-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QbFyOOEoarVgotxgoA+G0Ss2rjtA4qfZAB4xjiAGB0cehsrcGs7YO6nQfwP44Xd7 XJc80W+k7bkYz4LgXUsBmg== 0001012870-01-001390.txt : 20010330 0001012870-01-001390.hdr.sgml : 20010330 ACCESSION NUMBER: 0001012870-01-001390 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOMERA COMMUNICATIONS INC CENTRAL INDEX KEY: 0001094243 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 770407502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27843 FILM NUMBER: 1584526 BUSINESS ADDRESS: STREET 1: 5383 HOLLISTER AVENUE CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: 8056813322 MAIL ADDRESS: STREET 1: 5383 HOLLISTER AVENUE CITY: SANTA BARBARA STATE: CA ZIP: 93111 10-K 1 0001.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File Number 000-27843 Somera Communications, Inc. (Exact name of registrant as specified in its charter) Delaware 77-0521878 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5383 Hollister Avenue, Santa Barbara, CA 93111 (Address of principal executive offices and zip code) (805) 681-3322 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock, $0.001 par value per share (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. |_| The aggregate market value of the voting stock held by non-affiliates of the Registrant (based on the closing sale price of the Common Stock as reported on the NASDAQ National Market on March 27. 2001) was approximately $81,000,000. The number of outstanding shares of the Registrant's Common Stock as of the close of business on March 28, 2001 was 48,644,607. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for the 2001 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K to the extent stated herein. SOMERA COMMUNICATIONS, INC. INDEX Page ---- PART I Item 1. Business ......................................................... 1 Item 2. Properties ....................................................... 7 Item 3. Legal Proceedings ................................................ 7 Item 4. Submission of Matters to a Vote of Security Holders .............. 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .......................................................... 8 Item 6. Selected Financial Data .......................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................ 10 Item 7A. Qualitative and Quantitative Disclosures About Market Risk ....... 22 Item 8. Financial Statements and Supplementary Data ...................... 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................................... 42 PART III Item 10. Directors and Executive Officers of the Registrant ............... 42 Item 11. Executive Compensation ........................................... 42 Item 12. Security Ownership of Certain Beneficial Owners and Management ... 42 Item 13. Certain Relationships and Related Transactions ................... 42 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 43 PART I This Annual Report on Form 10-K contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. These statements, other than statements of historical facts included in this Annual Report on Form 10-K, regarding our strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Annual Report on Form 10-K, the words "may", "will", "should", "plan", "anticipate", "believe", "intend", "estimate", "expect", "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Annual Report on Form 10-K are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors in "Risks Factors" and elsewhere in this Annual Report that could cause our actual results to differ materially from the forward-looking statements in this Form 10-K. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations. ITEM 1. BUSINESS We provide telecommunications carriers with a broad range of infrastructure equipment and related services designed to meet their specific and changing equipment needs. We offer our customers a unique combination of new and de-installed equipment from a variety of manufacturers, allowing them to make fast multi-vendor purchases from a single cost-effective source. To further address our customers' dynamic equipment needs, we offer a suite of customized, value-added services including asset recovery, inventory management, technical support and other ancillary services under the umbrella of Somera OneSource Services. Our innovative equipment and service offerings are delivered through our team of sales and procurement professionals, who work individually with customers to understand, anticipate and meet their ongoing equipment requirements. Our sales teams utilize our relationship management database, our selective inventory and our distribution infrastructure to provide our customers with rapidly deployable equipment solutions. Equipment and Services Equipment We offer our customers a broad range of telecommunications infrastructure equipment to address their specific and changing equipment needs. The equipment we sell includes new and de-installed items from a variety of manufacturers. In 2000, we sold over 10,000 different items, from over 300 different manufacturers. We offer the original manufacturer's warranty on all new equipment. On de-installed equipment, we offer our own warranty which guarantees that the equipment will perform up to the manufacturer's original specifications. The new equipment we offer consists of telecommunications equipment purchased primarily from the OEM or a distributor. The de-installed equipment we offer consists primarily of equipment removed from carriers' existing telecommunications networks. These carriers are typically the original owners of such equipment. The carrier or another third party professionally removes this equipment. In some instances, Somera will directly perform the de-installation on behalf of the carrier. Following removal, de-installed equipment is shipped to our distribution facility where we test and refurbish the equipment as necessary. Our refurbishment process includes services such as cleaning and testing de-installed equipment, and repairing and reconfiguring the equipment where necessary. The refurbishment process is conducted by our in-house technicians, whom we train, or by third parties. Upon completion of this process, the de-installed equipment is added to our list of available items and may be sold to a customer. The equipment we sell is grouped into several general categories including switching, transmission, access, wireless, data, microwave and power products. 1 Switching. Switching equipment is used by carriers to manage call traffic and to deliver value-added services. Switches and related equipment are located in the central office of a telecommunications carrier and serve to determine pathways and circuits for establishing, breaking or completing voice and data communications over the public switched telephone network, or PSTN, and the Internet. We provide a variety of switching equipment, including switches, circuit cards, shelves, racks and other ancillary items in support of carrier upgrades and reconfigurations. Manufacturers of switching equipment whose products we sell include Alcatel USA, Lucent Technologies and Nortel Networks. Transmission. Transmission equipment is used by carriers to carry information to multiple points in a carrier's network. Transmission equipment serves as the backbone of a telecommunications carrier's network and transmits voice and data traffic in the form of standard electrical or optical signals. We sell a broad range of transmission products, including channel banks, multiplexors, digital cross-connect systems, DSX panels and echo cancellers. Manufacturers of transmission equipment whose products we sell include ADC Telecommunications, Fujitsu, Lucent Technologies, NEC, Nortel Networks, Telco Systems, and Tellabs. Access. Access equipment is used by carriers, to provide local telephone service and Internet access. Access equipment is used in the local loop, or last mile, portion of the PSTN and connects a home or business to the switch in a carrier's central office. We provide a variety of access equipment, including digital loop carriers, digital subscriber line products, channel service units/digital subscriber units, multiplexors and network interface units. Manufacturers of access equipment whose products we sell include ADC Telecommunications, Carrier Access, Lucent Technologies, NEC, Newbridge Networks, Nortel Networks, Telco Systems, and VINA Technologies. Wireless. Cell sites and related ancillary wireless products are used by cellular, PCS and paging carriers to provide wireless telephone and Internet access. This equipment is used to amplify, transmit and receive signals between mobile users and transmission sites, including cell sites and transmission towers. We sell a broad range of wireless equipment including radio base stations, towers, shelters, combiners, transceivers and other related items. Manufacturers of wireless and cell site equipment whose products we sell include Allen Telecom, Telefon AB LM Ericsson, Lucent Technologies, Motorola, Nortel Networks and Siemens. Data. Data networking equipment is used to transmit, route and switch data communications traffic within a carrier's network. We provide a wide variety of data networking products including routers, ATM switches, hubs and bridges. Manufacturers of data networking equipment whose products we sell include Cisco Systems, Lucent Technologies, Nortel Networks, and Motorola. Microwave. Microwave systems are used by carriers to transmit and receive voice, data and video traffic. These systems enable point-to-point and point-to-multipoint, high speed wireless communications. We provide a variety of microwave systems, including antennas, dishes, coaxial cables and connectors. Manufacturers of microwave systems whose products we sell include Alcatel Alsthom, Adaptive Broadband, Digital Microwave, Digital Transmission Systems, Harris-Farinon Canada, Nortel Networks and Western Multiplex. Power. Power equipment is used by carriers to provide direct current (DC) and/or alternate current (AC) power to support their network infrastructure equipment. We sell a broad range of power equipment, including power bays, rectifiers, batteries, breaker panels and converters. Manufacturers of power equipment whose products we sell include C&D Technologies, GEC, Lucent Technologies, Marconi, Nortel Networks, Peco II and Power Conversion Products. Services Unlike other equipment providers that are product driven, we are customer focused. Our equipment and service offerings, industry focused sales teams and internal systems and procedures are all specifically designed to meet the needs of each carrier market we serve. We train our employees to offer high quality service and to provide consistent, reliable customer service. We believe these elements enable us to offer a sales force that can provide rapid, knowledgeable and creative solutions to our customers. To enable carriers to focus on their core business, we offer the following services in connection with our equipment sales and procurement: 2 o Asset Recovery Programs. Our innovative asset recovery programs offer carriers effective solutions to manage their de-installed equipment. These programs are customized to meet the specific objectives of each carrier, and include equipment purchases as well as equipment trade-ins, consignment and re-marketing programs. The programs allow carriers to easily and rapidly recapture value from de-installed equipment. o Technical Services. Our technical services include product selection, equipment configuration, custom integration and technical support. These services enable carriers to supplement their internal technical resources. o Value-added Materials Management Services. Our materials management services include equipment procurement, multi-vendor equipment packaging, which we refer to as kitting, warehousing and other inventory management and deployment services. o Other Services. Through our extensive network of subcontractor relationships and partners, we are also capable of providing specialized transportation services, regional warehousing, repair services, installation and de-installation services. Sales, Marketing and Procurement Our sales organization is located primarily at our corporate headquarters in Santa Barbara, California and is augmented by our satellite offices located in California, New Jersey, Georgia, Kansas, Washington, and our international office in Amsterdam, The Netherlands. As of December 31, 2000, we employed 180 sales and procurement professionals. We generate leads primarily through direct marketing, customer referrals and participation in industry tradeshows. Our sales force is organized by market segment, including specialized teams focused on the regional bell operating companies ("RBOCs"), incumbent local exchange carriers ("ILECs"), long distance carriers ("IXCs"), competitive local exchange carriers ("CLECs"), wireless carriers, including cellular, personal communications service companies ("PCSs") and specialized mobile radio operators ("SMRs"), and internet service providers ("ISPs"). Our sales force operates on a named account basis rather than by geography, which allows us to maintain a consistent, single point of contact for each customer. Another key feature of our selling effort is the relationships we establish at various levels in our customers' organizations. This structure allows us to establish multiple contacts with each customer across their management, engineering and purchasing operations. For each type of carrier, we employ dedicated teams with extensive market knowledge to meet the specific equipment needs of these customers. Each team member has access to, and is supported by, our relationship management database. This real time proprietary information system allows each team to: o respond to customer requirements by accessing our extensive database of excess and de-installed equipment located at carriers, manufacturers, distributors and other third parties worldwide, as well as by accessing our select inventory; o access relevant detailed purchase and sale information by customer and part number; o access technical and system