borrower and the Bank and the Bank shall have received
from the Borrower the following documents:
Except as amended by this Amendment, the Credit Agreement shall remain in
full force and effect in accordance with its terms.
6. This Amendment is a modification only and not a novation.
Except for the above-quoted modification(s), the Credit Agreement, any
agreement or security document, and all the terms and conditions thereof,
shall be and remain in full force and effect with the changes herein
deemed to be incorporated therein. This Amendment is to be considered
attached to the Credit Agreement and made a part thereof. This Amendment
shall not release or affect the liability of any guarantor, surety or
endorser of the Credit Agreement or release any owner of collateral
securing the Credit Agreement. The validity, priority and enforceability
of the Credit Agreement shall not be impaired hereby. To the extent that
any provision of this Amendment conflicts with any term or condition set
forth in the Credit Agreement, or any agreement or security document
executed in conjunction therewith, the provisions of this Amendment shall
supersede and control. Borrower acknowledges that as of the date of this
Amendment it has no offsets with respect to all amounts owed by Borrower
to Bank and Borrower waives and releases all claims which it may have
against Bank arising under the Credit Agreement on or prior to the date of
this Amendment.
7. The Borrower acknowledges and agrees that this Amendment is
limited to the terms outlined above, and shall not be construed as an
amendment of any other terms or provisions of the Credit Agreement. The
Borrower hereby specifically ratifies and affirms the terms and provisions
of the Credit Agreement. Borrower releases Bank from any and all claims
which may have arisen, known or unknown, in connection with the Credit
Agreement on or prior to the date hereof. This Amendment shall not
establish a course of dealing or be construed as evidence of any
willingness on the Bank's part to grant other or future amendments, should
any be requested.
IN WITNESS WHEREOF, the parties have entered into this Amendment as
of the day and year first above written.
BANK ONE, COLORADO, NA VARI-L COMPANY, INC.
A COLORADO CORPORATION
By:/s/T.J. Kern BY:/s/David G. Sherman
DAVID G. SHERMAN, PRESIDENT,
CHIEF EXECUTIVE OFFICER
BANK1ONE
PROMISSORY NOTE
SHADED AREA BEGINS
Principal Loan Date Maturity Loan No.
$4,000,000.00 08-13-1998 08-13-1999
SHADED AREA ENDS
Call Collateral Account Officer Initials
092975 327 0933159571 00152
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: VARI-L COMPANY, INC., Lender: Bank One, Colorado, NA
A COLORADO CORPORATION Denver Banking Center
4895 Peoria Street 1125 17th Street
Denver, CO 80239 Denver, CO 80217
=========================================================================
PRINCIPAL AMOUNT: $4,000,000.00 DATE OF NOTE: AUGUST 13, 1998
PROMISE TO PAY. FOR VALUE RECEIVED, VARI-L COMPANY, INC., A COLORADO
CORPORATION ("BORROWER") PROMISES TO PAY TO BANK ONE, COLORADO, NA
("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE
PRINCIPAL AMOUNT OF FOUR MILLION & 00/100 DOLLARS ($4,000,000.00) ("TOTAL
PRINCIPAL AMOUNT") OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE FROM THE DATE
ADVANCED UNTIL PAID IN FULL.
PAYMENT. THIS NOTE SHALL BE PAYABLE AS FOLLOWS: INTEREST SHALL BE DUE
AND PAYABLE MONTHLY AS IT ACCRUES, COMMENCING ON SEPTEMBER 13, 1998 AND
CONTINUING ON THE SAME DAY OF EACH MONTH THEREAFTER DURING THE TERM OF
THIS NOTE, AND THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE, TOGETHER
WITH ALL ACCRUED BUT UNPAID INTEREST, SHALL BE DUE AND PAYABLE ON AUGUST
13, 1999. The annual interest rate for this Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at the address designated by Lender
from time to time in writing. If any payment of principal of or interest
on this Note shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day. As used
herein, the term "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or any other day on which national banking associations are
authorized to be closed. Unless otherwise agreed to, in writing, or
otherwise required by applicable law, payments will be applied first to
accrued, unpaid interest, then to principal, and any remaining amount to
any unpaid collection costs, late charges and other charges, provided,
however, upon delinquency or other default, Lender reserves the right to
apply payments among principal, interest, late charges, collection costs
and other charges at its discretion. The books and records of Lender
shall be prima facie evidence of all outstanding principal of and accrued
but unpaid interest on this Note. This Note may be executed in connection
with a loan agreement. Any such loan agreement may contain additional
rights, obligations and terms.
VARIABLE INTEREST RATE. THE INTEREST RATE ON THIS NOTE IS SUBJECT TO
FLUCTUATION BASED UPON THE PRIME RATE OF INTEREST IN EFFECT FROM TIME TO
TIME (THE "INDEX") (WHICH RATE MAY NOT BE THE LOWEST, BEST OR MOST
FAVORABLE RATE OF INTEREST WHICH LENDER MAY CHARGE ON LOANS TO ITS
CUSTOMERS). "PRIME RATE" SHALL MEAN THE RATE ANNOUNCED FROM TIME TO TIME
BY LENDER AS ITS PRIME RATE. EACH CHANGE IN THE RATE TO BE CHARGED ON
THIS NOTE WILL BECOME EFFECTIVE WITHOUT NOTICE ON THE SAME DAY AS THE
INDEX CHANGES. EXCEPT AS OTHERWISE PROVIDED HEREIN, THE UNPAID PRINCIPAL
BALANCE OF THIS NOTE WILL ACCRUE INTEREST AT A RATE PER ANNUM WHICH WILL
FROM TIME TO TIME BE EQUAL TO THE SUM OF THE INDEX, PLUS 0.250%. NOTICE:
UNDER NO CIRCUMSTANCES WILL THE INTEREST RATE ON THIS NOTE BE MORE THAN
THE MAXIMUM RATE ALLOWED BY APPLICABLE LAW.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be
subject to refund upon early payment (whether voluntary or as a result of
default), except as otherwise required by law. Except for the foregoing,
Borrower may pay without fee all or a portion of the principal amount owed
hereunder earlier than it is due. All prepayments shall be applied to the
indebtedness owing hereunder in such order and manner as Lender may from
time to time determine in its sole discretion.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be
charged 5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $25.00, WHICHEVER IS
GREATER, UP TO THE MAXIMUM AMOUNT OF $250.00 PER LATE CHARGE.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under
this Note or any other indebtedness owing now or hereafter by Borrower to
Lender; (b) failure of Borrower or any other party to comply with or
perform any term, obligation, covenant or condition contained in this Note
or in any other promissory note, credit agreement, loan agreement,
guaranty, security agreement, mortgage, deed of trust or any other
instrument, agreement or document, whether now or hereafter existing,
executed in connection with this Note (the Note and all such other
instruments, agreements, and documents shall be collectively known herein
as the "RELATED DOCUMENTS"); (c) Any representation or statement made or
furnished to Lender herein, in any of the Related Documents or in
connection with any of the foregoing is false or misleading in any
material respect; (d) Borrower or any other party liable for the payment
of this Note, whether as maker, endorser, guarantor, surety or otherwise,
becomes insolvent or bankrupt, has a receiver or trustee appointed for any
part of its property, makes an assignment for the benefit of its
creditors, or any proceeding is commenced either by any such party or
against it under any bankruptcy or insolvency laws; (e) the occurrence of
any event of default specified in any of the other Related Documents or in
any other agreement now or hereafter arising between Borrower and Lender;
(f) the occurrence of any event which permits the acceleration of the
maturity of any indebtedness owing now or hereafter by Borrower to any
third party; or (g) the liquidation, termination, dissolution, death or
legal incapacity of Borrower or any other party liable for the payment of
this Note, whether as maker, endorser, guarantor, surety, or otherwise.
LENDER'S RIGHTS. Upon default, Lender may at its option, without further
notice or demand (i) declare the entire unpaid principal balance on this
Note, all accrued unpaid interest and all other costs and expenses for
which Borrower is responsible for under this Note and any other Related
Document immediately due, (ii) refuse to advance any additional amounts
under this Note, (iii) foreclose all liens securing payment hereof, (iv)
pursue any other rights, remedies and recourses available to the Lender,
including without limitation, any such rights, remedies or recourses under
the Related Documents, at law or in equity, or (v) pursue any combination
of the foregoing. Upon default, including failure to pay upon final
maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest
rate on this Note to 3.250 percentage points over the Index, and (b) add
any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any
increased rate). The interest rate will not exceed the maximum rate
permitted by applicable law. Lender may hire an attorney to help collect
this Note if Borrower does not pay and Borrower will pay Lender's
reasonable attorneys' fees and all other costs of collection, unless
prohibited by applicable law. This Note has been delivered to Lender and
accepted by Lender in the State of Colorado. Subject to the provisions on
arbitration, this Note shall be governed by and construed in accordance
with the laws of the State of Colorado without regard to any conflict of
laws or provisions thereof.
PURPOSE. Borrower agrees that no advances under this Note shall be used
for personal, family, or household purposes and that all advances
hereunder shall be used solely for business, commercial, agricultural or
other similar purposes.
JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR
IN ANY WAY RELATED TO THIS NOTE OR THE OTHER RELATED DOCUMENTS. THIS
PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING
EVIDENCED BY THIS NOTE.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if
Borrower makes a payment on Borrower's loan and the check or preauthorized
charge with which Borrower pays is later dishonored.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render
a nontaxable account taxable, Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys, delivers,
pledges, and transfers to Lender all Borrower's right, title and interest
in and to, Borrower's accounts with Lender (whether checking, savings, or
any other account), including without limitation all accounts held jointly
with someone else and all accounts Borrower may open in the future.
Borrower authorizes Lender, to the extent permitted by applicable law, and
to the extent an event of default shall have occurred, as defined under
the Business Loan Agreement, to charge or setoff all sums owing on this
Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Borrower
may request advances and make payments hereunder from time to time,
provided that it is understood and agreed that the aggregate principal
amount outstanding from time to time hereunder shall not at any time
exceed the Total Principal Amount. The unpaid principal balance of this
Note shall increase and decrease with each new advance or payment
hereunder, as the case may be. Subject to the terms hereof, Borrower may
borrow, repay and reborrow hereunder. Advances under this Note, as well
as directions for payment from Borrower's accounts, may be requested
orally or in writing by Borrower or by an authorized person. Lender may,
but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited
to any of Borrower's accounts with Lender.
ARBITRATION. Lender and Borrower agree that upon the written demand of
either party, whether made before or after the institution of any legal
proceedings, but prior to the rendering of any judgment in that
proceeding, all disputes, claims and controversies between them, whether
individual, joint, or class in nature, arising from this Note, any Related
Document or otherwise, including without limitation contract disputes and
tort claims, shall be arbitrated pursuant to the Commercial Rules of the
American Arbitration Association. Any arbitration proceeding held
pursuant to this arbitration provision shall be conducted in the city
nearest the Borrower's address having an AAA regional office, or at any
other place selected by mutual agreement of the parties. No act to take
or dispose of any collateral shall constitute a waiver of this arbitration
agreement or be prohibited by this arbitration agreement. This
arbitration provision shall not limit the right of either party during any
dispute, claim or controversy to seek, use, and employ ancillary,
provisional or preliminary rights and/or remedies, judicial or otherwise,
for the purposes of realizing upon, preserving, protecting, foreclosing
upon or proceeding under forcible entry and detainer for possession of,
any real or personal property, and any such action shall not be deemed an
election of remedies. This includes, without limitation, obtaining
injunctive relief or a temporary restraining order, invoking a power of
sale under any deed of trust or mortgage, obtaining a writ of attachment
or imposition of a receivership, or exercising any rights relating to
personal property, including taking or disposing of such property with or
without judicial process pursuant to Article 9 of the Uniform Commercial
Code. Any disputes, claims, or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right or remedy, concerning
any collateral, including any claim to rescind, reform, or otherwise
modify any agreement relating to the collateral, shall also be arbitrated;
provided however that no arbitrator shall have the right or the power to
enjoin or restrain any act of either party. Judgment upon any award
rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this arbitration provision shall preclude either
party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of any action for these purpose. The Federal Arbitration Act (Title 9 of
the United States Code) shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
RENEWAL AND EXTENSION. This Note is given in replacement, renewal and/or
extension of, but not extinguishing the indebtedness evidenced by, that
promissory note dated August 13, 1997 executed by Borrower in the original
principal amount of $2,500,000.00, and is not a novation thereof. All
interest evidenced by the note being replaced, renewed, and/or extended by
this instrument shall continue to be due and payable until paid.
ADDITIONAL PROVISION REGARDING LATE CHARGES. The "Late Charge" provision
set forth above in this Note is hereby deleted and the following provision
shall apply to this Note: Borrower agrees that if a payment is 10 days or
more late, Borrower will be charged 5.000% of the regularly scheduled
payment or Twenty Five Dollars ($25.00), whichever is greater, up to the
maximum amount of One Thousand Five Hundred Dollars ($1,500.00).
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this Note, or release any party or
guarantor or collateral; or unjustifiably impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this Note
without the consent of or notice to anyone other than the party with whom
the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF THE NOTE.
BORROWER:
VARI-L COMPANY, INC., A COLORADO CORPORATION
VARI-L COMPANY, INC., A COLORADO CORPORATION
By:/s/David G. Sherman
David G. Sherman, President/Chief Executive Officer
LAW\13085\301036.01
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT ("Second Amendment") is made
and entered into by and between JOSEPH H. AND NORA KISER ("Landlord") and
VARI-L COMPANY, INC., a Colorado corporation ("Tenant").
RECITALS
A. Landlord and Tenant have heretofore executed a certain Lease
Agreement dated and effective as of July 14, 1995, as amended by Amendment
to Lease Agreement dated and effective as of September 1, 1995 (the "Lease
Agreement"), with respect to certain leased premises (the "Premises") at
15556 East Seventeenth Avenue, Aurora, Colorado, which Premises contain
approximately 8,836 square feet of space, as more particularly described
in the Lease Agreement, reference to which is hereby made for all
purposes.
B. Landlord and Tenant desire to amend certain provisions of the
Lease Agreement as more particularly provided for herein.
NOW THEREFORE, for and in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby expressly acknowledged, Landlord and
Tenant do hereby agree as follows:
1. Except as otherwise expressly defined herein, capitalized terms
used in this Second Amendment shall have the meanings ascribed to them in
the Lease Agreement
2. Landlord and Tenant have agreed to extend the term of the Lease
Agreement. In order to facilitate these changes, Landlord and Tenant have
agreed to the modifications of the Lease Agreement set forth in this
Second Amendment.
3. Paragraph 2 of the Lease Agreement is hereby deleted in its
entirety and replaced with the following:
The term of this Lease shall commence at 12:00 noon on August 1,
1996 and shall end on August 1, 2004.
4. Except as amended hereby, all terms of the Lease Agreement shall
remain unchanged and in full force and effect, and as amended hereby, the
Lease Agreement is ratified and confirmed by the parties.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second
Amendment effective as of the 31st day of July, 1998.
TENANT:
VARI-L COMPANY, INC., a Colorado
corporation
By:/s/David G. Sherman
David G. Sherman, President
LANDLORD:
JOSEPH H. AND NORA KISER
By:/s/Joseph H. Kiser
Joseph H. Kiser
LAW\13085\301037.01
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT ("Third Amendment") is made
and entered into by and between J.C. ENTERPRISES, a Colorado general
partnership ("Landlord") and VARI-L COMPANY, INC., a Colorado corporation
("Tenant").
RECITALS
A. Landlord and Tenant have heretofore executed a certain Lease
Agreement dated and effective as of January 1, 1987, as amended by
Amendment to Lease Agreement dated and effective as of December 6, 1990
("First Amendment") and Second Amendment to Lease Agreement dated and
effective as of March 23, 1993 ("Second Amendment) (collectively, the
"Lease Agreement"), with respect to certain leased premises (the
"Premises") at 5165 Peoria Street, Denver, Colorado, which Premises are
more particularly described in the Lease Agreement, reference to which is
hereby made for all purposes.
B. Landlord and Tenant desire to amend certain provisions of the
Lease Agreement as more particularly provided for herein.
NOW THEREFORE, for and in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby expressly acknowledged, Landlord and
Tenant do hereby agree as follows:
1. Except as otherwise expressly defined herein, capitalized terms
used in this Third Amendment shall have the meanings ascribed to them in
the Lease Agreement.
2. Landlord and Tenant have agreed to extend the term and change the
base rental of the Lease Agreement. In order to facilitate these changes,
Landlord and Tenant have agreed to the modifications of the Lease
Agreement set forth in this Third Amendment.
3. Notwithstanding anything to the contrary contained in the Lease
Agreement, as amended by the First Amendment and Second Amendment, the
term of the Lease Agreement is hereby extended for an additional five (5)
years and seven (7) days, so that the term of the Lease Agreement, which
would have expired on October 24, 2000, is extended to and shall expire on
October 31, 2005. Additionally, provided no default exists under the
Lease Agreement, Tenant shall have one (1) option to extend the term of
the Lease Agreement for an additional five (5) years (the "Option Term").
To exercise such Option Term, Tenant shall provide written notice to
Landlord of its intent to exercise the Option Term no later than October
1, 2005. All provisions of the Lease Agreement shall remain in full force
and effect during the Option Term.
4. Paragraph 3A. of the Lease Agreement, as amended by the First
Amendment and Second Amendment, is hereby deleted in its entirety and
replaced with the following:
The base rental hereunder shall be Six Thousand Six Hundred
Thirty Four and 00/100 Dollars ($6,634.00) per month for the
period commencing on April 1, 1993 and ending on October 31,
1998. The base rental hereunder shall be Ten Thousand Eight
Hundred One and 00/100 Dollars ($10,801.00) for the period
commencing on November 1, 1998 through the end of the term of
the Lease Agreement.
5. Except as amended hereby, all terms of the Lease Agreement shall
remain unchanged and in full force and effect, and as amended hereby, the
Lease Agreement is ratified and confirmed by the parties.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Third
Amendment effective as of the 30th day of October, 1998.
TENANT:
VARI-L COMPANY, INC., a Colorado
corporation
By:/s/David G. Sherman
David G. Sherman, President
LANDLORD:
J.C. ENTERPRISES, a Colorado general
partnership
By:/s/Joseph H. Kiser
Joseph H. Kiser, general partner
By:/s/ Carolyn Y. Kiser
Carolyn Y. Kiser, general partner
TANDEM STOCK OPTION AND
STOCK APPRECIATION RIGHTS PLAN
As Amended and Restated February 23, 1996, January 24, 1997
and June 19, 1998
1. PURPOSE. Vari-L Company, Inc. (the "Company") hereby
establishes the Tandem Stock Option and Stock Appreciation Rights Plan
(the "Plan"). The purpose of the Plan is to advance the interests of the
Company and its stockholders by providing a means by which the Company
shall be able to attract and retain competent officers, directors, key
employees, advisors and consultants by providing them with an opportunity
to participate in the increased value of the Company which their effort,
initiative, and skill have helped produce.
2. GENERAL PROVISIONS.
(a) The Plan will be administered by the Compensation Committee
of the Board of Directors of the Company (the "Committee"). The Committee
shall be comprised of two or more independent outside directors designated
by the Board of Directors. The Committee shall have full power to
construe and interpret the Plan and to establish and amend rules and
regulations for its administration. Notwithstanding the foregoing, if it
would be consistent with all applicable law, including, without
limitation, Rule 16b-3 promulgated under the Securities Exchange Act of
1934 as amended ("Rule 16b-3") and the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder
(including, without limitation, the regulations relating to Section 162(m)
of the Code), then the Plan may be administered by the Board of Directors,
and if so administered all subsequent references to the Committee shall be
read as referring to the Board of Directors. Any action of the Committee
with respect to the Plan shall be taken by majority vote or by the
unanimous written consent of the Committee members.
(b) The Committee shall determine, in its sole discretion,
which participants under the Plan shall be granted stock options or stock
appreciation rights, the time or times at which options and rights are
granted, as well as the number of shares and the duration of the options
or rights which are granted to participants, provided, however, that no
participant may be granted more than 300,000 options during any three year
period under the Plan.
(c) The Committee shall also determine any other terms and
conditions relating to options and rights granted under the Plan as the
Committee may prescribe, in its sole discretion.
(d) The Committee may, in its discretion, delegate its
administrative duties with respect to the Plan to an officer or employees,
or to a committee composed of officers or employees, of the Company.
(e) The Committee shall make all other determinations and take
all other actions which it deems necessary or advisable for the
administration of the Plan.
(f) All decisions, determinations and interpretations made by
the Committee shall be binding and conclusive on all participants in the
Plan and on their legal representatives, heirs and beneficiaries.
(g) Notwithstanding anything to the contrary herein, the
Committee shall have no authority to determine the amount, price or timing
of grants hereunder to members of the Committee, unless, and only to the
extent that, its exercise of such authority is consistent with all
applicable laws, including, without limitation, Rule 16b-3.
3. ELIGIBILITY. Officers, directors and employees of the Company
and advisors and consultants to the Company shall be eligible to
participate in the Plan and to receive options and rights hereunder,
provided, however, that: (a) Incentive Stock Options may only be granted
to employees (including officers and directors who are employees) of the
Company or its subsidiaries; and (b) advisors and consultants shall be
eligible for grants only if they provide bona fide services that are not
rendered in connection with the offer or sale of securities or in a
capital-raising transaction.
4. NUMBER OF SHARES SUBJECT TO PLAN. The aggregate number of
shares of the Company's $.01 par value Common Stock which may be granted
to participants shall be 3,000,000 shares, subject to adjustment only as
provided in Sections 5(h) and 7 hereof. These shares may consist of
shares of the Company's authorized but unissued Common Stock or shares of
the Company's authorized and issued Common Stock reacquired by the Company
and held in its treasury or any combination thereof. If an option granted
under this Plan is surrendered, or for any other reason ceases to be
exercisable in whole or in part, the shares as to which the option ceases
to be exercisable shall be available for options to be granted to the same
or other participants under the Plan, except to the extent that an option
is deemed surrendered by the exercise of a tandem stock appreciation right
and that right is paid by the Company in stock, in which event the shares
issued in satisfaction of the right shall not be available for new options
or rights under the Plan.
5. STOCK OPTION.
(a) TYPE OF OPTIONS. Options granted on or after January 28,
1994 may be either Nonqualified Stock Options or Incentive Stock Options
as determined by the Committee in its sole discretion and as reflected in
the Notice of Grant issued by the Committee. All Options granted under
the Plan prior to January 28, 1994 were nonqualified stock options.
"Incentive Stock Option" means an option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
"Nonqualified Stock Option" means an option not intended to qualify as an
Incentive Stock Option or an Incentive Stock Option which is converted to
a Nonqualified Stock Option under Section 5(f) hereof.
(b) OPTION PRICE. The price at which options may be granted
under the Plan shall be determined as follows:
(i) For Incentive Stock Options the option price shall be
equal to 100% of the Fair Market Value of the stock on the date the option
is granted provided, however, that Incentive Stock Options granted to any
person who, at the time such option is granted owns (as defined in Section
422 of the Code) shares possessing more than 10% of the total combined
voting power of all classes of shares of the Company or its parent or
subsidiary corporation, the Option Price shall be 110% of the Fair Market
Value.
(ii) For Nonqualified Stock Options the option price may be
less than the Fair Market Value of the stock on the date of grant, but in
no event shall the option price be less than fifty percent 50% of the Fair
Market Value of the stock on the date the option is granted.
(iii) For purposes of this Plan, and except as
otherwise set forth herein, "Fair Market Value" shall mean (a) if there is
an established market for the Company's Common Stock on a stock exchange,
in an over-the-counter market or otherwise, the mean of the highest and
lowest quoted selling prices on the valuation date, or (b) if there were
no such sales on the valuation date, then in accordance with Treas. Reg.
Sec. 20.2031-2 or successor regulations. Unless otherwise specified by
the Committee at the time of grant, or in the Plan (as in the case of
automatic grants to Committee members), the valuation date for purposes of
determining Fair Market Value shall be the date of grant. The Committee
may, however, specify in any grant of an Option or Stock Appreciation
Right that, instead of the date of the grant, the valuation date shall be
a valuation period of up to ninety (90) days preceding the date of grant,
and Fair Market Value for purposes of such grant shall be the average over
the valuation period of the mean on the highest and lowest quoted selling
prices on each date on which sales were made in the valuation period,
provided, however, that if the Committee fails to specify a valuation
period and there were no sales on the date of grant then Fair Market Value
shall be determined as if the Committee had specified a thirty (30) day
period for such determination, unless there is no established market for
the Company's Common Stock in which case the determination of Fair Market
Value shall be in accordance with clause (b) above.
(c) EXERCISE OF OPTION. The right to purchase shares covered
by any option or options under this Plan shall be exercisable only in
accordance with the terms and conditions of the grant to the participant.
Such terms and conditions may include a time period or schedule whereby
some of the options granted may become exercisable, or "vested", over time
and certain conditions, such as continuous service or specified
performance criteria or goals, must be satisfied for such vesting. The
determination as to whether to impose any such vesting schedule or
requirements, and the terms of such schedule or requirements, shall be
within the sole discretion of the Committee. These terms and conditions
may be different for different participants so long as all options satisfy
the requirements of the Plan.