configuration information; o trace and track all customer and vendor order activity; and o project and anticipate customer equipment requirements. Each of our teams is headed by a group sales director who is responsible for the overall customer relationship and is supported by a number of group sales managers, account executives, logistics administrators and production controllers. We believe our dedicated team structure provides consistent high quality customer service which builds long-term relationships with our customers. Our account executives have frequent customer contact and oversee customer proposals while our logistics administrators work with our production controllers as well as our customers to coordinate sourcing, delivery and any required follow-through procedures to ensure our customers receive quality, 3 timely customer service. Our marketing effort focuses on enhancing market awareness of our brand through industry trade shows, professional sales presentations and brochures, an informative web site, branded giveaways and special customer events. Additionally, we advertise in key telecommunications industry publications. We believe the size and scope of our operations in our highly fragmented industry gives us both a unique advantage and opportunity to further build and enhance our brand recognition. In support of our sales activities, we have teams who are responsible for procurement of the de-installed equipment we sell. Procurement teams are organized by market segment, including specialized teams focused on wireless carriers, wireline carriers, original equipment manufacturers and distributors. Our procurement specialists are dedicated, on a named account basis, to purchase de-installed equipment from carriers. We also employ a product marketing group that develops and maintains our relationships with manufacturers and distributors to assure the availability of new equipment for our customers. As we attempt to expand our sales, marketing and procurement efforts into international markets, we face a number of challenges, including: o recruiting skilled sales and technical support personnel; o creation of new supply and customer relationships; o difficulties and costs of managing and staffing international operations; and o developing relationships with local suppliers. We cannot be certain that one or more of these factors will not harm our future international operations. Customers We sell equipment to ILECs, RBOCs, IXCs, a broad range of wireless carriers including cellular, PCS, paging and SMRs, and CLECs. We have over 1,000 customers who are located primarily in the United States. In 2000, Verizon Communications accounted for 11.3% of our net revenue. In 1999, no single customer accounted for more than 10% of our net revenue. In 1998 ALLTEL accounted for 10.2% of our net revenue. Sales to customers outside of the United States accounted for 7.8% of our net revenue in 2000, 10.9% of our net revenue in 1999 and 19.7% of our net revenue in 1998. Customers from whom we recognized at least $7.5 million in net revenue in 2000 include leading carriers such as Verizon Communications, ALLTEL, and MCI Worldcom. Competition The market for our equipment and service offerings is highly competitive. We believe that the trends toward greater demand for telecommunications services, increasing global deregulation and rapid technology advancements characterized by shortened product lifecycles will continue to drive competition in our industry for the foreseeable future. Increased competition may result in price reductions, lower gross margins and loss of our market share. Increased competition in the secondary market for telecommunications equipment could also heighten demand for the limited supply of de-installed equipment, which would lead to increased prices for, and reduce the availability of, this equipment. Any increase in these prices could significantly impact our ability to maintain our gross margins. Any reduction in the availability of this equipment could cause us to lose customers. We currently face competition primarily from original equipment manufacturers, distributors and secondary market dealers. Many of these competitors have longer operating histories, significantly greater resources and name recognition, and a larger base of customers. These competitors are also likely to enjoy substantial competitive advantages over us, including the following: 4 o ability to devote greater resources to the development, promotion and sale of their equipment and related services; o ability to adopt more aggressive pricing policies than we can; o ability to expand existing customer relationships and more effectively develop new customer relationships than we can, including securing long term purchase agreements; o ability to leverage their customer relationships through volume purchasing contracts, and other means intended to discourage customers from purchasing products from us; o ability to more rapidly adopt new or emerging technologies and increase the array of products offered to better respond to changes in customer requirements; o greater focus and expertise on specific manufacturers or product lines; o ability to implement more effective e-commerce solutions; and o ability to form new alliances or business combinations to rapidly acquire significant market share. There can be no assurance that we will have the resources to compete successfully in the future or that competitive pressures will not harm our business. Employees As of December 31, 2000, we had 302 full-time employees. We consider our relations with our employees to be satisfactory. We have never had a work stoppage, and none of our employees is represented by a collective bargaining agreement. We believe that our future success will depend in part on our ability to attract, integrate, retain and motivate highly qualified personnel, and upon the continued service of our senior management and key sales personnel. Competition for qualified personnel in the telecommunications equipment industry and our geographic location is intense. We cannot assure you that we will be successful in attracting, integrating, retaining and motivating a sufficient number of qualified employees to conduct our business in the future. 5 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the Company's current executive officers as of February 28, 2001. Name Age Position ---- --- -------- Dan Firestone........ 39 Chairman of the Board of Directors, President and Chief Officer Jeffrey G. Miller.... 37 Executive Vice President, Sales and Marketing Gary J. Owen......... 46 Chief Financial Officer Gil Varon............ 39 Director and Vice President, Wireline Division Glenn E. Berger...... 38 Vice President, Operations Brandt A. Handley.... 42 Vice President, International Sales Dan Firestone co-founded Somera Communications in July 1995, has served as our Chief Executive Officer since 1996, has served as our President since December 1998, and has also served as our Chairman of the Board since our inception. From 1994 to the present, Mr. Firestone has also operated SDC Business Consulting, a private business consulting firm. In 1984, Mr. Firestone co-founded Century Computer Marketing, a distributor of computer service spare parts and related products, and served as its Chief Executive Officer until May 1994. Jeffrey G. Miller has served as our Executive Vice President, Sales and Marketing since joining Somera Communications in May 1999. From January 1996 until May 1999, Mr. Miller served as Regional Director for North American Sales and Operations for the Cellular Infrastructure Group of Motorola, Inc. From 1985 until January 1996, Mr. Miller worked in various capacities with AT&T, including positions in sales management, product management, marketing, and software development in their long distance, premises equipment, and voice messaging business segments. Mr. Miller holds a B.S. in business administration from Miami University and an M.B.A. from Ohio State University. Gary J. Owen has served as our Chief Financial Officer since joining Somera Communications in July 1999. From January 1999 until July 1999, Mr. Owen served as Group Finance Director for Logical Holdings Ltd., a U.K. software development and services company. From January 1997 to January 1999, Mr. Owen served as Group Finance Director for IFX Group plc, an international information services company. From September 1996 to December 1996, Mr. Owen served as a finance consultant doing project work for Fujitsu Telecommunications Ltd. From May 1994 to September 1996, Mr. Owen served as Director, European Operations, for Aurora Electronics, Inc., an electronic materials management company. From 1986 until May 1994, Mr. Owen served as Chief Financial Officer of Century Computer Marketing, a distributor of computer service spare parts and related products. Mr. Owen holds a B.A. in accounting and finance from Nottingham University, England. Mr. Owen is also a qualified member of the Institute of Chartered Accountants. Gil Varon co-founded Somera Communications in July 1995, served as our President from July 1995 until December 1998, has served as our Vice President, Wireline Division since January 1999, and has served as one of our directors since our inception. From 1995 until the present, Mr. Varon has also served as a Senior Sales Manager. From May 1994 to June 1995, Mr. Varon served in sales and procurement positions for Aurora Electronics, Inc. From 1985 until May 1994, Mr. Varon served as a Group Sales Manager at Century Computer Marketing. Glenn E. Berger has served as our Vice President of Operations since joining Somera Communications in November 1999. From 1994 to November 1999, Mr. Berger served as Director of North American Distribution Operations and Logistics Strategy for Compaq Computer Corporation. From 1984 to 1994, Mr. Berger held several logistics, transportation, and distribution management positions with Frito-Lay, Inc. Mr. Berger graduated from Arizona State University with a B.S. degree in Business Administration. Brandt A. Handley has served as our Vice President, International, since joining Somera Communications in 6 January, 2001. From 1999 to 2000, Mr. Handley founded and operated Seedvest, Inc., an equity investment and consultancy firm. From 1991 to 1999, Mr. Handley served as a vice president at The Walt Disney Company, establishing two start-up companies in Asia. From 1982 to 1991, Mr. Handley served in various management capacities in the marketing department of The Procter & Gamble Company, including assignments in Europe and Asia. Mr. Handley holds a B.A. in international business from the University of Oregon and an M.B.A. from the University of Pennsylvania. ITEM 2. PROPERTIES Our principal executive and corporate offices, located in Santa Barbara, California, occupy approximately 39,000 square feet under several lease agreements that expire from March 2003 to March 2004. We also occupy five additional office sites in the United States under lease agreements, totaling approximately 14,000 square feet. At December 31, 2000, we operated three distribution facilities in the United States, occupying approximately 171,000 square feet, all of which were leased. Our primary distribution center is located in Oxnard, California, and occupies approximately 100,000 square feet. We also opened our new European headquarters and distribution center, located in Amsterdam, The Netherlands, in the fourth quarter of 2000, which occupies approximately 14,000 square feet under a lease agreement. We believe that our facilities are adequate for our current operations and that additional space can be obtained if needed. ITEM 3. LEGAL PROCEEDINGS From time to time, we may be involved in legal proceedings and litigation arising in the ordinary course of business. As of the date hereof, we are not a party to or aware of any litigation or other legal proceeding that could materially harm our business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of holders of Common Stock during the quarter ended December 31, 2000. 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock has been traded on the Nasdaq National Market under the symbol "SMRA" since our initial public offering on November 12, 1999. The following table sets forth, for the periods indicated, the high and low closing sale prices for our common stock as reported by the Nasdaq National Market: High Low ------ ------ Year Ended December 31, 2000 First quarter .................... $15.44 $11.19 Second quarter ................... $14.88 $ 7.50 Third quarter .................... $14.31 $ 9.50 Fourth quarter ................... $12.50 $ 5.88 Year Ended December 31, 1999 Fourth quarter .............. $19.00 $12.44 On March 27, 2001, the last reported sale price for our common stock on the Nasdaq National Market was $5.00 per share. As of March 12, 2001, there were approximately 289 holders of record. Because many of such shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. While we do not plan to pay dividends, any future determination to pay dividends will be at the discretion of the board of directors and will depend upon our financial condition, operating results, capital requirements and other factors the board of directors deems relevant. We plan to retain earnings for use in the operation of our business and to fund future growth. Since our inception in July 1995 through the effective date of our initial public offering in November 1999, we operated in the form of a limited liability company and income has been taxed directly to our equity members. During this time, we made regular quarterly distributions to our members based on our funds available for distribution. In the period beginning January 1, 1999 through November 12, 1999, we made quarterly distributions in an aggregate amount of $1.79 per unit to our members, including the distribution of the proceeds of our term loan facility. 8 ITEM 6. SELECTED FINANCIAL DATA You should read the following selected financial data with our financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K. Historical results are not necessarily indicative of the results to be expected in the future.