Options shall be paid for in cash or in shares of the
Company's Common Stock, which shares shall be valued at the Fair Market
Value of the shares on the date of exercise, or any combination thereof.
The Committee may, in its discretion and subject to ratification by the
entire Board of Directors, loan one or more participants all or a portion
of the exercise price, together with the amount of any tax liability
incurred by the participant as a result of the exercise of the option, for
up to three (3) years with interest payable at the prime rate quoted in
the Wall Street Journal on the date of exercise. Members of the Committee
may receive such loans for the exercise of their options without Committee
approval or Board ratification.
The Committee may also permit a participant to effect a net
exercise of an option without tendering any shares of the Company's stock
as payment for the option. In such an event, the participant will be
deemed to have paid for the exercise of the option with shares of the
Company's stock and shall receive from the Company a number of shares
equal to the difference between the shares that would have been tendered
and the number of options exercised.
The Committee may also cause the Company to enter into
arrangements with one or more licensed stock brokerage firms whereby
participants may exercise options without payment therefor but with
irrevocable orders to such brokerage firm to immediately sell the number
of shares necessary to pay the exercise price for the option and the
withholding taxes, if any, and then to transmit the proceeds from such
sales directly to the Company in satisfaction of such obligations.
(d) DURATION OF OPTIONS. Unless otherwise prescribed by the
Committee or this Plan, options granted hereunder shall expire ten (10)
years from the date of grant, subject to early termination as provided in
Section 5(f) hereof.
(D) INCENTIVE STOCK OPTIONS LIMITATIONS. In no event shall an
Incentive Stock Option be granted to any person who, at the time such
option is granted, owns (as defined in Section 422 of the Code) shares
possessing more than 10% of the total combined voting power of all classes
of shares of the Company or of its parent or subsidiary corporation,
unless the option price is at least 110% of the Fair Market Value of the
stock subject to the Option, and such Option is by its terms not
exercisable after the expiration of five (5) years from the date such
Option is granted. Moreover, the aggregate Fair Market Value (determined
as of the time that option is granted) of the shares with respect to which
Incentive Stock Options are exercisable for the first time by any
individual employee during any single calendar year under the Plan shall
not exceed $100,000. In addition, in order to receive the full tax
benefits of an Incentive Stock Option, the employee must not resell or
otherwise dispose of the stock acquired upon exercise of the Incentive
Stock Option until two (2) years after the date the option was granted and
one (1) year after it was exercised.
(f) EARLY TERMINATION OF OPTIONS. In the event a participant's
employment with or service to the Company shall terminate as the result of
total disability or the result of retirement at 65 years of age or later,
then any options granted to such participant shall terminate and may no
longer be exercised three (3) months after the time such participant is no
longer an employee, officer or director of, or advisor or consultant to,
the Company. If the participant dies while employed or engaged by the
Company, to the extent that the option was exercisable at the time of the
participant's death, such option may, within one year after the
participant's death, be exercised by the person or persons to whom the
participant's rights under the option shall pass by will or by the
applicable laws of descent and distribution; provided, however, that an
option may not be exercised to any extent after the expiration of the
option as originally granted. In the event a participant's employment or
engagement by the Company shall terminate as the result of any
circumstances other than those referred to above, whether terminated by
the participant or the Company, with or without cause, then all options
granted to such participant under this Plan shall terminate and no longer
be exercisable as of the date of such termination, provided, however, that
if an employee with an Incentive Stock Option terminates employment prior
to its exercise, but after such termination becomes or remains a non-
employee officer, director, advisor or consultant eligible for
Nonqualified Stock Options hereunder, then the Incentive Stock Option
shall be converted to a Nonqualified Stock Option on the date the
Incentive Stock Option would otherwise have terminated.
An employee who is absent from work with the Company
because of total disability, as defined below, shall not by virtue of such
absence alone be deemed to have terminated such participant's employment
with the Company. All rights which such participant would have had to
exercise options granted hereunder will be suspended during the period of
such absence and may be exercised cumulatively by such participant upon
his return to the Company so long as such rights are exercised prior to
the expiration of the option as originally granted. For purposes of this
Plan, "total disability" shall mean disability, as a result of sickness or
injury, to the extent that the participant is prevented from engaging in
any substantial gainful activity and is eligible for and receives a
disability benefit under Title II of the Federal Social Security Act.
(g) AUTOMATIC GRANTS TO COMMITTEE MEMBERS. Except as provided
in Section 2(g) hereof, no action may be taken by the Committee to grant
any options to members of the Committee. Notwithstanding the foregoing
and irrespective of any action by the Committee, on the date of each
meeting of the Board of Directors or a committee thereof, each member of
the Committee and of the Audit Committee (other than members who are
officers or employees of the Company) that attends such meeting in person
shall receive a grant of a ten year, fully vested, Nonqualified Stock
Option to purchase 500 shares of the Company's Common Stock at an exercise
price equal to the Fair Market Value calculated in accordance with Section
5(b) with a valuation period of thirty (30) days.
(h) RELOAD BY PAYMENT IN SHARES. To the extent that a
participant pays for the exercise of an option with shares of the
Company's stock rather than cash, the tendered shares shall be deemed to
be added back to the Plan, increasing the total number of shares subject
to and reserved for the Plan by that amount.
6. STOCK APPRECIATION RIGHTS.
(a) GRANT. Stock appreciation rights may be granted by the
Committee under this Plan upon such terms and conditions as it may
prescribe. A stock appreciation right may be granted only in connection
with an option previously granted to or to be granted under this Plan.
Each stock appreciation right shall become nonexercisable and be forfeited
if the related option is exercised. "Stock appreciation right" as used in
this Plan means a right to receive the excess of Fair Market Value, on the
date of exercise, of a share of the Company's Common Stock on which an
appreciation right is exercised over the option price provided for in the
related option and is issued in consideration of services performed for
the Company or for its benefit by the participant. Such excess is
hereafter called "the differential."
(b) EXERCISE OF STOCK APPRECIATION RIGHTS. Stock appreciation
rights shall be exercisable and be payable in the following manner:
(i) A stock appreciation right shall be exercisable by the
participant at the same time or times that the option to which it relates
could be exercised. A participant wishing to exercise a stock
appreciation right shall give written notice of such exercise to the
Company. Upon receipt of such notice, the Company shall determine, in its
sole discretion, whether the participant's stock appreciation rights shall
be paid in cash or in shares of the Company's Common Stock or any
combination of cash and shares and thereupon shall, without deducting any
transfer or issue tax, deliver to the person exercising such right an
amount of cash or shares of the Company's Common Stock or a combination
thereof with a value equal to the differential. The date the Company
receives the written notice of exercise hereunder is the exercise date.
The shares issued upon the exercise of a stock appreciation right may
consist of shares of the Company's authorized but unissued Common Stock or
of its authorized and issued Common Stock reacquired by the Company and
held in its treasury or any combination thereof. No fractional share of
Common Stock shall be issued; rather, the Committee shall determine
whether cash shall be given in lieu of such fractional share or whether
such fractional share shall be eliminated.
(ii) The exercise of a stock appreciation right shall
automatically result in the surrender of the related stock option by the
participant on a share for share basis. Likewise, the exercise of a stock
option shall automatically result in the surrender of the related stock
appreciation right. Shares covered by surrendered options shall be
available for granting further options under this Plan except to the
extent and in the amount that such rights are paid by the Company with
shares of stock, as more fully discussed in Section 4 hereof.
(iii) The Committee may impose any other terms and
conditions it prescribes upon the exercise of a stock appreciation right,
which conditions may include a condition that the stock appreciation right
may only be exercised in accordance with rules and regulations adopted by
the Committee from time to time.
(d) LIMITATION ON PAYMENTS. Notwithstanding any other
provision of this Plan, the Committee may from time to time determine,
including at the time of exercise, the maximum amount of cash or stock
which may be given upon exercise of any stock appreciation right in any
year, provided, however, that all such amounts shall be paid in full no
later than the end of the year immediately following the year in which the
participant exercised such stock appreciation rights. Any determination
under this paragraph may be changed by the Committee from time to time
provided that no such change shall require the participant to return to
the Company any amount theretofore received or to extend the period within
which the Company is required to make full payment of the amount due as
the result of the exercise of the participant's stock appreciation rights.
(e) EXPIRATION OR TERMINATION OF STOCK APPRECIATION RIGHTS.
(i) Each stock appreciation right and all rights and
obligations thereunder shall expire on the date on which the related
option expires or terminates.
(ii) A stock appreciation right shall terminate and may no
longer be exercised upon the expiration or termination of the related
option.
7. CAPITAL ADJUSTMENTS. The aggregate number of shares of the
Company's Common Stock subject to this Plan, the maximum number of shares
as to which options may be granted to any one participant hereunder, and
the number of shares and the price per share subject to outstanding
options, shall be appropriately adjusted by the Committee for any increase
or decrease in the number of shares of Common Stock which the Company has
issued resulting from any stock split, reverse stock split, stock
dividend, combination of shares or any other change, or any exchange for
other securities or any reclassification, merger, reorganization,
consolidation, redesignation, recapitalization, or otherwise. Similar
adjustments shall be made to the terms of stock appreciation rights.
8. NONTRANSFERABILITY. During a participant's lifetime, an option
may be exercisable only by the participant and options granted under the
Plan and the rights and privileges conferred thereby shall not be subject
to execution, attachment or similar process and may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of
law or otherwise) other than by will or by the applicable laws of descent
and distribution. Notwithstanding the foregoing, to the extent permitted
by applicable law and Rule 16b-3, the Committee may (i) permit a recipient
of a Nonqualified Stock Option to designate in writing during the
participant's lifetime a beneficiary to receive and exercise the
participant's Nonqualified Stock Options in the event of such
participant's death (as provided in Section 5(f)), (ii) grant Nonqualified
Stock Options that are transferable to the immediate family or a family
trust of the recipient, and (iii) modify existing Nonqualified Stock
Options to be transferable to the immediate family or a family trust of
the recipient. Any other attempt to transfer, assign, pledge, hypothecate
or otherwise dispose of any option under the Plan or of any right or
privilege conferred thereby, contrary to the provisions of the Plan shall
be null and void.
9. AMENDMENT, SUSPENSION, OR TERMINATION OF PLAN. The Board of
Directors or the Committee may at any time suspend or terminate the Plan
and may amend it from time to time in such respects as the Board of
Directors or the Committee may deem advisable in order that options and
rights granted hereunder shall conform to any change in the law, or in any
other respect which the Board of Directors or the Committee may deem to be
in the best interests of the Company; provided, however, that no such
amendment shall, without the participant's consent, alter or impair any of
the rights or obligations under any option or stock appreciation rights
theretofore granted to him under the plan; and provided further that no
such amendment shall, without shareholder approval: (a) increase the total
number of shares available for grants of options or rights under the Plan
(except as provided by Section 7 hereof); or (b) effect any change to the
Plan which is required to be approved by shareholder by law, including,
without limitation, the regulations promulgated under Section 422 and
Section 162(m) of the Code. In addition, the provisions of Section 5(g)
relating to the amount, price and timing of grants to members of the
Committee shall not be amended more than once every six (6) months other
than to comport with applicable changes to the Code, the Employee
Retirement Income Security Act or rules thereunder.
10. EFFECTIVE DATE. The effective date of the Plan shall be
December 31, 1987, provided, however, that the effective date of the Plan
as it relates to Incentive Stock Options shall be January 28, 1994 and no
Incentive Stock Option may be granted hereunder before January 28, 1994.
If the January 28, 1994 amendment to and restatement of the Plan is not
approved by the affirmative vote of a majority of the Company's
shareholders on or before January 28, 1995, then the Plan shall remain in
effect as it was last amended on June 14, 1990. The failure of the
shareholders to approve such amendment and restatement of the Plan shall
not, however, affect the validity, duration or any other terms and
conditions of options or rights granted prior to January 28, 1994, and
shall affect the terms and conditions of options or rights granted after
that date only to the extent required by law.
11. TERMINATION DATE. Unless this Plan shall have been previously
terminated by the Committee, this Plan shall terminate on January 28,
2004, except as to options and rights theretofore granted and outstanding
under the Plan at that date, and no stock option or stock appreciation
rights shall be granted after that date.
12. RESALE OF SHARES PURCHASED. All shares of stock purchased under
this Plan may be freely resold, subject to applicable state and federal
securities laws restricting their transfer. As a condition to exercise of
an option, the Company may impose various conditions, including a
requirement that the person exercising such option represent and warrant
that, at the time of such exercise, the shares of Common Stock being
purchased are being purchased for investment and not with a view to resale
or distribution thereof. The resale of shares purchased upon the exercise
of Incentive Stock Options may, however, cause the employee to lose
certain tax benefits if the employee fails to comply with the holding
period requirements described in Section 5(e) hereof.