Year Ended December 31, -------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (in thousands except per share/unit data) Statements of Operations: Net revenue(1) ....................................... $ 211,192 $ 126,861 $ 73,180 $ 35,060 $ 10,149 Cost of net revenue(1) ............................... 134,618 82,761 44,126 21,044 5,532 --------- --------- --------- --------- --------- Gross profit ......................................... 76,574 44,100 29,054 14,016 4,617 --------- --------- --------- --------- --------- Operating expenses: Sales and marketing ............................ 20,312 10,320 5,747 2,593 780 General and administrative (excludes stock-based compensation of $367 in 2000 and ............ 15,741 7,982 3,939 1,648 696 $774 in 1999) Stock-based compensation ....................... 367 774 -- -- -- Amortization of intangible assets .............. 302 -- -- -- -- --------- --------- --------- --------- --------- Total operating expenses ................. 36,722 19,076 9,686 4,241 1,476 --------- --------- --------- --------- --------- Income from operations ............................... 39,852 25,024 19,368 9,775 3,141 Interest income (expense), net ....................... 2,376 (2,193) (187) (82) (18) --------- --------- --------- --------- --------- Income before income taxes ........................... 42,228 22,831 19,181 9,693 3,123 Income tax provision (benefit) ....................... 17,737 (17,403) -- -- -- --------- --------- --------- --------- --------- Net income ..................................... $ 24,491 $ 40,234 $ 19,181 $ 9,693 $ 3,123 ========= ========= ========= ========= ========= Net income per share/unit--basic(2) .................. $ 0.51 $ 1.02 $ 0.50 $ 0.25 $ 0.08 ========= ========= ========= ========= ========= Weighted average shares/units--basic ................. 47,928 39,408 38,063 38,052 37,500 ========= ========= ========= ========= ========= Net income per share/unit--diluted(2) ................ $ 0.51 $ 1.02 $ 0.50 $ 0.25 $ 0.08 ========= ========= ========= ========= ========= Weighted average shares/units--diluted ............... 48,329 39,484 38,063 38,052 37,500 ========= ========= ========= ========= =========
December 31, -------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (in thousands) Balance Sheet Data: Working capital ...................................... $ 78,513 $ 67,888 $ 9,482 $ 4,602 $ 1,797 Total assets ......................................... 143,572 115,751 17,009 9,281 3,882 Notes payable--net of current portion ................ -- -- 3,457 638 662 Mandatorily redeemable Class B units ................. -- -- 51,750 -- -- Stockholders' equity/members' capital (deficit) ...... 114,497 86,786 (45,136) 3,787 1,251
(1) During 2000, we adopted new guidance for the accounting for shipping and handling revenues and expenses, and accordingly have reclassified the prior period balances to conform with our current policy for the years ended December 31, 2000, 1999, 1998 and 1997. Our systems did not provide sufficient information to reclassify the balances for the year ended December 31, 1996. See also note 2 to our consolidated financial statements. (2) See note 2 of notes to the consolidated financial statements for an explanation of the calculation of net income per share/unit--basic and diluted. Commencing with 1997, our fiscal years are on a 52 and 53 week basis. For presentation purposes we are using a calendar quarter and calendar year end convention. Our fiscal years 1997, 1998, 1999, and 2000 ended on December 28, 1997, January 3, 1999, January 2, 2000, and December 31, 2000, respectively. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Our actual results could differ materially from the results contemplated by these forward-looking statements as a result of factors, including those discussed previously, under "Risk Factors" or in other parts of this Annual Report on Form 10-K. Overview We provide telecommunications carriers with a broad range of infrastructure equipment and related services designed to meet their specific and changing equipment needs. We offer our customers a unique combination of new and de-installed equipment from a variety of manufacturers, allowing them to make fast multi-vendor purchases from a single cost-effective source. To further address our customers' dynamic equipment needs, we offer a suite of customized, value-added services including asset recovery, inventory management, technical support and other ancillary services under the umbrella of Somera OneSource Services. Our innovative equipment and service offerings are delivered through our team of more than 150 sales and procurement professionals, who work individually with customers to understand, anticipate and meet their ongoing equipment requirements. Our sales teams utilize our relationship management database, our selective inventory and our distribution infrastructure to provide our customers with rapidly deployable equipment solutions. Our customers include incumbent local exchange carriers, long distance carriers, wireless carriers, competitive local exchange carriers, and internet service providers. Incumbent local exchange carriers, or ILECs, provided local telephone service on an exclusive basis prior to deregulation. Since deregulation, competitive local exchange carriers, or CLECs, have competed with ILECs to provide local telecommunications service. We do not manufacture any of the equipment we sell. We purchase de-installed equipment primarily from telecommunications carriers, many of whom are also our customers. We purchase the new equipment we sell primarily from OEMs and distributors. By using our relationship management database to track carriers' de-installed equipment we are able to offer our customers a broad range of equipment. We generally have not entered into long-term contracts or distribution arrangements with our suppliers, and if we fail to develop and maintain our relationships with our suppliers, our business will suffer. A majority of our sales to date have been to customers located in the United States. Sales to customers outside of the United States accounted for 7.8%, 10.9%, and 19.7% of our net revenue in 2000, 1999, and 1998, respectively. We expect sales to carriers in the United States to continue to account for the majority of our net revenue for the foreseeable future. Through 2000, all of our equipment sales were denominated in U.S. dollars. In 2000, Verizon Communications accounted for 11.3% of our net revenue. In 1999, no single customer accounted for more than 10% of our net revenue. In 1998, ALLTEL accounted for 10.2% of our net revenue. In 2000, Western Multiplex and an international carrier accounted for 15.9% and 11.8% of our equipment purchases. In 1999 and 1998, no suppliers accounted for more than 10% of our equipment purchases. Substantially all of our sales are made on the basis of purchase orders rather than long-term agreements. As a result, we may commit resources to the procurement and testing of products without having received advance purchase commitments from customers. We anticipate that our operating results for any given period will continue to be dependent, to a significant extent, on purchase orders. These purchase orders can be delayed or canceled by our customers without penalty. Additionally, as telecommunications equipment supplier competition increases, we may need to lower our selling prices or pay more for the equipment we procure. Consequently, our gross margins may decrease over time. We recognize revenue, net of estimated provisions for returns and warranty obligations where significant, when we ship equipment to our customers, provided that there are no significant post-delivery obligations. The market for telecommunications equipment is characterized by intense competition. We believe that our ability to remain competitive depends on enhancing the existing service levels we provide to our customers, acquiring access to a broader selection of equipment, developing new customer relationships and expanding our existing customer penetration levels. To enhance our ability to meet these goals, we completed our first acquisition in 10 October 2000. In December 2000, we launched our business-to-business e-commerce Web site. Additionally, we opened our European headquarters in Amsterdam, The Netherlands in November 2000. Corporate History We were organized as a California limited liability company, or LLC, and commenced operations in July 1995. In July 1998, we undertook a recapitalization in which outside investors purchased Class B units representing approximately 37.0% of Somera Communications, LLC. In August 1999, we entered into a $50 million term loan facility and a $15 million revolving loan facility with a syndicate of financial institutions led by Fleet National Bank. In November 1999, we raised approximately $107 million in net proceeds from the initial public offering of 9,775,000 shares of our common stock. Approximately $60 million of the proceeds were used to payoff the Fleet National Bank term loan and revolving loan facilities, including associated accrued interest. The balance of the proceeds have been invested in short term, interest bearing, investment grade marketable securities. In October 2000, we completed our acquisition of MSI Communications, Inc., a data networking equipment and services company. Results of Operations 2000 Compared to 1999 Net Revenue. Substantially all of our net revenue consists of sales of new and de-installed telecommunications and data networking equipment, including switching, transmission, access, wireless, microwave and power products. Net revenue increased to $211.2 million in 2000 from $126.9 million in 1999. The increase in net revenue was driven by greater customer demand for our equipment in general rather than significant increases in the price of the products we sold, our expansion in United States markets and growth in significant customer accounts. Net revenue attributable to new equipment sales increased to $90.7 million in 2000 from $44.3 million in 1999. The increase in net revenue attributable to new equipment sales was due to greater customer demand for new telecommunications equipment and our offering a broader variety of new equipment to customers. We believe that net revenue attributable to new equipment sales will continue to increase in response to customers' demand for new telecommunications equipment. Net revenue attributable to de-installed equipment sales increased to $120.5 million in 2000 from $82.6 million in 1999. The increase in net revenue attributable to de-installed equipment sales was due to greater demand among our customers in connection with the build out and servicing of their existing networks. We believe net revenue attributable to de-installed equipment will increase as our customers continue to build out their existing networks. Cost of Net Revenue. Substantially all of our cost of net revenue consists of the costs of the equipment we purchase from third party sources. Cost of net revenue increased to $134.6 million in 2000 from $82.8 million in 1999. The increase in cost of net revenue during this period is primarily attributable to increases in our volume of new and de-installed equipment sales. Cost of net revenue attributable to new equipment sales increased to $73.8 million in 2000 from $36.9 million in 1999. The increase in cost of net revenue attributable to new equipment was due primarily to increases in the volume of new equipment we sold rather than increased unit costs of equipment we purchased. We believe these costs may continue to increase as we purchase additional new equipment to satisfy customer demand. Cost of net revenue attributable to de-installed equipment sales increased to $60.8 million in 2000 from $45.9 million in 1999. The increase in cost of net revenue attributable to de-installed equipment was due primarily to increased volume of de-installed equipment sales and fluctuations due to large, non-recurring purchases of de-installed equipment. We believe that the costs of net revenues attributable to de-installed equipment will continue to increase as our volume of de-installed equipment sales increases in response to customer demand. Gross profit as a percentage of net revenue, or gross margin, increased to 36.3% in 2000 from 34.8% in 1999. The increase in gross margins was primarily due to more favorable prices obtained from our suppliers due in part to our increased volume of purchases and opportunistic buys, offset by an increase in the proportion of new equipment we sold, which generally has lower gross margins than de-installed equipment. Gross margin attributable to new equipment sales increased to 18.6% in 2000 from 16.7% in 1999. The increase in gross margin attributable to new equipment sales was due primarily to our ability to leverage the increased volume of purchases in negotiating more favorable pricing from our suppliers. We believe these gross margins will continue to fluctuate depending upon the mix of the new equipment we sell. Gross margin attributable to de-installed equipment sales increased to 49.5% in 2000 from 44.4% in 1999. The increase in gross margin attributable to de-installed equipment sales was due primarily to our opportunistic purchases of de-installed equipment in 2000. We believe that gross margins attributable to de-installed 11 equipment sales may continue to fluctuate depending upon the mix of de-installed equipment we sell and our ability to make significant discounted purchases. Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and benefits for sales, marketing and procurement employees as well as costs associated with advertising, promotions and the research development and launch of our business to business e-commerce initiative. A majority of our sales and marketing expenses are incurred in connection with establishing and maintaining long-term relationships with a variety of carriers. Sales and marketing expenses increased to $20.3 million or 9.6% of net revenue in 2000 from $10.3 million or 8.1% of net revenue in 1999. This increase was due to higher absolute commission expenses consistent with increased gross profit upon which our sales commissions are based, hiring of additional sales and procurement personnel, intensified marketing and advertising activities and costs associated with our e-commerce initiative. We expect that our sales and marketing expenses will continue to increase as we expand our product and service offerings, increase our hiring of additional sales personnel and pay commissions consistent with increased gross profit, although such expenses may vary as a percentage of net revenue. General and Administrative. General and administrative expenses consist principally of salary and benefit costs for executive and administrative personnel, professional fees, and facility costs. General and administrative expenses increased to $15.7 million or 7.5% of net revenue in 2000 from $8.0 million or 6.3% of net revenue in 1999. This increase was due primarily to the increase in employees relating to the expansion of our operations and associated facilities costs. We expect that general and administrative expenses will increase in the future as we expand our operations, although such expenses may vary as a percentage of net revenue. Stock-based Compensation. Stock-based compensation charges relate to stock options we issued to two officers and one outside director in 1999 resulting in unearned stock-based compensation of $830,000 which is being amortized over the vesting period, generally four years, of the underlying options. Amortization of the stock option charge in 2000 and 1999 amounted to $367,000 and $244,000, respectively. We expect that the remaining charge will be amortized to net income as follows: $148,000 in 2001, $63,000 in 2002 and $8,000 in 2003. 1999 also includes charges relating to warrants for common stock granted in exchange for services. The warrants, which were fully vested at the date of grant, entitle the holders to purchase up to 207,655 shares of common stock and resulted in a one-time charge of $530,000 in 1999. Interest Income (Expense), Net. Interest income (expense), net consists of investment earnings on cash and cash equivalent balances, offset by interest expense associated with debt obligations. Interest income, net for 2000 was $2.4 million. Interest expense, net was $2.2 million in 1999 representing a one-time write-off of $1.1 million of unamortized loan fees and interest on outstanding debt principal. We had no long-term debt outstanding as of December 31, 2000. Income Tax Provision (Benefit). Income tax provision for 2000 totaled $17.7 million, an effective tax rate of 42%, compared to an income tax benefit of $17.4 million in 1999. In the fourth quarter of 1999, we realized a $19.5 million deferred tax credit as a result of the change in tax status of the company from a limited liability company to a "C" Corporation. This deferred tax asset will be amortized over 15 years. As a limited liability company, we were not subject to federal or state income taxes. Business Combinations. In October 2000, the Company acquired MSI Communications Inc. This transaction was accounted for as a purchase. The financial results of MSI have been included in the Company's consolidated financial statements from the date of acquisition. The Company paid $10.8 million in cash and acquisition costs and issued 693,391 shares of its common stock, which are held in escrow at December 31, 2000. For further details about this acquisition, see Note 3 of Notes to the Consolidated Financial Statements. We expect this acquisition will help us build our base of customers and establish new products and services in the data networking equipment and services markets. 1999 Compared to 1998 Net Revenue. Net revenue increased to $126.9 million in 1999 from $73.2 million in 1998. The increase in net revenue was driven by greater customer demand for our equipment in general rather than significant increases in the price of the products we sold, our expansion in United States markets and growth in significant customer accounts. 12 Net revenue attributable to new equipment sales increased to $44.3 million in 1999 from $17.3 million in 1998. The increase in net revenue attributable to new equipment sales was due to greater customer demand for new telecommunications equipment and our offering a broader variety of new equipment to customers. Net revenue attributable to de-installed equipment sales increased to $82.6 million in 1999 from $55.9 million in 1998. The increase in net revenue attributable to de-installed equipment sales was due to greater demand among our customers in connection with the build out and servicing of their existing networks. Cost of Net Revenue. Cost of net revenue increased to $82.8 million in 1999 from $44.1 million in 1998. The increase in cost of net revenue during this period is primarily attributable to increases in our volume of new and de-installed equipment sales. Cost of net revenue attributable to new equipment sales increased to $36.9 million in 1999 from $14.0 million in 1998. The increase in cost of net revenue attributable to new equipment was due primarily to increases in the volume of new equipment we sold rather than increased unit costs of equipment we purchased. Cost of net revenue attributable to de-installed equipment sales increased to $45.9 million in 1999 from $30.1 million in 1998. The increase in cost of net revenue attributable to de-installed equipment was due primarily to increased volume of de-installed equipment sales and fluctuations due to large, non-recurring purchases of de-installed equipment. Gross profit as a percentage of net revenue, or gross margin, declined to 34.8% in 1999 from 39.7% in 1998. The decline in gross margins was primarily due to an increase in the proportion of new equipment we sold, which generally has lower gross margins than de-installed equipment, fluctuations in the prices of a number of our purchase transactions, and increased competition in the procurement of de-installed equipment generally. Gross margin attributable to new equipment sales decreased to 16.7% in 1999 from 19.3% in 1998. The decrease in gross margin attributable to new equipment sales was due primarily to fluctuations in the mix of equipment we sold. Gross margin attributable to de-installed equipment sales decreased to 44.4% in 1999 from 46.0% in 1998. The decrease in gross margin attributable to de-installed equipment sales was due primarily to increased prices of the de-installed equipment we purchased relating to a number of large, non-recurring purchase transactions in 1998. Sales and Marketing. Sales and marketing expenses increased to $10.3 million or 8.1% of net revenue in 1999 from $5.7 million or 7.9% of net revenue in 1998. This increase was due to higher absolute commission expenses consistent with increased gross profit upon which our sales commissions are based, as well as the hiring of additional sales and procurement personnel, including a new executive vice president of sales and marketing. General and Administrative. General and administrative expenses increased to $8.0 million or 6.3% of net revenue in 1999 from $3.9 million or 5.4% of net revenue in 1998. This increase was due primarily to the increase in employees resulting from the expansion of our operations, as well as recruitment costs. Stock-based Compensation. Stock-based compensation charges relate to warrants for common stock granted in exchange for services and options granted to officers and a director in 1999. The warrants, which were fully vested at the date of grant, entitle the holders to purchase up to 207,655 shares of common stock and resulted in a one-time charge of approximately $530,000 in 1999. In July 1999, we issued stock options to two officers and one outside director resulting in unearned stock-based compensation of $830,000 which will be amortized over the vesting period, generally four years, of the underlying options. Amortization of the stock option charge in 1999 amounted to $244,000. Interest Expense, Net. Interest expense, net consists of interest expense associated with debt obligations offset by interest income earned on cash and cash equivalent balances. Interest expense, net increased to $2.2 million in 1999 from $187,000 in 1998. This increase was due to the one-time write-off of $1.1 million of unamortized loan fees as well as the higher level of outstanding debt principal to satisfy greater working capital needs. Income Tax Benefit. In 1999, we realized a $19.5 million deferred tax credit as a result of the change in tax status of the company from a limited liability company to a "C" Corporation in the fourth quarter of 1999. As a limited liability company in 1998 and through the third quarter of 1999, we were not subject to federal or state income taxes. 13 Quarterly Results of Operations The following tables set forth unaudited statement of operations data for each of the eight quarters in the period ended December 31, 2000, as well as the percentage of our net revenue represented by each item. In our opinion, this unaudited information has been prepared on the same basis as the annual financial statements. This information includes all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation when read in conjunction with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The operating results for any quarter are not necessarily indicative of results for any future period.
Quarter Ended ----------------------------------------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, --------- -------- --------- -------- --------- -------- --------- -------- 1999 1999 1999 1999 2000 2000 2000 2000 ---- ---- ---- ---- ---- ---- ---- ---- (unaudited) (in thousands) Statements of Operations Data: Net revenue ......................... $ 23,585 $ 30,022 $ 34,676 $ 38,578 $40,626 $52,315 $58,289 $59,962 Cost of net revenue ................. 14,946 19,850 23,131 24,834 25,296 33,442 37,323 38,557 --------- --------- --------- --------- ------- ------- ------- ------- Gross profit ........................ 8,639 10,172 11,545 13,744 15,330 18,873 20,966 21,405 --------- --------- --------- --------- ------- ------- ------- ------- Operating expenses: Sales and marketing ........... 1,967 2,418 2,853 3,082 4,246 5,028 5,380 5,658 General and administrative..... 1,420 1,579 2,086 2,897 2,767 3,541 4,627 4,806 Stock-based compensation ...... -- 193 459 122 122 122 66 57 Amortization of intangible assets ..................... -- -- -- -- -- -- -- 302 --------- --------- --------- --------- ------- ------- ------- ------- Total operating expenses ............. 3,387 4,190 5,398 6,101 7,135 8,691 10,073 10,823 --------- --------- --------- --------- ------- ------- ------- ------- Income from operations .............. 5,252 5,982 6,147 7,643 8,195 10,182 10,893 10,582 Interest income (expense), net ...... (59) (85) (512) (1,537) 662 602 592 520 --------- --------- --------- --------- ------- ------- ------- ------- Income before income taxes .......... 5,193 5,897 5,635 6,106 8,857 10,784 11,485 11,102 Income tax provision (benefit) ...... -- -- -- (17,403) 3,762 4,556 4,851 4,568 --------- --------- --------- --------- ------- ------- ------- ------- Net income .......................... $ 5,193 $ 5,897 $ 5,635 $ 23,509 $ 5,095 $ 6,228 $ 6,634 $ 6,534 ========= ========= ========= ========= ======= ======= ======= ======= As a Percentage of Net Revenue: Net revenue ......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of net revenue ................. 63.4 66.1 66.7 64.4 62.3 63.9 64.0 64.3 --------- --------- --------- --------- ------- ------- ------- ------- Gross profit ........................ 36.6 33.9 33.3 35.6 37.7 36.1 36.0 35.7 --------- --------- --------- --------- ------- ------- ------- ------- Operating expenses: Sales and marketing ........... 8.3 8.1 8.3 8.0 10.4 9.6 9.2 9.5 General and administrative..... 6.0 5.3 6.0 7.5 6.8 6.8 8.0 8.0 Stock-based compensation ...... -- 0.6 1.3 0.3 0.3 0.2 0.1 0.1 Amortization of intangible assets ..................... -- -- -- -- -- -- -- 0.5 --------- --------- --------- --------- ------- ------- ------- ------- Total operating expenses ............. 14.3 14.0 15.6 15.8 17.5 16.6 17.3 18.1 --------- --------- --------- --------- ------- ------- ------- ------- Income from operations .............. 22.3 19.9 17.7 19.8 20.2 19.5 18.7 17.6 Interest income (expense), net ...... (0.3) (4.0) 1.1 0.9 (0.3) (1.4) 1.6 1.0 --------- --------- --------- --------- ------- ------- ------- ------- Income before income taxes .......... 22.0 19.6 16.3 15.8 21.8 20.6 19.7 18.5 Income tax provision (benefit) ...... -- -- -- (45.1) 9.3 8.7 8.3 7.6 --------- --------- --------- --------- ------- ------- ------- ------- Net income .......................... 22.0% 19.6% 16.3% 60.9% 12.5% 11.9% 11.4% 10.9% ========= ========= ========= ========= ======= ======= ======= =======
Historically, our net revenue and gross margins have increased in each quarter compared to the same quarter in the prior year due primarily to increased levels of customer demand for the equipment we sell in general. Our gross margin improved in 2000 versus 1999 primarily due to increased customer demand and more favorable pricing obtained from our suppliers. Sales and marketing expenses have increased in absolute dollars for every quarter reflecting greater commissions paid on increased gross profit, the addition of sales personnel and intensified marketing efforts. General and administrative expenses increased almost every quarter due to the increase in personnel and facilities costs and professional fees required to support our growth. Historically, our net revenue and results of operations have been subject to significant fluctuations, particularly on a quarterly basis, and could fluctuate significantly from quarter to quarter and from year to year in the future. Causes of such fluctuations may include the rate and timing of customers' orders for the equipment we sell, the rate at 14 which telecommunications carriers de-install equipment, decreases in the prices of the equipment we sell due to increased secondary market competition, our ability to locate and obtain equipment, our ability to deploy equipment on a timely basis, seasonal variations in customer purchasing, write-offs due to inventory defects and obsolescence, the potentially long sales cycle for our equipment, delays in the commencement of operations in new markets, costs relating to possible acquisitions, and general economic conditions and conditions specific to the telecommunications industry. Significant quarterly fluctuations in our net revenue will cause significant fluctuations in our cash flows and working capital. Liquidity and Capital Resources Since inception in July 1995, we have financed our operations primarily through cash flows from operations. However, in 2000, we made a strategic investment in inventory, resulting in an increase in inventory of $13.1 million. This combined with the increase in accounts receivable of $18.8 million offset net income adjusted for non-cash charges to result in the net use of cash in operating activities of $2.9 million. Net cash generated by operating activities was $20.5 million in 1999 and $14.9 million in 1998. Through November 1999, substantially all of the cash generated by operating activities was distributed to the members of Somera Communications, LLC. In July 1998, we used $51.8 million from the sale of Class B units to outside investors to repurchase outstanding units from a number of our initial unit holders. On August 31, 1999, we entered into a credit agreement with a syndicate of financial institutions led by Fleet National Bank. The credit agreement provided for a term loan facility and a revolving loan facility. The term loan facility was for an aggregate principal amount of $50.0 million. The revolving loan facility allowed us to borrow $15.0 million, with a $5.0 million sublimit for the issuance of letters of credit. The obligations under the term loan facility and the revolving loan facility were secured by a first priority lien on all our tangible and intangible assets. The proceeds of our term loan facility were used to make a distribution to the members of Somera Communications, LLC of $48.5 million in September 1999 and the remaining $1.5 million was used to pay off a portion of outstanding balances on notes payable. Additionally, approximately $1.5 million of our revolving loan facility was used to pay off the current portion of the notes payable. The remaining amount of notes payable, approximately $500,000 was satisfied from available cash. On November 12, 1999, we sold 9,775,000 of our common shares at $12.00 per share through an initial public offering, raising approximately $107.4 million in net proceeds. In November 1999, we repaid and retired the outstanding balance of the term loan facility and the outstanding balance of the revolving loan facility with the proceeds of the offering. As of December 31, 2000, we had approximately $33.3 million in cash and cash equivalents. We do not currently plan to pay dividends, but rather to retain earnings for use in the operation of our business and to fund future growth. We had no long-term debt outstanding as of December 31, 2000. We anticipate significant increases in working capital in the future primarily as a result of increased sales of equipment and higher relative levels of inventory. We will also continue to expend significant amounts of capital on property and equipment related to the expansion of our corporate headquarters, distribution centers, equipment testing infrastructure, and additional facilities to support our growth, as well as expending significant resources in support of our business-to-business e-commerce activities. We believe that cash and cash equivalents and anticipated cash flow from operations will be sufficient to fund our working capital and capital expenditure requirements for at least the next 12 months. Recent Accounting Pronouncements In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of Accounting Principles Board Opinion No. 25 ("APB 25"). This interpretation clarifies the definition of employee for purposes of applying APB 25, "Accounting for Stock Issued to Employees," the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 15 1998, or January 12, 2000. The adoption of FIN 44 did not have a material impact on the Company's financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company has complied with the guidance in SAB 101 for all periods presented. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of relationship that exists. This statement, as amended by SFAS 137, is effective for fiscal years beginning after June 15, 2000. The Company does not currently hold derivative instruments or engage in hedging activities and the implementation of SFAS 133 did not have a significant impact on its financial position or results of operations. Risk Factors You should carefully consider the risks described below. If any of the following risks actually occur, our business could be harmed, the trading price of our common stock could decline and you could lose all or part of your investment. You should also refer to other information contained in this Annual Report on Form 10-K, including our financial statements and related notes. Our operating results are likely to fluctuate in future periods, which might lead to reduced prices for our stock. Our annual or quarterly operating results are difficult to predict and are likely to fluctuate significantly in the future as a result of numerous factors, many of which are outside of our control. If our annual quarterly operating results do not meet the expectations of securities analysts and investors, the trading price of our stock could significantly decline. Factors that could impact our operating results include: o the rate, timing and volume of orders for the telecommunications infrastructure equipment we sell; o the rate at which telecommunications carriers de-install their equipment; o decreases in our selling prices due to competition in the secondary market; o our ability to obtain products cost-effectively from original equipment manufacturers, or OEMs, distributors, carriers and other secondary sources of telecommunications equipment; o our ability to provide equipment and service offerings on a timely basis to satisfy customer demand; o variations in customer capital spending patterns due to seasonality, economic conditions for telecommunications carriers and other factors; o write-offs due to inventory defects or obsolescence; o the sales cycle for equipment we sell, which can be relatively lengthy; o delays in the commencement of our operations in new market segments and geographic regions; and o costs relating to possible acquisitions and integration of new businesses. 16 Our business depends upon our ability to match third party de-installed equipment supply with carrier demand for this equipment and failure to do so could reduce our net revenue. Our success depends on our continued ability to match the equipment needs of telecommunications carriers with the supply of de-installed equipment available in the secondary market. We depend upon maintaining business relationships with third parties who can provide us with de-installed equipment and information on available de-installed equipment. Failure to effectively manage these relationships and match the needs of our customers with available supply of de-installed equipment could damage our ability to generate net revenue. In the event carriers decrease the rate at which they de-install their networks, or choose not to de-install their networks at all, it would be more difficult for us to locate this equipment, which could negatively impact our net revenue. A downturn in the telecommunications industry or an industry trend toward reducing or delaying additional equipment purchases due to cost-cutting pressures could reduce demand for our products. We rely significantly upon customers concentrated in the telecommunications industry as a source of net revenue and de-installed equipment inventory. We believe that a downturn in the telecommunications industry in general or decreased carrier operating performance could result in reduced sales to our customers and postpone network upgrades. These reduced sales could negatively impact our ability to generate revenue and delayed projects could impair our ability to obtain de-installed telecommunications equipment. The market for supplying equipment to telecommunications carriers is competitive, and if we cannot compete effectively, our net revenue and gross margins might decline. Competition among companies who supply equipment to telecommunications carriers is intense. We currently face competition primarily from three sources: original equipment manufacturers, distributors and secondary market dealers who sell new and de-installed telecommunications infrastructure equipment. If we are unable to compete effectively against our current or future competitors, we may have to lower our selling prices and may experience reduced gross margins and loss of market share, either of which could harm our business. Competition is likely to increase as new companies enter this market, as current competitors expand their products and services or as our competitors consolidate. Increased competition in the secondary market for telecommunications equipment could also heighten demand for the limited supply of de-installed equipment which would lead to increased prices for, and reduce the availability of, this equipment. Any increase in these prices could significantly impact our ability to maintain our gross margins. We do not have many formal relationships with suppliers of telecommunications equipment and may not have access to adequate product supply. In fiscal year 2000, 57% of our net revenue was generated from the sale of de-installed telecommunications equipment. Typically, we do not have supply contracts to obtain this equipment and are dependent on the de-installation of equipment by carriers to provide us with much of the equipment we sell. Our ability to buy de-installed equipment from carriers is dependent on our relationships with them. If we fail to develop and maintain these business relationships with carriers or they are unwilling to sell de-installed equipment to us, our ability to sell de-installed equipment will suffer. Our customer base is concentrated and the loss of one or more of our key customers would have a negative impact on our net revenue. Historically, a significant portion of our sales have been to relatively few customers. Sales to our ten largest customers accounted for 39.5% of our net revenue in 2000, 32.1% in 1999 and 43.8% in 1998. In 2000, Verizon Communications accounted for 11.3% of our net revenue. In 1999, no single customer accounted for over 10% of 17 our net revenue. In 1998, ALLTEL accounted for 10.2% of our net revenue. In addition, substantially all of our sales are made on a purchase order basis, and no customer has entered into a long-term purchasing agreement with us. As a result, we cannot be certain that our current customers will continue to purchase from us. The loss of, or any reduction in orders from, a significant customer would have a negative impact on our net revenue. We may be forced to reduce the sales prices for the equipment we sell, which may impair our ability to maintain our gross margins. In the future we expect to reduce prices in response to competition and to generate increased sales volume. If manufacturers reduce the prices of new telecommunications equipment we may be required to further reduce the price of the new and de-installed equipment we sell. If we are forced to reduce our prices or are unable to shift the sales mix towards higher margin equipment sales, we will not be able to maintain current gross margins. The market for de-installed telecommunications equipment is relatively new and it is unclear whether our equipment and service offerings and our business will achieve long-term market acceptance. The market for de-installed telecommunications equipment is relatively new and evolving, and we are not certain that our potential customers will adopt and deploy de-installed telecommunications equipment in their networks. For example, with respect to de-installed equipment that includes a significant software component, potential customers may be unable to obtain a license or sublicense for the software. Even if they do purchase de-installed equipment, our potential customers may not choose to purchase de-installed equipment from us for a variety of reasons. Our customers may also re-deploy their displaced equipment within their own networks which would eliminate their need for our equipment and service offerings. These internal solutions would also limit the supply of de-installed equipment available for us to purchase, which would limit the development of this market. Failure by our customers to accept our internet sales strategy could result in lower than expected revenues. In December 2000, we launched our business-to-business Web site to enable us to better serve our customers and vendors. These Web-based services are very different from the traditional sales methods we currently have with our customers. There can be no assurance about the degree to which our customers will utilize our internet solution. If our customers fail to utilize our internet sales solution, our ability to increase our revenues could be harmed. We may fail to continue to attract, develop and retain key management and sales personnel, which could negatively impact our operating results. We depend on the performance of our executive officers and other key employees. The loss of any member of our senior management, in particular, Dan Firestone, our chief executive officer, or other key employees could negatively impact our operating results and our ability to execute our business strategy. In addition, we depend on our sales professionals to serve customers in each of our markets. The loss of any of our sales professionals could significantly disrupt our relationships with our customers. We do not have "key person" life insurance policies on any of our employees except for Dan Firestone. Our future success also depends on our ability to attract, retain and motivate highly skilled employees. Competition for employees in the telecommunications equipment industry is intense. Additionally, we depend on our ability to train and develop skilled sales people and an inability to do so would significantly harm our growth prospects and operating performance. We have experienced, and we expect to continue to experience difficulty in hiring and retaining highly skilled employees. Our business may suffer if we are not successful in our efforts to keep up with a rapidly changing market. 