13. ACCELERATION OF OPTIONS. If the Company or its shareholders
enter into an agreement to dispose of all or substantially all of the
assets or stock of the Company by means of a sale, merger or other
reorganization, liquidation, or otherwise, any option granted pursuant to
the Plan shall become immediately exercisable with respect to the full
number of shares subject to that option during the period commencing as of
the date of the agreement to dispose of all or substantially all of the
assets or stock of the Company and ending when the disposition of assets
or stock contemplated by that agreement is consummated or the option is
otherwise terminated in accordance with its provisions or the provisions
of the Plan, whichever occurs first; provided that no option shall be
immediately exercisable under this Section on account of any agreement of
merger or other reorganization where the shareholders of the Company
immediately before the consummation of the transaction will own 50% or
more of the total combined voting power of all classes of stock entitled
to vote of the surviving entity (whether the Company or some other entity)
immediately after the consummation of the transaction. In the event the
transaction contemplated by the agreement referred to in this section is
not consummated, but rather is terminated, canceled or expires, the
options granted pursuant to the Plan shall thereafter be treated as if
that agreement had never been entered into.
14. WRITTEN NOTICE REQUIRED; TAX WITHHOLDING. Any option or right
granted pursuant to the Plan shall be exercised when written notice of
that exercise by the participant has been received by the Company at its
principal office and, with respect to options, when such notice is
received and full payment for the shares with respect to which the option
is exercised has been received by the Company. Participant agrees that,
to the extent required by law, the Company shall withhold or require the
payment by participant of any state, federal or local taxes resulting from
the exercise of an option or right, provided however that to the extent
permitted by law, the Committee may in its discretion, permit some or all
of such withholding obligation to be satisfied by the delivery by the
participant of, or the retention by the Company of, shares of its Common
Stock.
15. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be issued
with respect to any option or right granted under the Plan unless the
exercise of that option and the issuance and delivery of the shares
pursuant thereto shall comply with all relevant provisions of state and
federal law, including without limitation the Securities Act of 1933, as
amended, the rules and regulations promulgated thereunder and the
requirements of any stock exchange or automated quotation system upon
which the shares may then be listed or traded, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance. Further, each participant must consent to the imposition of a
legend on the certificate representing the shares of Common Stock issued
upon the exercise of the option or right restricting their transferability
as may be required by law, the option, or the Plan.
16. WAIVER OF VESTING RESTRICTIONS BY COMMITTEE. Notwithstanding
any provision of the Plan, in the event a participant dies, becomes
disabled, retires as an employee, officer or director of, or as an advisor
or consultant to, the Company, the Committee shall have the discretion to
waive any vesting restrictions on the retiree's options, or the early
termination of any Nonqualified Stock Options held by the retiree.
17. REPORTS TO PARTICIPANTS. The Company shall furnish to each
participant a copy of the annual report sent to the Company's
shareholders. Upon written request, the Company shall furnish to each
participant a copy of its most recent annual report and each quarterly
report to shareholders issued since the end of the Company's most recent
fiscal year.
18. NO EMPLOYEE CONTRACT. The grant of an option or right under the
Plan shall not confer upon any participant any right with respect to
continuation of employment by, or the rendition of advisory or consulting
services to, the Company, nor shall it interfere in any way with the
Company's right to terminate the participant's employment or services at
any time.
Adopted by the Board of Directors of the Company on January 29, 1994 and
approved by the Company's Shareholders on June 20, 1994. Adopted as
amended and restated by the Compensation Committee on February 23, 1996
and approved by the Company's Shareholders on June 26, 1996. Adopted as
amended and restated by the Compensation Committee on January 24, 1997 and
approved by the Company's Shareholders on June 20, 1997. Amended by the
Board of Directors on June 19, 1998.
DAVID G. SHERMAN, JOSEPH H. KISER,
President Chairman of the Board
and Secretary
VARI-L COMPANY, INC.
STOCK GRANT PLAN
Adopted June 16, 1995
Amended January 24, 1997 and June 19, 1998
Section 1. PURPOSE. The purpose of the Stock Grant Plan (the
"Plan") is to provide incentives for selected persons to promote the
financial success and progress of Vari-L Company, Inc. (the "Company")
through the award of shares of the Company's $.01 par value Common Stock
("Awards").
Section 2. GENERAL PROVISIONS OF THE PLAN.
a. The Plan shall be administered by the Compensation Committee
of the Board of Directors of the Company (the "Committee"). The Committee
shall be comprised of two or more independent outside directors designated
by the Board of Directors. Notwithstanding the foregoing, if it would be
consistent with all applicable laws, including, without limitation, Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended
("Rule 16b-3"), then the Plan may be administered by the Board of
Directors, and if so administered all subsequent references to the
Committee shall be read as referring to the Board of Directors. Any action
of the Committee with respect to the Plan shall be taken by majority vote
or by the unanimous written consent of the Committee members.
b. The Committee shall have full power to construe, interpret
and administer the Plan and to establish, amend and rescind rules and
regulations for its administration, and to make all other determinations
and take all other actions which it deems necessary or advisable for the
administration of the plan.
c. The Committee shall determine, in its sole discretion, which
participants under the Plan shall be granted Awards, the time or times at
which Awards are granted, and the number of shares in each Award.
d. The Committee shall also determine any other terms and
conditions relating to Awards granted under the Plan as the Committee may
prescribe, in its sole discretion.
e. The Committee may, in its discretion, delegate its
administrative duties with respect to the Plan to an officer of employees,
or to a committee composed of officers or employees, of the Company.
f. All decisions, determinations and interpretations made by
the Committee shall be binding and conclusive on all participants in the
Plan and on their legal representative, heirs and beneficiaries.
g. Notwithstanding anything to the contrary herein, the
Committee shall have no authority to determine the amount, price or timing
of Awards hereunder to members of the Committee, unless, and only to the
extent that, its exercise of such authority is consistent with all
applicable laws, including, without limitation, Rule 16b-3.
Section 3. ELIGIBILITY. Subject to the terms of the Plan, Awards
may be granted only to such officers, directors, employees, consultants,
advisors, and independent contractors providing bona fide services to the
Company, as the Committee shall select from time to time in its sole
discretion provided that, with respect to consultants, advisors and
independent contractors such services may not be in connection with the
offer or sale of securities in a capital-raising transaction. A person
may be granted more than one Award under this Plan.
Section 4. NUMBER OF SHARES SUBJECT TO PLAN. The maximum aggregate
number of shares of the Company's Common Stock which may be granted to
participants shall be 100,000, subject to adjustment as provided in this
Plan. These shares may consist of shares of the Company's authorized but
unissued Common Stock or shares of the Company's authorized and issued
Common Stock reacquired by the Company and held in its treasury, or any
combination thereof.
Section 5. GRANTS OF AWARDS. The Committee may impose such
conditions on Awards granted under the Plan as it may, in its discretion,
determine. The terms and conditions of Awards granted under the Plan may
differ from one another as the Committee shall in its discretion determine
so long as all Awards granted under the Plan satisfy the requirements of
the Plan. No grant will be made if, in the judgment of the Committee,
such a grant would constitute a public distribution within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), or the
rules and relations promulgated thereunder, or corresponding state
securities laws.
Section 6. AUTOMATIC GRANTS TO COMMITTEE MEMBERS. Except as
provided in Section 2(g) hereof, no action may be taken by the Committee
to grant any Awards to members of the Committee. Notwithstanding the
foregoing and irrespective of any action by the Committee, each member of
the Committee and of the Audit Committee (other than members who are
officers or employees of the Company) shall receive an automatic grant of
50 shares per month on the first day of each month, beginning with the
first full month after original approval of the Plan by the Company's
Shareholders.
Section 7. TAX WITHHOLDING. The grant of any Award is subject to
the condition that if at any time the Company shall determine, in its
discretion, that the satisfaction of withholding tax or other withholding
liabilities under any state or federal law is necessary or desirable as a
condition of, or in connection with, such grant, exercise or the delivery
or purchase of shares pursuant thereto, then in such event, the grant of
the Award shall not be effective unless such withholding shall have been
effected or obtained in a manner acceptable to the Company.
Section 8. DELIVERY OF AWARD STOCK. As promptly as practicable
after the Committee has authorized the grant of an Award, and the
recipient of the Award has satisfied the conditions, if any, specified by
the grant of the Award, a certificate or certificates registered in that
person's name, representing the number and shares of Common Stock that
were granted shall be issued and delivered. Shares shall not be issued
with respect to any Award granted under the Plan unless the grant of that
Award and the issuance and delivery of the shares pursuant thereto shall
comply with all relevant provisions of state and federal law, including
without limitation the Securities Act, the rules and regulations
promulgated thereunder and the requirements of any stock exchange or
quotation system upon which the shares may then be listed or quoted, and
shall be further subject to the approval of counsel for the Company with
respect to such compliance. Further, each recipient of an Award shall
consent to the imposition of a legend on the certificate representing the
shares of Common Stock issued upon the grant of the Award restricting
their transferability as required by law, the Award, or by the Plan.
Section 9. EMPLOYMENT OF RECIPIENT. Nothing in the Plan or in any
Award granted hereunder shall confer upon any recipient of an Award any
right to continued employment or retainer by the Company, or limit in any
way the right of the Company at any time to terminate or alter the terms
of any employment or consulting arrangement.
Section 10. RIGHTS UPON TERMINATION OF EMPLOYMENT, CONSULTANT,
ADVISOR OR INDEPENDENT CONTRACTOR STATUS. If the recipient of an Award
ceases to be employed by the Company or ceases to serve as a consultant,
advisor or independent contractor of the Company, or otherwise ceases to
provide bona fide services as specified in the eligibility requirements
set forth in Section 3, any portion of his Award for which the conditions
specified in the grant of the Award have not been satisfied shall
immediately terminate.
Section 11. PRIVILEGES OF STOCK OWNERSHIP. Notwithstanding the
authorization of an Award granted pursuant to the terms of the Plan, no
person shall have any of the rights or privileges of a shareholder of the
Company in respect of any shares of stock issuable upon the grant of an
Award until certificates representing the shares have been issued and
delivered. No shares shall be required to be issued and delivered upon
the authorization of any Award until there has been full compliance with
all of the conditions of the Award, the requirements of law and of all
regulatory agencies having jurisdiction over the issuance and delivery of
the securities.
Section 12. CAPITAL ADJUSTMENTS. If the outstanding shares of
Common Stock are increased, decreased, changed into or exchanged for a
different number or kind of shares or securities through merger,
consolidation, combination, exchange of shares, other reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse
stock split, an appropriate and proportionate adjustment shall be made in
the maximum number and kind of shares as to which Awards may be granted
under the Plan.
Section 13. AMENDMENT, SUSPENSION, OR TERMINATION OF PLAN. The Board
of Directors or the Committee may at any time suspend or terminate the
Plan and may amend it from time to time in such respects as the Board of
Directors or the Committee may deem advisable in order that the rights
granted hereunder shall conform to any change in the law, or in any other
respect which the Board of Directors or the Committee may deem to be in
the best interests of the Company; provided, however, that no such
amendment shall, without the participant's consent, alter or impair any of
the rights or obligations under any Award rights theretofore granted to
him under the plan; and provided further that no such amendment shall,
without shareholder approval: increase the total number of shares
available for Awards under the Plan (except as provided by Section 12
hereof); effect any change to the Plan which is required to be approved by
the Company's Shareholders by law, including, without limitation, the
Internal Revenue Code of 1986, as amended.
Section 14. WAIVER OF CONDITIONS. Notwithstanding any provision of
the Plan, in the event a participant dies, becomes disabled, retires as an
employee, officer or director of, or as an advisor, consultant or
independent contractor to, the Company, the Committee shall have the
discretion to waive any conditions in the retiree's Award.
Section 15. EFFECTIVE DATE. The effective date of the Plan is June
16, 1995 (the "Effective Date").
Section 16. TERMINATION DATE. Unless the Plan shall have been
previously terminated by the Committee, it shall terminate on June 15,
2005, except as to any Awards that are outstanding under the Plan at that
time and no Awards shall be granted after that time.
DAVID G. SHERMAN, JOSEPH H. KISER,
President Chairman of the Board
and Secretary
VARI-L COMPANY, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective January 1, 1997, is made and entered into
by and between VARI-L COMPANY, INC. (the "Company") and Daniel J. Wilmot
("Employee").
WHEREAS, Employee is currently an employee of the Company and the
Company and Employee wish to enter into this Agreement to set forth the
terms and conditions of employment.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein, and for other good and valuable consideration, the
parties hereto agree as follows:
I. EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment, upon the terms and conditions hereinafter set
forth.
II. TERM. Subject to the provisions for termination as hereinafter
provided, the term of this Agreement is for a period commencing January 1,
1997, and expiring December 31, 1999.