18 The market for the equipment and services we sell is characterized by technological changes, evolving industry standards, changing customer needs and frequent new equipment and service introductions. Our future success in addressing the needs of our customers will depend, in part, on our ability to timely and cost-effectively: o respond to emerging industry standards and other technological changes; o develop our internal technical capabilities and expertise; o broaden our equipment and service offerings; and o adapt our services to new technologies as they emerge. Our failure in any of these areas could harm our business. Moreover, any increased emphasis on software solutions as opposed to equipment solutions could limit the availability of de-installed equipment, decrease customer demand for the equipment we sell, or cause the equipment we sell to become obsolete. The lifecycles of telecommunications infrastructure equipment may become shorter, which would decrease the supply of, and carrier demand for, de-installed equipment. Our sales of de-installed equipment depend upon carrier utilization of existing telecommunications network technology. If the lifecycle of equipment comprising carrier networks is significantly shortened for any reason, including technology advancements, the installed base of any particular model would be limited. This limited installed base would reduce the supply of, and demand for, de-installed equipment which could decrease our net revenue. Many of our customers are telecommunications carriers that may at any time reduce or discontinue their purchases of the equipment we sell to them. If our customers choose to defer or curtail their capital spending programs, it could have a negative impact on our sales to those telecommunications carriers, which would harm our business. A significant portion of our customers are emerging telecommunications carriers who compete against existing telephone companies. These new participants only recently began to enter these markets, and many of these carriers are still building their networks and rolling out their services. They require substantial capital for the development, construction and expansion of their networks and the introduction of their services. If emerging carriers fail to acquire and retain customers or are unsuccessful in raising needed funds or responding to any other trends, such as price reductions for their services or diminished demand for telecommunications services in general, then they could be forced to reduce their capital spending programs. If we fail to implement our strategy of purchasing equipment from and selling equipment to regional bell operating companies, our growth will suffer. One of our strategies is to develop and expand our relationships with regional bell operating companies, or RBOCs. We believe the RBOCs could provide us with a significant source of additional net revenue. In addition, we believe the RBOCs could provide us with a large supply of de-installed equipment. We cannot assure you that we will be successful in implementing this strategy. RBOCs may not choose to sell de-installed equipment to us or may not elect to purchase this equipment from us. RBOCs may instead develop those capabilities internally or elect to compete with us and resell de-installed equipment to our customers or prospective customers. If we fail to successfully develop our relationships with RBOCs or if RBOCs elect to compete with us, our growth could suffer. If we do not expand our international operations our growth could suffer. 19 We intend to continue expanding our business in international markets. This expansion will require significant management attention and financial resources to develop a successful international business, including sales, procurement and support channels. Following this strategy, we opened our European headquarters in the fourth quarter of 2000. However, we may not be able to maintain or increase international market demand for the equipment we sell, and therefore we might not be able to expand our international operations. We currently have limited experience providing equipment outside the United States. Sales to customers outside of the United States accounted for 7.8% of our net revenue in 2000, 10.9% of our net revenue in 1999 and 19.7% of our net revenue in 1998. We may fail to engage in selective acquisitions which could limit our future growth. One of our strategies for growth is to engage in selective acquisitions. Our ability to conduct such acquisitions may be limited by our ability to identify potential acquisition candidates and obtain necessary financing. In the event we are unable to identify and take advantage of these opportunities, we may experience difficulties in growing our business. If we do engage in selective acquisitions, we may experience difficulty assimilating the operations or personnel of the acquired companies, which could threaten our future growth. If we make acquisitions, we could have difficulty assimilating or retaining the acquired companies' personnel or integrating their operations, equipment or services into our organization. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Moreover, our profitability may suffer because of acquisition-related costs or amortization of acquired goodwill and other intangible assets. Furthermore, we may have to incur debt or issue equity securities in any future acquisitions. The issuance of equity securities would be dilutive to our existing stockholders. Failure to manage our rapid growth effectively could harm our results of operations. Since we began commercial operations in July 1995, we have experienced rapid growth and expansion that is straining our resources. In 2000, the number of our full-time employees increased from 134 to 302. Continued growth could place a further strain on our management, operational and financial resources. Our inability to manage growth effectively could harm our business. Our current or planned operational systems, procedures and controls may not be adequate to support our future operations. Delays in the implementation of new systems or operational disruptions when we transition to new systems would impair our ability to accurately forecast sales demand, manage our equipment inventory and record and report financial and management information on a timely and accurate basis. Defects in the equipment we sell may seriously harm our credibility and our business. Telecommunications carriers require a strict level of quality and reliability from telecommunications equipment suppliers. Telecommunications equipment is inherently complex and can contain undetected software or hardware errors. If we deliver telecommunications equipment with undetected material defects, our reputation, credibility and equipment sales could suffer. Moreover, because the equipment we sell is integrated into our customers' networks, it can be difficult to identify the source of a problem should one occur. The occurrence of such defects, errors or failures could also result in delays in installation, product returns, product liability and warranty claims and other losses to us or our customers. In some of our contracts, we have agreed to indemnify our customers against liabilities arising from defects in the equipment we sell to them. Furthermore, we supply most of our customers with guarantees that cover the equipment we offer. While we may carry insurance policies covering these possible liabilities, these policies may not provide sufficient protection should a claim be asserted. A material product liability claim, whether successful or not, could be costly, damage our reputation and distract key personnel, any of which could harm our business. 20 Our strategy to outsource services could impair our ability to deliver our equipment on a timely basis. While we have expanded our service capability through the launching of Somera OneSource Services in 2000, we still currently depend, to a large degree, on third parties for a variety of equipment-related services, including engineering, repair, transportation, testing, installation and de-installation. This outsourcing strategy involves risks to our business, including reduced control over delivery schedules, quality and costs and the potential absence of adequate capacity. In the event that any significant subcontractor were to become unable or unwilling to continue to perform their required services, we would have to identify and qualify acceptable replacements. This process could be lengthy, and we cannot be sure that additional sources of third party services would be available to us on a timely basis, or at all. Our quarterly net revenue and the price of our stock may be negatively impacted by the seasonal purchasing patterns of our customers. Our quarterly net revenue may be subject to the seasonal purchasing patterns of our customers, which may occur as a result of our customers' annual budgetary, procurement and sales cycles. If our quarterly net revenue fails to meet the expectations of analysts due to those seasonal fluctuations, the trading price of our common stock could be negatively affected. Our ability to meet customer demand and the growth of our net revenue could be harmed if we are unable to manage our inventory needs accurately. To meet customer demand in the future, we believe it is necessary to maintain or increase some levels of inventory. Failure to maintain adequate inventory levels in these products could hurt our ability to make sales to our customers. In the past, we have experienced inventory shortfalls, and we cannot be certain that we will not experience shortfalls again in the future, which could harm our reputation and our business. Further, rapid technology advancement could make our existing inventory obsolete and cause us to incur losses. In addition, if our forecasts lead to an accumulation of inventories that are not sold in a timely manner, our business could suffer. The corruption or interruption of key software systems we use could cause our business to suffer if it delays or restricts our ability to meet our customers' needs. We rely on the integrity of key software and systems. Specifically we rely on our relationship management database which tracks information on currently or potentially available de-installed equipment. This software and these systems may be vulnerable to harmful applications, computer viruses and other forms of corruption and interruption. In the event our software or systems are affected by any form of corruption or interruption, it could delay or restrict our ability to meet our customers' needs, which could harm our reputation or business. If we are unable to meet our additional capital needs in the future, we may not be able to execute our business growth strategy. We currently anticipate that our available cash resources will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. However, our resources may not be sufficient to satisfy these requirements. We may need to raise additional funds through public or private debt or equity financings to: o take advantage of business opportunities, including more rapid international expansion or acquisitions of complementary businesses; o develop and maintain higher inventory levels; 21 o gain access to new product lines; o develop new services; or o respond to competitive pressures. Any additional financing we may need might not be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our business could suffer if the inability to raise this funding threatens our ability to execute our business growth strategy. Moreover, if additional funds are raised through the issuance of equity securities, the percentage of ownership of our current stockholders will be reduced. Newly issued equity securities may have rights, preferences and privileges senior to those of investors in our common stock. In addition, the terms of any debt could impose restrictions on our operations. Our facilities could be vulnerable to damage from earthquakes and other natural disasters. Our main facilities are located on or near known earthquake fault zones and are vulnerable to damage from fire, floods, earthquakes, power loss, telecommunications failures and similar events. If a disaster occurs, our ability to test and ship the equipment we sell would be seriously, if not completely, impaired, and our inventory could be damaged or destroyed, which would seriously harm our business. We cannot be sure that the insurance we maintain against fires, floods, earthquakes and general business interruptions will be adequate to cover our losses in any particular case. Our officers and directors exert substantial influence over us, and may make future business decisions with which some of our stockholders might disagree. Our executive officers, directors and entities affiliated with them beneficially own an aggregate of approximately 67% of our outstanding common stock as of December 31, 2000. As a result, these stockholders will be able to exercise substantial influence over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in our control. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK We have reviewed the provisions of Financial Reporting Release No. 48 "Disclosure of Accounting Policies for Derivative Commodity Instruments and Disclosure of Quantitative and Qualitative Information about Market Risks Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments." We had no holdings of derivative financial or commodity instruments at December 31, 2000. All of our revenue and capital spending is denominated in U.S. dollars. We invest our excess cash in short term, interest-bearing, investment grade marketable securities. Due to the short time the investments are outstanding and their general liquidity, these instruments are classified as cash equivalents and do not represent a material interest rate risk. As of December 31, 2000, we had no long-term debt outstanding. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Accountants ......................................... 24 Consolidated Balance Sheets ............................................... 25 Consolidated Statements of Operations ..................................... 26 Consolidated Statement of Stockholders' Equity/ Members' Capital (Deficit) ......................................................... 27 Consolidated Statements of Cash Flows ..................................... 28 Notes to Consolidated Financial Statements ................................ 29 23 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Somera Communications, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Somera Communications Inc. and its subsidiaries at December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 43 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Jose, California January 26, 2001 24 SOMERA COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