III. DUTIES. Employee is engaged as Vice President of Engineering to
have full authority and complete responsibility for management of the
engineering, research and development and similar activities of the
Company, subject only to the direction of the Chief Scientific Officer and
the Board of Directors. If Employee is elected or appointed a director of
the Company during the term of this Agreement, Employee shall serve in
such capacity or capacities without further compensation; but nothing
herein shall be construed as requiring the Company, or anybody else, to
cause the election or appointment of Employee as a director.
IV. EXTENT OF SERVICES. Employee shall faithfully, industriously,
and to the best of his ability, experience, and talents, perform all of
the duties that may be required of and from him pursuant to this Agreement
for a minimum of forty (40) hours per week. Employee shall not engage in
any other employment during the term of this Agreement. Nothing herein
shall be construed as preventing Employee from (a) investing his assets in
such form or manner as will not require any services on the part of
Employee in the operation of the affairs of the companies in which such
investments are made or (b) serving as a director, advisor, or consultant;
provided, however, that such investments or services may not be in
connection with a business which is in competition with the Company.
V. COMPENSATION AND EMPLOYEE BENEFITS.
A. ANNUAL BASE SALARY. For all services rendered by Employee
under this Agreement, the Company shall pay Employee an initial annual
base salary of at least $90,000, payable in equal biweekly installments.
The amount of such base salary shall be determined at the beginning of
each fiscal year by the Executive Committee of the Board of Directors in
its sole discretion on the basis of merit and the Company's financial
success and progress but in no event shall such base salary be less than
the initial annual base salary indicated above, unless there is an
extraordinary, across-the-board reduction in the Company's officers'
salaries, in which case Employee's salary shall be reduced by a percentage
equal to the lowest percentage reduction taken by any other officer.
B. BONUS COMPENSATION. Employee may receive year-end bonuses
as determined at the beginning of each fiscal year of the Company by the
Board of Directors in its sole discretion on the basis of merit and the
Company's financial success and progress.
C. VACATION. Employee shall be entitled to four weeks of paid
vacation each year but may, upon request, obtain payment in lieu of
accrued but unused vacation.
D. EMPLOYEE BENEFITS. Employee shall be entitled to receive
all of the rights, benefits, and privileges of the Company's employees
under any retirement, pension, profit-sharing, insurance, health and
hospital, and other employee benefit plans which may be now in effect or
hereafter adopted by the Company.
E. WORKING FACILITIES. Employee shall be furnished with a
private office and such other facilities and services suitable to
Employee's position and adequate for the performance of the duties
required by this Agreement.
F. EXPENSES. Subject to limits which may be imposed by the
President or the Executive Committee of the Board of Directors, Employee
is authorized to incur reasonable expenses in connection with his
responsibilities in conducting the business of the Company, including
expenses for entertainment, travel, and similar items. The Company will
reimburse Employee for all such expenses upon the presentation by
Employee, from time to time, of an itemized account of such expenditures.
G. AUTOMOBILE. Employee shall provide Employee with an
automobile and shall reimburse Employee for insurance, maintenance, fuel
and repairs associated with such automobile. The Company will reimburse
Employee for all such expenses upon the presentation by Employee, from
time to time, of an itemized account of such expenditures or Employee may
pay such expenses with a Company credit card.
VI. PROPRIETARY INTERESTS OF COMPANY
Employee and the Company recognize that the Company is in a
highly competitive business in a highly technical industry. The parties
acknowledge that the success or failure of the Company depends largely on
the development and use of certain proprietary and confidential
information and trade secrets, including without limitation, information
concerning any of the Company's patented components, research and
development projects and in patent process components, and personal
relationships with present and potential customers, suppliers,
contractors, and governmental agencies; as well as technology, procedures,
systems, and techniques relating to the products developed or distributed
by the Company (hereinafter collectively referred to as "Confidential
Information"). Confidential Information is a substantial asset of the
Company. Confidential Information will be disclosed to Employee in the
normal course of the Company's operations. Employee acknowledges that
Confidential Information is extremely valuable to the Company and must be
protected from unauthorized use by the Company's competitors or other
persons. Therefore, Employee agrees not to disclose or use, whether for
the benefit of Employee or any other person, at any time during or after
his employment, any Confidential Information.
Employee recognizes that, during the term of his employment with
the Company, he may develop new products, technology, processes, devices,
inventions, or methods of production, including but not limited to
computer hardware, software or "firmware," and may enhance, improve or
perfect existing products, technology, processes, devices, inventions or
methods of production (hereinafter collectively referred to as
"Inventions"). As partial consideration for the salary, and other
benefits provided by the Company to the Employee, Employee hereby agrees
that his entire work product while in the employ of the Company, including
any Inventions, is the exclusive property of the Company. Employee also
agrees to cooperate fully with the Company and to do whatever acts are
reasonably necessary in order to obtain United States or foreign letters
patent or copyrights, or both, and to vest the entire right and title
thereto in the Company. Employee further agrees that the Company shall
have the royalty- free right to use in its business, and to make, use, and
sell such Inventions whether or not patentable, regardless of whether they
are conceived or made by the Employee during the hours which he is
employed by the Company or with the use of or assistance of the Company's
facilities, materials or personnel.
Except as required in his duties to the Company, Employee will
never, directly or indirectly, use, disseminate, disclose, lecture upon,
or publish articles concerning any Confidential Information without the
prior written consent of the Company.
Upon termination of his employment with the Company, all
documents, records, notebooks, and similar repositories of or containing
Confidential Information, including copies thereof, then in Employee's
possession, whether prepared by Employee or others, will be left with the
Company, and no copies thereof will be retained by the Employee.
It is agreed that any breach of this section of the Agreement
will cause immediate irreparable harm to the Company and monetary damages
would be difficult if not impossible to ascertain. Therefore, the parties
agree that upon any breach or threatened breach of any covenant in this
section that the Company may obtain from the district court for the City
and County of Denver, Colorado, or any other court of competent
jurisdiction, and appropriate restraining order, preliminary injunction or
other form of equitable relief with respect thereto. Nothing contained
herein shall affect the right of the Company to seek and obtain monetary
damages in addition to or substitution for such equitable relief.
VII. NONCOMPETE. During the term of this Agreement and for a period
of one year after termination, the Employee will not, directly or
indirectly, own, manage, operate, control, be employed by, participate in,
or be connected in any manner with the ownership, management, operation,
or control of any business which is similar to the type of business
conducted by the Company and which conducts such business or sells its
products within and to the same market as the Company's market at the time
of the termination or expiration of this Agreement. Employee certifies
that his employment with the Company will not breach a previous employment
agreement. Employee agrees not to engage in the unauthorized use of the
proprietary assets of others during the term of his employment by the
Company. Employee agrees not to enter into any other employment
agreement, oral or written, which will run concurrently, in whole or in
part, with Employee's employment by the Company. It is agreed that any
breach of this section of the Agreement will cause immediate irreparable
harm to the Company and monetary damages would be difficult if not
impossible to ascertain. Therefore, the parties agree that upon any
breach or threatened breach of any covenant in this section that the
Company may obtain from the district court for the City and County of
Denver, Colorado, or any other court of competent jurisdiction, an
appropriate restraining order, preliminary injunction or other form of
equitable relief with respect thereto. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other available
remedies for such breach or threatened breach, including the recovery of
damages, costs, and attorney fees.
The foregoing agreement not to compete shall not be held invalid
because of the scope of the territory or the actions restricted thereby,
or the period of time within which such agreement is operative; but any
judgment by a court of competent jurisdiction may define the maximum
territory and action subject to, and restricted by, this paragraph and the
period of time during which such agreement is enforceable.
Notwithstanding the foregoing, in the event of a CHANGE OF
CONTROL, as hereinafter defined, not recommended by a majority of the
Board of the Company as constituted prior to the CHANGE OF CONTROL Date,
this noncompete agreement shall terminate upon the CHANGE OF CONTROL date.
VIII.TERMINATION OF EMPLOYMENT.
A. TERMINATION BY MUTUAL AGREEMENT. The Company and Employee
may agree to terminate this Agreement on terms and conditions mutually
acceptable to them as of the date of termination.
B. DEATH. In the event of Employee's death, the Company shall
pay to any beneficiary designated by Employee or, if no such beneficiary
has been designated, to his estate, an amount equal to the then annual
base salary for one (1) year, together with any bonuses which the
Company's board of directors shall determine in its sole discretion to be
due and payable to Employee. If Employee's beneficiary or estate receives
any proceeds from any life insurance policies paid for by the Company, the
payments of annual base salary and bonuses which be reduced by the amount
of such proceeds from such life insurance policies.
C. DISABILITY. If Employee becomes disabled during the term
of employment, the Company, at its option, may thereafter, upon written
notice to Employee or Employee's personal representative, terminate the
employment. Employee shall thereafter be eligible to receive disability
benefits under the Company's standard employee disability insurance policy
like any other employee.
D. INVOLUNTARY TERMINATION. If prior notice is given of any
Involuntary Termination as defined herein, Employee, if requested by the
Company, shall continue to render his services and shall be paid the then
annual base salary up to the date of such Involuntary Termination, any
bonuses which the Company's Board of Directors shall determine in its sole
discretion to be due and payable to Employee, and the Severance Amount as
provided herein.
E. DEFINITIONS. All the terms defined in this Section shall
have the meanings given below throughout this Agreement.
1. "CHANGE OF CONTROL" shall be deemed to have occurred
if:
a. any "person," including a "group" as determined
in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
b. as a result of, or in connection with, any tender
offer 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 the
Company before the Transaction shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the Company;
c. the Company is merged or consolidated with
another corporation and, as a result of the merger or consolidation, less
than 80% of the outstanding voting securities of the surviving or
resulting corporation is then owned in the aggregate by the former
stockholders of the Company;
d. a tender offer or exchange offer is made and
consummated for the ownership of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
voting securities; or
e. the Company transfers substantially all of its
assets to another corporation which is not a wholly-owned subsidiary of
the Company.
2. "DISABILITY" shall mean mental or physical illness or
condition rendering Employee incapable of performing Employee's normal
duties with the Company.
3. "INVOLUNTARY TERMINATION" shall mean any termination
except:
a. VOLUNTARY TERMINATION;
b. termination by mutual agreement; or
c. any termination as a result of death, DISABILITY,
or normal retirement pursuant to a retirement plan to which Employee was
subject prior to any CHANGE OF CONTROL.
4. "SEVERANCE AMOUNT" is equal to:
a. in the case of an INVOLUNTARY TERMINATION which
occurs after a CHANGE OF CONTROL, an amount equal to Employee's Annual
Base Salary for one year, payable immediately upon termination; and
b. in the case of an INVOLUNTARY TERMINATION which
does not occur after a CHANGE OF CONTROL, an amount equal to Employee's
Annual Base Salary for one year, payable on regular bi- weekly payroll
dates, for a one-year period;
5. "VOLUNTARY TERMINATION" shall mean any termination
which results from a resignation or an early retirement by the Employee.
6. "VOTING SECURITIES" shall mean any securities which
ordinarily possess the power to vote in the election of directors without
the occurrence of any pre-condition or contingency other than the passage
of time.
F. SECTION 280G PAYMENT REDUCTION. It is the intention of the
parties that the SEVERANCE AMOUNT payments under this Agreement shall not
constitute "excess parachute payments" within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended, and any regulations
thereunder. If the independent accountants acting as auditors for the
Company prior to the date of a CHANGE OF CONTROL (or another accounting
firm designated by them) determine that the SEVERANCE AMOUNT payments
under this Agreement may constitute "excess parachute payments," the
payments may be reduced to the maximum amount which may be paid without
the payments being "excess parachute payments." The determination shall
take into account (i) whether the payments are "parachute payments" under
Section 280G and, if so, (ii) the amount of payments under this Agreement
that constitutes reasonable compensation under Section 280G. Nothing
contained in this Agreement shall prevent the Company after a CHANGE OF
CONTROL from agreeing to pay Employee compensation or benefits in excess
of those provided in this Agreement.
G. MEDICAL AND DENTAL BENEFITS AFTER TERMINATION. If
Employee's employment by the Company or any subsidiary or successor of the
Company is terminated because of DISABILITY, VOLUNTARY TERMINATION, or
INVOLUNTARY TERMINATION, then to the extent that Employee or any of
Employee's dependents may be covered under the terms of any medical and
dental plans of the Company (or any subsidiary) for active Employees
immediately prior to the termination, Employee may, at his option,
continue coverage under such medical and dental plans, or equivalent plans
offered by the Company, for himself and those dependents until the later
of Employee's death or the death of Employee's spouse, if any, at the time
of Employee's death. The coverages may be procured directly by the
Company (or any subsidiary, if appropriate) apart from, and outside of the
terms of, the plans themselves; provided that Employee and Employee's
dependents comply with all of the conditions of the medical or dental
plans. In consideration for the Company's efforts in procuring these
benefits, Employee shall pay the entire cost of such coverage, including
what is typically considered the employer's portion.
IX. LIFE INSURANCE.
A. STANDARD GROUP LIFE INSURANCE. The Company shall provide
Employee with personal life insurance in accordance with the Company's
Group Life Insurance Policy, which currently provides life insurance
benefits for each employee in the amount of twice their annual salary up
to the maximum amount provided in the policy. In addition, the Company
will procure, or reimburse Employee for the cost of $200,000 in term life
insurance on Employee's life payable to a beneficiary chosen by Employee.
B. KEY MAN LIFE INSURANCE. Employee hereby consents to the
purchase by the Company, at the Company's option, of one or more Key Man
life insurance policies on Employee's life naming the Company or its
designee as beneficiary (the "Key Man Policies"); provided, however, that
the Company shall not be required to obtain such insurance. Employee
agrees that he shall take any reasonable actions which may be requested by
the Company, and otherwise fully cooperate with the Company, in its
efforts to purchase and maintain the Key Man Policies. The Key Man
Policies will be owned by the Company and the proceeds made payable to the
Company or its designee. If purchased by the Company, the Key Man
Policies shall be for the purpose of providing funds necessary to obtain a
replacement for Employee and for any other reasonable business purpose as
may determined by the Company in amounts sufficient to accomplish their
intended purpose.
X. DIRECTORS AND OFFICERS INSURANCE. The Company shall procure
Directors and Officers liability insurance coverage on all directors and
officers in such an amount as the Company deems reasonable and necessary
under the circumstances.
XI. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and delivered in person
or sent by registered or certified mail to Employee's residence in the
case of Employee or to its principal office in the case of the Company.
XII. WAIVER. The waiver of any provision of this Agreement shall not
operate or be construed as a waiver of any other provision of this
Agreement. No waiver shall be valid unless in writing and executed by the
party to be charged therewith.
XIII.SEVERABILITY/MODIFICATION. In the event that any clause or
provision of this Agreement shall be determined to be invalid, illegal or
unenforceable, such clause or provision may be severed or modified to the
extent necessary, and, as severed and/or modified, this Agreement shall
remain in full force and effect.
XIV. ASSIGNMENT. Except for a transfer by will or by the laws of
descent or distribution, Employee's right to receive payments or benefits
under this Agreement shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise. In the event of any
attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
Employee acknowledges that the services to be rendered under
this Agreement are unique and personal. Accordingly, Employee may not
assign such duties or obligations under this Agreement.
XV. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns (including, without
limitation, any company into or with which the Company may merge or
consolidate). The Company agrees that it will not effect the sale or
other disposition of all or substantially all of its assets unless either
(i) the person or entity acquiring the assets or a substantial portion of
the assets shall expressly assume by an instrument in writing all duties
and obligations of the Company under this Agreement or (ii) the Company
shall provide, through the establishment of a separate reserve for the
payment in full or all amounts which are or may reasonably be expected to
become payable to Employee under this Agreement.
XVI. ENTIRE AGREEMENT. This instrument contains the entire agreement
concerning the employment arrangement between the parties and shall, as of
the effective date hereof, supersede all other such agreements between the
parties provided however, that, nothing in this Agreement shall prevent
the Company from granting additional or special compensation or benefits
to Employee after the date of execution of this Agreement. This Agreement
may not be amended except by an agreement in writing signed by both
parties.
XVII.GOVERNING LAW AND JURISDICTION. This Agreement shall be
interpreted, construed, and enforced under the laws of the State of
Colorado. The courts and authorities of the State of Colorado shall have
sole jurisdiction and venue over all controversies which may arise with
respect to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year indicated above.
THE COMPANY:
VARI-L COMPANY, INC.
By:/s/David G. Sherman
David G. Sherman,
President
EMPLOYEE:
/s/Daniel J. Wilmot
Daniel J. Wilmot
VARI-L COMPANY, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective January 1, 1997, is made and entered into
by and between VARI-L COMPANY, INC. (the "Company") and DEREK L. BAILEY
("Employee").
WHEREAS, Employee is currently an employee of the Company and the
Company and Employee wish to enter into this Agreement to set forth the
terms and conditions of employment.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein, and for other good and valuable consideration, the
parties hereto agree as follows:
I. EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment, upon the terms and conditions hereinafter set
forth.
II. TERM. Subject to the provisions for termination as hereinafter
provided, the term of this Agreement is for a period commencing January 1,
1997, and expiring December 31, 1999.
III. DUTIES. Employee is engaged as Vice President of Sales to have
full authority and complete responsibility for management and direction of
all sales and marketing activities of the Company, including the
commercial, military, aerospace and other markets served by the Company,
subject only to the direction of the President and the Board of Directors,
for administering those operations of the Company in all respects. If
Employee is elected or appointed a director of the Company during the term
of this Agreement, Employee shall serve in such capacity or capacities
without further compensation; but nothing herein shall be construed as
requiring the Company, or anybody else, to cause the election or
appointment of Employee as a director.
IV. EXTENT OF SERVICES. Employee shall faithfully, industriously,
and to the best of his ability, experience, and talents, perform all of
the duties that may be required of and from him pursuant to this Agreement
for a minimum of forty (40) hours per week. Employee shall not engage in
any other employment during the term of this Agreement. Nothing herein
shall be construed as preventing Employee from (a) investing his assets in
such form or manner as will not require any services on the part of
Employee in the operation of the affairs of the companies in which such
investments are made or (b) serving as a director, advisor, or consultant;
provided, however, that such investments or services may not be in
connection with a business which is in competition with the Company.
V. COMPENSATION AND EMPLOYEE BENEFITS.
A. Annual Base Salary. For all services rendered by Employee
under this Agreement, the Company shall pay Employee an initial annual
base salary of at least $90,000, payable in equal biweekly installments.
The amount of such base salary shall be determined at the beginning of
each fiscal year by the Executive Committee of the Board of Directors in
its sole discretion on the basis of merit and the Company's financial
success and progress but in no event shall such base salary be less than
the initial annual base salary indicated above, unless there is an
extraordinary, across-the-board reduction in the Company's officers'
salaries, in which case Employee's salary shall be reduced by a percentage
equal to the lowest percentage reduction taken by any other officer.
B. Bonus Compensation. Employee may receive year-end bonuses as
determined at the beginning of each fiscal year of the Company by the
Board of Directors in its sole discretion on the basis of merit and the
Company's financial success and progress.
C. Vacation. Employee shall be entitled to four weeks of paid
vacation each year but may, upon request, obtain payment in lieu of
accrued but unused vacation.
D. Employee Benefits. Employee shall be entitled to receive all of
the rights, benefits, and privileges of the Company's employees under any
retirement, pension, profit-sharing, insurance, health and hospital, and
other employee benefit plans which may be now in effect or hereafter
adopted by the Company.
E. Working Facilities. Employee shall be furnished with a private
office and such other facilities and services suitable to Employee's
position and adequate for the performance of the duties required by this
Agreement.
F. Expenses. Subject to limits which may be imposed by the
President or the Executive Committee of the Board of Directors, Employee
is authorized to incur reasonable expenses in connection with his
responsibilities in conducting the business of the Company, including
expenses for entertainment, travel, and similar items. The Company will
reimburse Employee for all such expenses upon the presentation by
Employee, from time to time, of an itemized account of such expenditures.
G. Automobile. Employer shall provide Employee with an automobile
and shall reimburse Employee for insurance, maintenance, fuel and repairs
associated with such automobile. The Company will reimburse Employee for
all such expenses upon the presentation by Employee, from time to time, of
an itemized account of such expenditures or Employee may pay such expenses
with a Company credit card.
VI. PROPRIETARY INTERESTS OF COMPANY.
Employee and the Company recognize that the Company is in a
highly competitive business in a highly technical industry. The parties
acknowledge that the success or failure of the Company depends largely on
the development and use of certain proprietary and confidential
information and trade secrets, including without limitation, information
concerning any of the Company's patented components, research and
development projects and in patent process components, and personal
relationships with present and potential customers, suppliers,
contractors, and governmental agencies; as well as technology, procedures,
systems, and techniques relating to the products developed or distributed
by the Company (hereinafter collectively referred to as "Confidential
Information"). Confidential Information is a substantial asset of the
Company. Confidential Information will be disclosed to Employee in the
normal course of the Company's operations. Employee acknowledges that
Confidential Information is extremely valuable to the Company and must be
protected from unauthorized use by the Company's competitors or other
persons. Therefore, Employee agrees not to disclose or use, whether for
the benefit of Employee or any other person, at any time during or after
his employment, any Confidential Information.
Employee recognizes that, during the term of his employment with
the Company, he may develop new products, technology, processes, devices,
inventions, or methods of production, including but not limited to
computer hardware, software or "firmware," and may enhance, improve or
perfect existing products, technology, processes, devices, inventions or
methods of production (hereinafter collectively referred to as
"Inventions"). As partial consideration for the salary, and other
benefits provided by the Company to the Employee, Employee hereby agrees
that his entire work product while in the employ of the Company, including
any Inventions, is the exclusive property of the Company. Employee also
agrees to cooperate fully with the Company and to do whatever acts are
reasonably necessary in order to obtain United States or foreign letters
patent or copyrights, or both, and to vest the entire right and title
thereto in the Company. Employee further agrees that the Company shall
have the royalty- free right to use in its business, and to make, use, and
sell such Inventions whether or not patentable, regardless of whether they
are conceived or made by the Employee during the hours which he is
employed by the Company or with the use of or assistance of the Company's
facilities, materials or personnel.
Except as required in his duties to the Company, Employee will
never, directly or indirectly, use, disseminate, disclose, lecture upon,
or publish articles concerning any Confidential Information without the
prior written consent of the Company.
Upon termination of his employment with the Company, all
documents, records, notebooks, and similar repositories of or containing
Confidential Information, including copies thereof, then in Employee's
possession, whether prepared by Employee or others, will be left with the
Company, and no copies thereof will be retained by the Employee.
It is agreed that any breach of this section of the Agreement
will cause immediate irreparable harm to the Company and monetary damages
would be difficult if not impossible to ascertain. Therefore, the parties
agree that upon any breach or threatened breach of any covenant in this
section that the Company may obtain from the district court for the City
and County of Denver, Colorado, or any other court of competent
jurisdiction, and appropriate restraining order, preliminary injunction or
other form of equitable relief with respect thereto. Nothing contained
herein shall affect the right of the Company to seek and obtain monetary
damages in addition to or substitution for such equitable relief.
VII. NONCOMPETE. During the term of this Agreement and for a period
of one year after termination, the Employee will not, directly or
indirectly, own, manage, operate, control, be employed by, participate in,
or be connected in any manner with the ownership, management, operation,
or control of any business which is similar to the type of business
conducted by the Company and which conducts such business or sells its
products within and to the same market as the Company's market at the time
of the termination or expiration of this Agreement. Employee certifies
that his employment with the Company will not breach a previous employment
agreement. Employee agrees not to engage in the unauthorized use of the
proprietary assets of others during the term of his employment by the
Company. Employee agrees not to enter into any other employment
agreement, oral or written, which will run concurrently, in whole or in
part, with Employee's employment by the Company. It is agreed that any
breach of this section of the Agreement will cause immediate irreparable
harm to the Company and monetary damages would be difficult if not
impossible to ascertain. Therefore, the parties agree that upon any
breach or threatened breach of any covenant in this section that the
Company may obtain from the district court for the City and County of
Denver, Colorado, or any other court of competent jurisdiction, an
appropriate restraining order, preliminary injunction or other form of
equitable relief with respect thereto. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other available
remedies for such breach or threatened breach, including the recovery of
damages, costs, and attorney fees.
The foregoing agreement not to compete shall not be held invalid
because of the scope of the territory or the actions restricted thereby,
or the period of time within which such agreement is operative; but any
judgment by a court of competent jurisdiction may define the maximum
territory and action subject to, and restricted by, this paragraph and the
period of time during which such agreement is enforceable.
Notwithstanding the foregoing, in the event of a CHANGE OF
CONTROL, as hereinafter defined, not recommended by a majority of the
Board of the Company as constituted prior to the CHANGE OF CONTROL Date,
this noncompete agreement shall terminate upon the CHANGE OF CONTROL date.
VIII. TERMINATION OF EMPLOYMENT.
A. TERMINATION BY MUTUAL AGREEMENT. The Company and Employee
may agree to terminate this Agreement on terms and conditions mutually
acceptable to them as of the date of termination.
B. DEATH. In the event of Employee's death, the Company shall
pay to any beneficiary designated by Employee or, if no such beneficiary
has been designated, to his estate, an amount equal to the then annual
base salary for one (1) year, together with any bonuses which the
Company's board of directors shall determine in its sole discretion to be
due and payable to Employee. If Employee's beneficiary or estate receives
any proceeds from any life insurance policies paid for by the Company, the
payments of annual base salary and bonuses which be reduced by the amount
of such proceeds from such life insurance policies.
C. DISABILITY. If Employee becomes disabled during the term
of employment, the Company, at its option, may thereafter, upon written
notice to Employee or Employee's personal representative, terminate the
employment. Employee shall thereafter be eligible to receive disability
benefits under the Company's standard employee disability insurance policy
like any other employee.
D. INVOLUNTARY TERMINATION. If prior notice is given of any
INVOLUNTARY TERMINATION as defined herein, Employee, if requested by the
Company to render his services, and shall be paid the then annual base
salary up to the date of such INVOLUNTARY TERMINATION, any bonuses which
the Company's Board of Directors shall determine in its sole discretion to
be due and payable to Employee, and the SEVERANCE AMOUNT as provided
herein.
E. DEFINITIONS. All the terms defined in this Section shall
have the meanings given below throughout this Agreement.
1. "CHANGE OF CONTROL" shall be deemed to have occurred
if:
a. any "person," including a "group" as determined
in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
b. as a result of, or in connection with, any tender
offer 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 the
Company before the Transaction shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the Company;
c. the Company is merged or consolidated with
another corporation and, as a result of the merger or consolidation, less
than 80% of the outstanding voting securities of the surviving or
resulting corporation is then owned in the aggregate by the former
stockholders of the Company;
d. a tender offer or exchange offer is made and
consummated for the ownership of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
voting securities; or
e. the Company transfers substantially all of its
assets to another corporation which is not a wholly-owned subsidiary of
the Company.
2. "DISABILITY" shall mean mental or physical illness or
condition rendering Employee incapable of performing Employee's normal
duties with the Company.
3. "INVOLUNTARY TERMINATION" shall mean any termination
except:
a. VOLUNTARY TERMINATION;
b. termination by mutual agreement; or
c. any termination as a result of death, DISABILITY,
or normal retirement pursuant to a retirement plan to which Employee was
subject prior to any Change of Control.
4. "SEVERANCE AMOUNT" is equal to:
a. in the case of an INVOLUNTARY TERMINATION which
occurs after a CHANGE OF CONTROL, an amount equal to Employee's Annual
Base Salary for one year, payable immediately upon termination; and
b. in the case of an INVOLUNTARY TERMINATION which
does not occur after a CHANGE OF CONTROL, an amount equal to Employee's
Annual Base Salary for one year, payable on regular bi-weekly payroll
dates, for a one-year period;
5. "VOLUNTARY TERMINATION" shall mean any termination
which results from a resignation or an early retirement by the Employee.
6. "VOTING SECURITIES" shall mean any securities which
ordinarily possess the power to vote in the election of directors without
the occurrence of any pre-condition or contingency other than the passage
of time.
F. Section 280G Payment Reduction. It is the intention of the
parties that the SEVERANCE AMOUNT payments under this Agreement shall not
constitute "excess parachute payments" within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended, and any regulations
thereunder. If the independent accountants acting as auditors for the
Company prior to the date of a CHANGE OF CONTROL (or another accounting
firm designated by them) determine that the SEVERANCE AMOUNT payments
under this Agreement may constitute "excess parachute payments," the
payments may be reduced to the maximum amount which may be paid without
the payments being "excess parachute payments." The determination shall
take into account (i) whether the payments are "parachute payments" under
Section 280G and, if so, (ii) the amount of payments under this Agreement
that constitutes reasonable compensation under Section 280G. Nothing
contained in this Agreement shall prevent the Company after a CHANGE OF
CONTROL from agreeing to pay Employee compensation or benefits in excess
of those provided in this Agreement.
G. MEDICAL AND DENTAL BENEFITS AFTER TERMINATION. If
Employee's employment by the Company or any subsidiary or successor of the
Company is terminated because of DISABILITY, VOLUNTARY TERMINATION, or
INVOLUNTARY TERMINATION, then to the extent that Employee or any of
Employee's dependents may be covered under the terms of any medical and
dental plans of the Company (or any subsidiary) for active Employees
immediately prior to the termination, Employee may, at his option,
continue coverage under such medical and dental plans, or equivalent plans
offered by the Company, for himself and those dependents until the later
of Employee's death or the death of Employee's spouse, if any, at the time
of Employee's death. The coverages may be procured directly by the
Company (or any subsidiary, if appropriate) apart from, and outside of the
terms of, the plans themselves; provided that Employee and Employee's
dependents comply with all of the conditions of the medical or dental
plans. In consideration for the Company's efforts in procuring these
benefits, Employee shall pay the entire cost of such coverage, including
what is typically considered the employer's portion.
IX. LIFE INSURANCE.
A. STANDARD GROUP LIFE INSURANCE. The Company shall provide
Employee with personal life insurance in accordance with the Company's
Group Life Insurance Policy, which currently provides life insurance
benefits for each employee in the amount of twice their annual salary up
to the maximum amount provided in the policy. In addition, the Company
will procure, or reimburse Employee for the cost of $200,000 in term life
insurance on Employee's life payable to a beneficiary chosen by Employee.
B. KEY MAN LIFE INSURANCE. Employee hereby consents to the
purchase by the Company, at the Company's option, of one or more Key Man
life insurance policies on Employee's life naming the Company or its
designee as beneficiary (the "Key Man Policies"); provided, however, that
the Company shall not be required to obtain such insurance. Employee
agrees that he shall take any reasonable actions which may be requested by
the Company, and otherwise fully cooperate with the Company, in its
efforts to purchase and maintain the Key Man Policies. The Key Man
Policies will be owned by the Company and the proceeds made payable to the
Company or its designee. If purchased by the Company, the Key Man
Policies shall be for the purpose of providing funds necessary to obtain a
replacement for Employee and for any other reasonable business purpose as
may determined by the Company in amounts sufficient to accomplish their
intended purpose.
X. DIRECTORS AND OFFICERS INSURANCE. The Company shall procure
Directors and Officers liability insurance coverage on all directors and
officers in such an amount as the Company deems reasonable and necessary
under the circumstances.
XI. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and delivered in person
or sent by registered or certified mail to Employee's residence in the
case of Employee or to its principal office in the case of the Company.
XII. WAIVER. The waiver of any provision of this Agreement shall not
operate or be construed as a waiver of any other provision of this
Agreement. No waiver shall be valid unless in writing and executed by the
party to be charged therewith.
XIII. SEVERABILITY/MODIFICATION. In the event that any clause or
provision of this Agreement shall be determined to be invalid, illegal or
unenforceable, such clause or provision may be severed or modified to the
extent necessary, and, as severed and/or modified, this Agreement shall
remain in full force and effect.
XIV. ASSIGNMENT. Except for a transfer by will or by the laws of
descent or distribution, Employee's right to receive payments or benefits
under this Agreement shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise. In the event of any
attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
Employee acknowledges that the services to be rendered under
this Agreement are unique and personal. Accordingly, Employee may not
assign such duties or obligations under this Agreement.
XV. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns (including, without
limitation, any company into or with which the Company may merge or
consolidate). The Company agrees that it will not effect the sale or
other disposition of all or substantially all of its assets unless either
(i) the person or entity acquiring the assets or a substantial portion of
the assets shall expressly assume by an instrument in writing all duties
and obligations of the Company under this Agreement or (ii) the Company
shall provide, through the establishment of a separate reserve for the
payment in full or all amounts which are or may reasonably be expected to
become payable to Employee under this Agreement.
XVI. ENTIRE AGREEMENT. This instrument contains the entire agreement
concerning the employment arrangement between the parties and shall, as of
the effective date hereof, supersede all other such agreements between the
parties provided however, that, nothing in this Agreement shall prevent
the Company from granting additional or special compensation or benefits
to Employee after the date of execution of this Agreement. This Agreement
may not be amended except by an agreement in writing signed by both
parties.
XVII. GOVERNING LAW AND JURISDICTION. This Agreement shall be
interpreted, construed, and enforced under the laws of the State of
Colorado. The courts and authorities of the State of Colorado shall have
sole jurisdiction and venue over all controversies which may arise with
respect to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year indicated above.
THE COMPANY:
VARI-L COMPANY, INC.
By:/s/David G. Sherman
David G. Sherman,
President
EMPLOYEE:
/s/Derek L. Bailey
Derek L. Bailey
VARI-L COMPANY, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective January 1, 1997, is made and entered into
by and between VARI-L COMPANY, INC. (the "Company") and Jon L. Clark
("Employee").
WHEREAS, Employee is currently an employee of the Company and the
Company and Employee wish to enter into this Agreement to set forth the
terms and conditions of employment.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein, and for other good and valuable consideration, the
parties hereto agree as follows:
I. EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment, upon the terms and conditions hereinafter set
forth.
II. TERM. Subject to the provisions for termination as hereinafter
provided, the term of this Agreement is for a period commencing January 1,
1997, and expiring December 31, 1999.
III. DUTIES. Employee is engaged as Vice President of Finance and
Chief Accounting Officer with responsibility for management of all
financial, accounting and cash management activities of the Company,
subject only to the direction of the President and the Board of Directors.
If Employee is elected or appointed a director of the Company during the
term of this Agreement, Employee shall serve in such capacity or
capacities without further compensation; but nothing herein shall be
construed as requiring the Company, or anybody else, to cause the election
or appointment of Employee as a director.
IV. EXTENT OF SERVICES. Employee shall faithfully, industriously,
and to the best of his ability, experience, and talents, perform all of
the duties that may be required of and from him pursuant to this Agreement
for a minimum of forty (40) hours per week. Employee shall not engage in
any other employment during the term of this Agreement. Nothing herein
shall be construed as preventing Employee from (a) investing his assets in
such form or manner as will not require any services on the part of
Employee in the operation of the affairs of the companies in which such
investments are made or (b) serving as a director, advisor, or consultant;
provided, however, that such investments or services may not be in
connection with a business which is in competition with the Company.
V. COMPENSATION AND EMPLOYEE BENEFITS.
A. ANNUAL BASE SALARY. For all services rendered by Employee
under this Agreement, the Company shall pay Employee an initial annual
base salary of at least $75,000, payable in equal biweekly installments.
The amount of such base salary shall be determined at the beginning of
each fiscal year by the Executive Committee of the Board of Directors in
its sole discretion on the basis of merit and the Company's financial
success and progress but in no event shall such base salary be less than
the initial annual base salary indicated above, unless there is an
extraordinary, across-the-board reduction in the Company's officers'
salaries, in which case Employee's salary shall be reduced by a percentage
equal to the lowest percentage reduction taken by any other officer.
B. BONUS COMPENSATION. Employee may receive year-end bonuses
as determined at the beginning of each fiscal year of the Company by the
Board of Directors in its sole discretion on the basis of merit and the
Company's financial success and progress.
C. VACATION. Employee shall be entitled to four weeks of
paid vacation each year, but may, upon request, obtain payment in lieu of
accrued but unused vacation.
D. EMPLOYEE BENEFITS. Employee shall be entitled to receive
all of the rights, benefits, and privileges of the Company's employees
under any retirement, pension, profit-sharing, insurance, health and
hospital, and other employee benefit plans which may be now in effect or
hereafter adopted by the Company.
E. WORKING FACILITIES. Employee shall be furnished with a
private office and such other facilities and services suitable to
Employee's position and adequate for the performance of the duties
required by this Agreement.
F. EXPENSES. Subject to limits which may be imposed by the
President or the Executive Committee of the board of directors, Employee
is authorized to incur reasonable expenses in connection with his
responsibilities in conducting the business of the Company, including
expenses for entertainment, travel, and similar items. The Company will
reimburse Employee for all such expenses upon the presentation by
Employee, from time to time, of an itemized account of such expenditures.
VI. PROPRIETARY INTERESTS OF COMPANY
Employee and the Company recognize that the Company is in a
highly competitive business in a highly technical industry. The parties
acknowledge that the success or failure of the Company depends largely on
the development and use of certain proprietary and confidential
information and trade secrets, including without limitation, information
concerning any of the Company's patented components, research and
development projects and in patent process components, and personal
relationships with present and potential customers, suppliers,
contractors, and governmental agencies; as well as technology, procedures,
systems, and techniques relating to the products developed or distributed
by the Company (hereinafter collectively referred to as "Confidential
Information"). Confidential Information is a substantial asset of the
Company. Confidential Information will be disclosed to Employee in the
normal course of the Company's operations. Employee acknowledges that
Confidential Information is extremely valuable to the Company and must be
protected from unauthorized use by the Company's competitors or other
persons. Therefore, Employee agrees not to disclose or use, whether for
the benefit of Employee or any other person, at any time during or after
his employment, any Confidential Information.
Employee recognizes that, during the term of his employment
with the Company, he may develop new products, technology, processes,
devices, inventions, or methods of production, including but not limited
to computer hardware, software or "firmware," and may enhance, improve or
perfect existing products, technology, processes, devices, inventions or
methods of production (hereinafter collectively referred to as
"Inventions"). As partial consideration for the salary, and other
benefits provided by the Company to the Employee, Employee hereby agrees
that his entire work product while in the employ of the Company, including
any Inventions, is the exclusive property of the Company. Employee also
agrees to cooperate fully with the Company and to do whatever acts are
reasonably necessary in order to obtain United States or foreign letters
patent or copyrights, or both, and to vest the entire right and title
thereto in the Company. Employee further agrees that the Company shall
have the royalty- free right to use in its business, and to make, use, and
sell such Inventions whether or not patentable, regardless of whether they
are conceived or made by the Employee during the hours which he is
employed by the Company or with the use of or assistance of the Company's
facilities, materials or personnel.
Except as required in his duties to the Company, Employee will
never, directly or indirectly, use, disseminate, disclose, lecture upon,
or publish articles concerning any Confidential Information without the
prior written consent of the Company.
Upon termination of his employment with the Company, all
documents, records, notebooks, and similar repositories of or containing
Confidential Information, including copies thereof, then in Employee's
possession, whether prepared by Employee or others, will be left with the
Company, and no copies thereof will be retained by the Employee.
It is agreed that any breach of this section of the Agreement
will cause immediate irreparable harm to the Company and monetary damages
would be difficult if not impossible to ascertain. Therefore, the parties
agree that upon any breach or threatened breach of any covenant in this
section that the Company may obtain from the district court for the City
and County of Denver, Colorado, or any other court of competent
jurisdiction, an appropriate restraining order, preliminary injunction or
other form of equitable relief with respect thereto. Nothing contained
herein shall affect the right of the Company to seek and obtain monetary
damages in addition to or substitution for such equitable relief.
VII. NONCOMPETE. During the term of this Agreement and for a period
of one year after termination, the Employee will not, directly or
indirectly, own, manage, operate, control, be employed by, participate in,
or be connected in any manner with the ownership, management, operation,
or control of any business which is similar to the type of business
conducted by the Company and which conducts such business or sells its
products within and to the same market as the Company's market at the time
of the termination or expiration of this Agreement. Employee certifies
that his employment with the Company will not breach a previous employment
agreement. Employee agrees not to engage in the unauthorized use of the
proprietary assets of others during the term of his employment by the
Company. Employee agrees not to enter into any other employment
agreement, oral or written, which will run concurrently, in whole or in
part, with Employee's employment by the Company. It is agreed
that any breach of this section of the Agreement will cause immediate
irreparable harm to the Company and monetary damages would be difficult if
not impossible to ascertain. Therefore, the parties agree that upon any
breach or threatened breach of any covenant in this section that the
Company may obtain from the district court for the City and County of
Denver, Colorado, or any other court of competent jurisdiction, an
appropriate restraining order, preliminary injunction or other form of
equitable relief with respect thereto. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other available
remedies for such breach or threatened breach, including the recovery of
damages, costs, and attorney fees.
The foregoing agreement not to compete shall not be held
invalid because of the scope of the territory or the actions restricted
thereby, or the period of time within which such agreement is operative;
but any judgment by a court of competent jurisdiction may define the
maximum territory and action subject to, and restricted by, this paragraph
and the period of time during which such agreement is enforceable.
Notwithstanding the foregoing, in the event of a Change of
Control, as hereinafter defined, not recommended by a majority of the
Board of the Company as constituted prior to the Change of Control Date,
this noncompete agreement shall terminate upon the Change of Control Date.
VIII. TERMINATION OF EMPLOYMENT.
A. TERMINATION BY MUTUAL AGREEMENT. The Company and Employee
may agree to terminate this Agreement on terms and conditions mutually
acceptable to them as of the date of termination.
B. DEATH. In the event of Employee's death, the Company
shall pay to any beneficiary designated by Employee or, if no such
beneficiary has been designated, to his estate, an amount equal to the
then annual base salary for one (1) year, together with any bonuses which
the Company's board of directors shall determine in its sole discretion to
be due and payable to Employee. If Employee's beneficiary or estate
receives any proceeds from any life insurance policies paid for by the
Company, the payments of annual base salary and bonuses shall be reduced
by the amount of such proceeds from such life insurance policies.
C. DISABILITY. If Employee becomes disabled during the term
of employment, the Company, at its option, may thereafter, upon written
notice to Employee or Employee's personal representative, terminate the
employment. Employee shall thereafter be eligible to receive disability
benefits under the Company's standard employee disability insurance policy
like any other employee.
D. INVOLUNTARY TERMINATION. If prior notice is given of any
INVOLUNTARY TERMINATION as defined herein, Employee, if requested by the
Company, shall continue to render his services and shall be paid the then
annual base salary up to the date of such INVOLUNTARY TERMINATION, any
bonuses which the Company's Board of Directors shall determine in its sole
discretion to be due and payable to Employee, and the SEVERANCE AMOUNT as
provided herein.
E. DEFINITIONS. All the terms defined in this Section shall
have the meanings given below throughout this Agreement.
1. "CHANGE OF CONTROL" shall be deemed to have occurred
if:
a. any "person," including a "group" as determined
in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act"), becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
b. as a result of, or in connection with, any
tender offer 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 the
Company before the Transaction shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the Company;
c. the Company is merged or consolidated with
another corporation and, as a result of the merger or consolidation, less
than 80% of the outstanding voting securities of the surviving or
resulting corporation is then owned in the aggregate by the former
stockholders of the Company;
d. a tender offer or exchange offer is made and
consummated for the ownership of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
voting securities; or
e. the Company transfers substantially all of its
assets to another corporation which is not a wholly-owned subsidiary of
the Company.
2. "DISABILITY" shall mean mental or physical illness or
condition rendering Employee incapable of performing Employee's normal
duties with the Company.
3. "INVOLUNTARY TERMINATION" shall mean any termination
except:
a. VOLUNTARY TERMINATION;
b. termination by mutual agreement; or
c. any termination as a result of death,
disability, or normal retirement pursuant to a retirement plan to which
Employee was subject prior to any CHANGE OF CONTROL.
4. "SEVERANCE AMOUNT" is equal to:
a. in the case of an INVOLUNTARY TERMINATION which
occurs after a CHANGE OF CONTROL, an amount equal to Employee's Annual
Base Salary for six months, payable immediately upon termination; and
b. in the case of an INVOLUNTARY TERMINATION which
does not occur after a Change of Control, an amount equal to Employee's
Annual Base Salary for six months, payable ratably on regular bi-weekly
payroll dates, over a six-month period;
5. "VOLUNTARY TERMINATION" shall mean any termination
which results from a resignation or an early retirement by the Employee.
6. "VOTING SECURITIES" shall mean any securities which
ordinarily possess the power to vote in the election of directors without
the occurrence of any pre-condition or contingency other than the passage
of time.
F. SECTION 280G PAYMENT REDUCTION. It is the intention of
the parties that the SEVERANCE AMOUNT payments under this Agreement shall
not constitute "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended, and any regulations
thereunder. If the independent accountants acting as auditors for the
Company prior to the date of a CHANGE OF CONTROL (or another accounting
firm designated by them) determine that the SEVERANCE AMOUNT payments
under this Agreement may constitute "excess parachute payments," the
payments may be reduced to the maximum amount which may be paid without
the payments being "excess parachute payments." The determination shall
take into account (i) whether the payments are "parachute payments" under
Section 280G and, if so, (ii) the amount of payments under this Agreement
that constitutes reasonable compensation under Section 280G. Nothing
contained in this Agreement shall prevent the Company after a CHANGE OF
CONTROL from agreeing to pay Employee compensation or benefits in excess
of those provided in this Agreement.
G. MEDICAL AND DENTAL BENEFITS AFTER TERMINATION. If
Employee's employment by the Company or any subsidiary or successor of the
Company is terminated because of DISABILITY, VOLUNTARY TERMINATION, or
INVOLUNTARY TERMINATION, then to the extent that Employee or any of
Employee's dependents may be covered under the terms of any medical and
dental plans of the Company (or any subsidiary) for active Employees
immediately prior to the termination, Employee may, at his option,
continue coverage under such medical and dental plans, or equivalent plans
offered by the Company, for himself and those dependents until Employee's
death. The coverages may be procured directly by the Company (or any
subsidiary, if appropriate) apart from, and outside of the terms of, the
plans themselves; provided that Employee and Employee's dependents comply
with all of the conditions of the medical or dental plans. In
consideration for the Company's efforts in procuring these benefits,
Employee shall pay the entire cost of such coverage, including what is
typically considered the Employer's portion.
IX. LIFE INSURANCE.
A. STANDARD GROUP LIFE INSURANCE. The Company shall provide
Employee with personal life insurance in accordance with the terms of the
Company's Group Life Insurance Policy, which currently provides life
insurance benefits for each employee in the amount of twice their annual
salary up to the maximum amount provided in the policy. In addition, the
Company will procure, or reimburse Employee for the cost of $100,000 in
term life insurance on Employee's life payable to a beneficiary chosen by
Employee.
B. KEY MAN LIFE INSURANCE. Employee hereby consents to the
purchase by the Company, at the Company's option, of one or more Key Man
life insurance policies on Employee's life naming the Company or its
designee as beneficiary (the "Key Man Policies"); provided, however, that
the Company shall not be required to obtain such insurance. Employee
agrees that he shall take any reasonable actions which may be requested by
the Company, and otherwise fully cooperate with the Company, in its
efforts to purchase and maintain the Key Man Policies. The Key Man
Policies will be owned by the Company and the proceeds made payable to the
Company or its designee. If purchased by the Company, the Key Man
Policies shall be for the purpose of providing funds necessary to obtain a
replacement for Employee and for any other reasonable business purpose as
may determined by the Company in amounts sufficient to accomplish their
intended purpose.
X. DIRECTORS AND OFFICERS INSURANCE. The Company shall procure
Directors and Officers liability insurance coverage on all directors and
officers in such an amount as the Company deems reasonable and necessary
under the circumstances.
XI. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and delivered in person
or sent by registered or certified mail to Employee's residence in the
case of Employee or to its principal office in the case of the Company.
XII. WAIVER. The waiver of any provision of this Agreement shall
not operate or be construed as a waiver of any other provision of this
Agreement. No waiver shall be valid unless in writing and executed by the
party to be charged therewith.
XIII. SEVERABILITY/MODIFICATION. In the event that any clause or
provision of this Agreement shall be determined to be invalid, illegal or
unenforceable, such clause or provision may be severed or modified to the
extent necessary, and, as severed and/or modified, this Agreement shall
remain in full force and effect.
XIV. ASSIGNMENT. Except for a transfer by will or by the laws of
descent or distribution, Employee's right to receive payments or benefits
under this Agreement shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise. In the event of any
attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
Employee acknowledges that the services to be rendered under
this Agreement are unique and personal. Accordingly, Employee may not
assign such duties or obligations under this Agreement.
XV. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns (including, without
limitation, any company into or with which the Company may merge or
consolidate). The Company agrees that it will not effect the sale or
other disposition of all or substantially all of its assets unless either
(i) the person or entity acquiring the assets or a substantial portion of
the assets shall expressly assume by an instrument in writing all duties
and obligations of the Company under this Agreement or (ii) the Company
shall provide, through the establishment of a separate reserve for the
payment in full of all amounts which are or may reasonably be expected to
become payable to Employee under this Agreement.
XVI. ENTIRE AGREEMENT. This instrument contains the entire
agreement concerning the employment arrangement between the parties and
shall, as of the effective date hereof, supersede all other such
agreements between the parties provided, however, that nothing in this
Agreement shall prevent the Company from granting additional or special
compensation or benefits to Employee after the date of execution of this
Agreement. This Agreement may not be amended except by an agreement in
writing signed by both parties. Nothing in this paragraph shall be deemed
to modify or amend the Settlement Agreement nor any agreements or
instruments entered into between the parties hereto as a result of that
Settlement Agreement.
XVII. GOVERNING LAW AND JURISDICTION. This Agreement shall be
interpreted, construed, and enforced under the laws of the State of
Colorado. The courts and authorities of the State of Colorado shall have
sole jurisdiction and venue over all controversies which may arise with
respect to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year indicated above.
THE COMPANY:
VARI-L COMPANY, INC.
By:/s/ David G. Sherman
David G. Sherman,
President
EMPLOYEE:
/s/Jon L. Clark
Jon L. Clark