December 31, ---------------------- 2000 1999 --------- --------- ASSETS ------ Current assets: Cash and cash equivalents ..................................................... $ 33,266 $ 54,492 Accounts receivable, (net of allowance for doubtful accounts of $1,330 and $736 at December 31, 2000 and 1999) ............................................. 38,288 19,592 Inventories, net .............................................................. 29,716 18,386 Deferred tax asset, current portion ........................................... 3,778 2,236 Other current assets .......................................................... 2,540 2,147 --------- --------- Total current assets .................................................... 107,588 96,853 Property and equipment, net ......................................................... 7,108 1,505 Deferred tax asset, net of current portion .......................................... 15,900 16,490 Other assets ........................................................................ 895 903 Intangible assets, net .............................................................. 12,081 -- --------- --------- Total assets ............................................................. $ 143,572 $ 115,751 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .............................................................. $ 24,145 $ 23,636 Accrued compensation .......................................................... 2,523 1,707 Other accrued liabilities ..................................................... 2,227 2,284 Capital lease obligations, current portion .................................... 180 830 Income taxes payable .......................................................... -- 508 --------- --------- Total current liabilities ............................................... 29,075 28,965 Commitments (Note 6) Stockholders' equity: Common stock: $0.001 par value Shares authorized: 200,000 Shares issued and outstanding: 48,191 and 47,838 at December 31, 2000 and 1999, respectively ............................................................... 48 48 Additional paid in capital .................................................... 69,272 66,419 Retained earnings ............................................................. 45,396 20,905 Unearned stock-based compensation ............................................. (219) (586) --------- --------- Total stockholders' equity .............................................. 114,497 86,786 --------- --------- Total liabilities and stockholders' equity .............................. $ 143,572 $ 115,751 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 25 SOMERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Year Ended December 31, -------------------------------- 2000 1999 1998 -------- --------- -------- Net revenue .......................................................... $211,191 $ 126,861 $ 73,180 Cost of net revenue .................................................. 134,618 82,761 44,126 -------- --------- -------- Gross profit ............................................. 76,574 44,100 29,054 Operating expenses: Sales and marketing ............................................ 20,312 10,320 5,747 General and administrative (excludes stock-based compensation of $367 and $774 in 2000 and 1999) ............................. 15,741 7,982 3,939 Stock-based compensation ....................................... 367 774 -- -------- --------- -------- Amortization of intangible assets .............................. 302 -- -- -------- --------- -------- Total operating expenses ................................. 36,722 19,076 9,686 -------- --------- -------- Income from operations ............................................... 39,852 25,024 19,368 Interest income (expense), net ....................................... 2,376 (2,193) (187) -------- --------- -------- Income before income taxes ........................................... 42,228 22,831 19,181 Income tax provision (benefit) ....................................... 17,737 (17,403) -- -------- --------- -------- Net income ............................................... $ 24,491 $ 40,234 $ 19,181 ======== ========= ======== Net income per share/unit--basic ..................................... $ 0.51 $ 1.02 $ 0.50 ======== ========= ======== Weighted average share/units--basic .................................. 47,928 39,408 38,063 ======== ========= ======== Net income per share/unit--diluted ................................... $ 0.51 $ 1.02 $ 0.50 ======== ========= ======== Weighted average shares/units--diluted ............................... 48,329 39,484 38,063 ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 26 SOMERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY/MEMBERS' CAPITAL (DEFICIT) (in thousands)
Common Stock Additional Class A Units ------------ Paid in Retained ------------- Number Value Capital Earnings Number Value ------ ----- ------- -------- ------ ----- Balances, December 31, 1997 .... -- $ -- $ -- $ -- 34,313 $ 3,443 Conversion of Class B units to Class A units ......... -- -- -- -- 2,501 344 Proceeds from issuance of new units ................. -- -- -- -- -- -- Repurchase of members' units ........ -- -- -- -- (12,821) (51,750) Net income ............... -- -- -- -- -- 11,590 Distributions to Members ............... -- -- -- -- -- (14,986) ------ --------- --------- ------- ------- -------- Balances, December 31, 1998 ..... -- $ -- $ -- $ -- 23,993 $(51,359) Issuance of common stock in conversion of outstanding units ................. 38,063 38 (40,967) -- (23,993) 80,825 Issuance of common stock through initial public offering, net of issuance costs of $9,904 ................ 9,775 10 107,386 -- -- -- Unearned employee stock-based compensation .......... -- -- -- -- -- 830 Amortization of unearned stock-based compensation ............. -- -- -- -- -- -- Warrants issued in exchange for services .............. -- -- -- -- -- 530 Net income ............... -- -- -- 20,905 -- 12,184 Distributions to Members -- -- -- -- -- (43,010) ------ --------- --------- ------- ------- -------- Balances, December 31, 1999 ..... 47,838 $ 48 $ 66,419 $20,905 -- $ -- Issuance of common stock through employee stock purchase plan ... 37 -- 353 -- -- -- Issuance of common stock through exercise of warrants ........... 27 -- -- -- -- -- Issuance of common stock on acquisition of MSI Communications, Inc ................... 289 -- 2,500 -- -- -- Amortization of unearned stock-based compensation .......... -- -- -- -- -- -- Net income -- -- -- 24,491 -- -- ------ --------- --------- ------- ------- -------- Balances, December 31, 2000 ..... 48,191 $ 48 $ 69,272 $45,396 -- $ -- ====== ========= ========= ======= ======= ======== Unearned Mandatorily Class B Units Stock- Redeemable Class B ------------- Based ------------------ Number Value Compensation Total Units ------ ----- ------------ ----- ----- Balances, December 31, 1997 .... 3,750 $ 344 $ -- $ 3,787 -- $ -- Conversion of Class B units to Class A units ......... (2,501) (344) -- -- -- -- Proceeds from issuance of new units ................. -- -- -- -- 14,070 51,750 Repurchase of members' units ........ (1,249) -- -- (51,750) -- -- Net income ............... -- 7,591 -- 19,181 -- -- Distributions to Members ............... -- (1,368) -- (16,354) -- -- ------ ------ -------- ------ ------- ------- Balances, December 31, 1998 ..... -- $ 6,223 $ -- $ (45,136) 14,070 $ 51,750 Issuance of common stock in conversion of outstanding units ................. -- 11,854 -- 51,750 (14,070) (51,750) Issuance of common stock through initial public offering, net of issuance costs of $9,904 ................ -- -- -- 107,396 -- -- Unearned employee stock-based compensation .......... -- -- (830) -- -- -- Amortization of unearned stock-based compensation ............. -- -- 244 244 -- -- Warrants issued in exchange for services .............. -- -- -- 530 -- -- Net income ............... -- 7,145 -- 40,234 -- -- Distributions to Members -- (25,222) -- (68,232) -- -- ------ ------ -------- ------ ------- ------- Balances, December 31, 1999 ..... -- $ -- $ (586) $ 86,786 -- $ -- Issuance of common stock through employee stock purchase plan ... -- -- -- 353 -- -- Issuance of common stock through exercise of warrants ........... -- -- -- -- -- -- Issuance of common stock on acquisition of MSI Communications, Inc ................... -- -- -- 2,500 -- -- Amortization of unearned stock-based compensation .......... -- -- 367 367 -- -- Net income -- -- -- 24,491 -- -- ------ ------ -------- ------ ------- ------- Balances, December 31, 2000 ..... -- $ -- $ (219) $ 114,497 -- $ -- ------ ------ -------- ------ ------- -------
The accompanying notes are an integral part of these consolidated financial statements. 27 SOMERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, --------------------------------- 2000 1999 1998 -------- --------- -------- Cash flows from operating activities: Net income .......................................................... $ 24,491 $ 40,234 $ 19,181 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................. 1,015 401 137 Provision for doubtful accounts ............................... 1,778 578 201 Provision for excess and obsolete inventories .................. 3,062 1,258 634 Deferred tax benefit .......................................... (54) (18,726) -- Amortization of loan fees ..................................... -- 1,100 -- Warrants issued in exchange for services ...................... -- 530 -- Training costs financed by capital lease ...................... -- 65 -- Amortization of stock-based compensation ...................... 367 244 -- Forgiveness of loans to officers .............................. 75 37 -- Loss on disposal of assets .................................... -- 5 -- Changes in operating assets and liabilities: Accounts receivable ..................................... (18,811) (9,933) (4,343) Inventories ............................................. (13,077) (15,577) (3,245) Other current assets .................................... (518) (908) (17) Accounts payable ........................................ (513) 17,735 1,771 Accrued compensation .................................... 816 1,211 234 Other accrued liabilities ............................... (1,282) 1,743 396 Income taxes payable .................................... (508) 508 -- -------- --------- -------- Net cash provided by operating activities .......... (3,159) 20,505 14,949 -------- --------- -------- Cash flows from investing activities: Acquisition of property and equipment ............................... (6,129) (599) (553) Acquisition of business, net of cash acquired ....................... (10,568) -- -- Loans to officers ................................................... (300) (1,951) -- Repayment of loan to officer ........................................ 425 -- -- Decrease (increase) in other assets ................................. 8 -- (31) -------- --------- -------- Net cash used in investing activities .............. (16,564) (2,550) (584) -------- --------- -------- Cash flows from financing activities: Proceeds from term loan, net of fees ................................ -- 48,900 -- Repayment of term loan .............................................. -- (50,000) -- Borrowings on line of credit ........................................ -- 9,500 -- Repayment of line of credit ......................................... (1,026) (9,500) -- Payment of capital lease ............................................ (830) -- -- Proceeds from employee stock purchase plan .......................... 353 -- -- Proceeds from initial public offering, net of issuance costs ........ -- 107,396 -- Proceeds from issuance of mandatorily redeemable Class B units ...... -- -- 51,750 Repurchase of members' capital ...................................... -- -- (51,750) Proceeds from/(repayment of) notes payable .......................... -- (3,457) 2,500 Distributions to members ............................................ -- (68,232) (16,354) -------- --------- -------- Net cash provided by (used in) financing activities (1,503) 34,607 (13,854) -------- --------- -------- Net increase in cash and cash equivalents ................................. (21,226) 52,562 511 Cash and cash equivalents, beginning of year .............................. 54,492 1,930 1,419 -------- --------- -------- Cash and cash equivalents, end of year .................................... $ 33,266 $ 54,492 $ 1,930 ======== ========= ======== Supplemental disclosures of cash flow information: Cash paid during the period for interest ............................ $ 136 $ 1,081 $ 201 ======== ========= ======== Income taxes paid ................................................... $ 18,974 $ 815 $ -- ======== ========= ======== Fixed assets acquired under capital lease ........................... $ 258 $ 765 $ -- ======== ========= ======== Issuance of common stock in acquisition of business ................. $ 2,500 $ -- $ -- Conversion of mandatorily redeemable Class B Units to common stock .. $ -- $ 51,750 $ -- ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 28 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1--Formation and Business of the Company: Somera Communications, LLC. ("Somera") was formed as a Limited Liability Company in 1995 under the laws of the State of California. Somera Communications, Inc. ("Somera, Inc.") was formed in August 1999 and is incorporated under the laws of the State of Delaware. Concurrent with the closing of Somera, Inc.'s initial public offering on November 12, 1999, each member of Somera received one share of Somera, Inc. in exchange for each unit held and Somera, Inc. assumed the assets, liabilities and the operations of Somera. The historical results of Somera have been presented as a predecessor business of Somera, Inc. as no change in control occurred as a result of this transaction. The term Company in these financial statements refers to both Somera and Somera, Inc. The Company is a provider of telecommunications infrastructure equipment and services to telecommunications carriers. The Company provides customers with a combination of new and de-installed equipment. Note 2 - Summary of Significant Accounting Policies: Basis of Presentation The Company's fiscal years reported are the 52- or 53-week periods ending on the Sunday nearest to December 31. Fiscal years 2000 and 1999 comprised the 52-week periods ended on December 31, 2000 and January 2, 2000, respectively. Fiscal 1998 comprised the 53-week period ended on January 3, 1999. Principles of Consolidation In October 2000, the Company acquired MSI Communications, Inc. and in November 2000 formed Somera Communications B.V., incorporated in The Netherlands. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Substantially, all of the Company's revenue is derived from the sale of products. Revenue is recognized upon shipment of product by the Company provided that, at the time of shipment, there is evidence of a contractual arrangement with the customer, the fee is fixed and determinable, collection of the resulting receivable is reasonably assured and there are no significant remaining obligations. Reserves for equipment returns and warranty obligations are recorded at the time of shipment and are based on the historical experience of the Company. Income Taxes Income tax expense comprises the tax payable for the period and the change during the period in deferred tax assets and liabilities. Deferred income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in which the differences are expected to 29 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Somera was treated as a partnership for federal and state income tax purposes. Consequently, federal income taxes were not payable, or provided for, by Somera. Somera's Members were taxed individually on their share of Somera's earnings. Somera's net income or loss was allocated among the members in accordance with the regulations of Somera. The Company became a taxable entity on November 12, 1999. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments which potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company places its temporary cash with three high credit quality financial institutions in the United States. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. For the year ended December 31, 2000, one customer accounted for 11.3% of net revenue and no customer accounted for more than 10% of accounts receivable at December 31, 2000. No individual customer accounted for more than 10% of net revenue for the year ended December 31, 1999 or accounts receivable at December 31, 1999. For the year ended December 31, 1998 one customer accounted for 10.2% of net revenue and 12.0% of the total accounts receivable at December 31, 1998. Two suppliers accounted for 15.9% and 11.8% of equipment purchases in the year ended December 31, 2000. No supplier accounted for 10% or more of equipment purchases in the years ended December 31, 1999 and 1998. No supplier accounted for 10% or more of equipment purchases during the years ended December 31, 1998 and 1999. Two suppliers accounted for 15.9% and 11.8% of equipment purchases in the year ended December 31, 2000. Fair Value of Financial Instruments The carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and capital leases approximate fair value due to their short-term maturities. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with remaining maturity of three months or less at the date of purchase to be cash equivalents. Inventories Inventories, which are comprised of finished goods held for resale, including de-installed equipment, are stated at the lower of cost (determined on an average cost basis) or net realizable value. Costs may include refurbishment costs associated with repairing and reconfiguring de-installed equipment held for resale. Inventories are stated net of reserves for obsolete and slow moving items. Property and Equipment Property and equipment are recorded at cost and are stated net of accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or remaining lease term on a straight-line basis. 30 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Expenditures for maintenance and repairs are charged to expense as incurred. Additions, major renewals and replacements that increase the property's useful life are capitalized. Gains and losses on dispositions of property and equipment are included in net income. During 1999 the Company adopted the provisions of Accounting Standards Executive Committee ("AcSEC") Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Any costs capitalized are depreciated on a straight-line basis over the lesser of the estimated useful life of three years or the term of the lease. Intangibles Assets Intangible assets consist of acquired workforce and goodwill related to the Company's acquisition of MSI Communications, Inc. and are amortized on a straight-line basis over their estimated economic lives of three and ten years, respectively. Stock-based Compensation The Company uses the intrinsic value method of Accounting Principles Board Opinion No. 25 or APB 25, "Accounting for Stock Issued to Employees," and its interpretations in accounting for its employee stock options, and presents disclosure of pro forma information required under Statement of Financial Accounting Standards No. 123 or SFAS 123, "Accounting for Stock-Based Compensation." Stock and other equity instruments issued to nonemployees is accounted for in accordance with SFAS 123 and Emerging Issues Task Force No. 96-18 or EITF 96-18, "Accounting for Equity Instruments Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services" and valued using the Black Scholes option pricing model. The Company amortizes stock based compensation arising from certain employee and non-employee stock option grants over the vesting periods of the related options, generally four years using the method set out in FASB Interpretation No. 28 ("FIN 28"). Under the FIN 28 method, each vested tranche of options is accounted for as a separate option grant awarded for past services. Accordingly, the compensation expense is recognized over the period during which the services have been provided. This method results in higher compensation expense in the earlier vesting periods of the related options. Shipping and Handling The Company adopted EITF 00-10 "Accounting for Shipping and Handling Fees and Costs" in the year ended December 31, 2000. Shipping and handling fees charged to customers are included in net revenue and the related costs are included in cost of net revenue. The comparative period figures have been reclassified by $2,487,000, $1,740,000 and $994,000 for the years ended December 31, 2000, 1999 and 1998, respectively, to reflect the adoption of EITF 00-10. Advertising and Promotional Costs We expense advertising and promotional costs as they are incurred. Advertising expense for 2000, 1999, and 1998 was $247,000, $20,000, and $32,000, respectively. Net Income Per Share/Unit Basic net income per share/unit is computed by dividing the net income for the period by the weighted average number of shares/units outstanding during the period. Diluted net income per share/unit is computed by dividing the net income for the period by the weighted average number of shares/units and equivalent shares/units outstanding 31 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) during the period. Equivalent shares/units, composed of shares/units issuable upon the exercise of options and warrants, are included in the diluted net income per share/unit computation to the extent such shares/units are dilutive. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share/unit follows (in thousands, except per unit data):
Year Ended December 31, ------------------------------- 2000 1999 1998 ------- ------- ------- Numerator Net income ........................................ $24,491 $40,234 $19,181 ------- ------- ------- Denominator Weighted average shares/units--basic .............. 47,928 39,408 38,063 Dilutive effect of options and warrants to purchase shares/units and escrow shares .................. 401 76 -- ------- ------- ------- Weighted average shares/units--diluted .................. 48,329 39,484 38,063 ------- ------- ------- Net income per share/unit--basic ........................ $ 0.51 $ 1.02 $ 0.50 ======= ======= ======= Net income per share/unit--diluted ...................... $ 0.51 $ 1.02 $ 0.50 ======= ======= =======
For the year ended December 31, 2000, 404,478 and 288,913 shares of common stock were excluded from the basic and fully diluted calculations of net income, respectively. These shares are considered contingent as they were issued in connection with the MSI acquisition and held in escrow until certain contingencies are resolved. In addition, for the years ended December 31, 2000 and 1999, options to purchase 182,750 and 2,432,250 shares of common stock were excluded from the fully diluted calculation as their effect would be anti- dilutive. Comprehensive Income The Company has adopted the provisions of Statement of Financial Accounting Standards No. 130 or SFAS No. 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. There was no difference between the Company's net income and its total comprehensive income for the years ended December 31, 2000, 1999, and 1998. Reclassifications Certain financial statement items have been reclassified to conform to the current year's presentation. These reclassifications had no impact on previously reported net earnings. Recent Accounting Pronouncements In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of Accounting Principles Board Opinion No. 25 ("APB 25"). This interpretation clarifies the definition of employee for purposes of applying APB 25, "Accounting for Stock Issued to Employees," the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of FIN 44 did not have a material impact on the Company's financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," which provides guidance on the recognition, 32 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company has complied with the guidance in SAB 101 for all periods presented. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of relationship that exists. This statement, as amended by SFAS 137, is effective for fiscal years beginning after June 15, 2000. The Company does not currently hold derivative instruments or engage in hedging activities and the implementation of SFAS 133 did not have a significant impact on its financial position or results of operations. Note 3 - Acquisition of MSI Communications, Inc. On October 17, 2000, the Company acquired all of the outstanding shares of MSI Communications, Inc. (MSI), a data networking equipment and services company, for $10.8 million in cash including acquisition costs, and 693,391 shares of common stock issued to an escrow account. The shares will be released from escrow based on certain contingencies. As of December 31, 2000, 288,913 shares valued at $2.5 million are expected to be released from escrow and are included in the allocated purchase price. The remaining 404,478 shares will be released from escrow and increase the purchase price resulting in an increase in goodwill or be returned to the Company. 115,565 shares will be released from escrow in equal installments based on the achievement of employee retention milestones to be determined as of December 31, 2001 and 2002. 288,913 shares will be released from escrow in equal installments based on the achievement of certain financial performance milestones for each of the years ended December 31, 2001 and 2002. This acquisition has been accounted for as a purchase business combination and the results of operations of MSI have been included in the consolidated financial statements since the date of acquisition. The purchase price was allocated to the net tangible and indentifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition as determined by management. The excess of the purchase price over the fair value of the net indentifiable assets was allocated to goodwill. The purchase price was allocated as follows (in thousands): Current assets .............................. $ 3,317 Property and equipment, net ................. 187 Deferred tax assets .......................... 898 Assumed liabilities ......................... (3,453) Acquired workforce .......................... 690 Goodwill .................................... 11,693 -------- Total purchase price ........................ $ 13,332 ======== The amortization of acquired workforce and goodwill is being computed over three and ten years, respectively, on a straight-line basis. The following unaudited pro forma information presents a summary of consolidated results of operations of the Company and MSI as if the acquisition had occurred January 1, 1999. Year Ended December 31, ------------------------ (in thousands except for per share data) 2000 1999 ---- ---- Net revenue $221,403 $139,826 Net income $ 23,189 $ 38,861 Net income per share - basic $ 0.48 $ 0.99 Net income per share - diluted $ 0.48 $ 0.98 33 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as the reversal of a one- time acquisition related compensation charge and amortization expense as a result of goodwill and other intangible assets. They do not purport to be indicative of the results of operations which actually would have occurred had the combination been in effect on January 1, 1999, or of future results of operations of the consolidated entities. Note 4--Balance Sheet Accounts (in thousands): Property and Equipment, Net December 31, -------------------- 2000 1999 ------- ------- Computer and telephone equipment ............. $ 7,335 $ 1,505 Office equipment and furniture ............... 366 213 Warehouse equipment .......................... 642 161 Leasehold improvements ....................... 510 181 ------- ------- 8,853 2,060 Less accumulated depreciation and amortization (1,745) (555) ------- ------- $ 7,108 $ 1,505 ======= ======= Depreciation and amortization expense for the years ended December 31, 2000, 1999, and 1998 amounted to $713,000, $401,000, and $137,000, respectively. Property and equipment includes $258,000 and $765,000 under capital leases at December 31, 2000 and 1999, with related accumulated depreciation of $95,000 and $98,000 respectively. Intangible Assets December 31, -------------------- 2000 1999 ------- ------ Acquired workforce .............................. $ 690 $ -- Goodwill ........................................ 11,893 -- -------- ------- 12,383 -- Accumulated amortization ........................ (302) -- -------- ------- Intangible assets, net .......................... $ 12,081 $ -- -------- ------- Note 5--Long-Term Debt: In 1998, the Company had notes payable to related parties representing amounts payable to two of the Company's members totaling $619,000 at December 31, 1998. Also included in notes payable to related parties as of December 31, 1998 was an amount of $1,000,000 issued in March 1998 to an outside partnership, of which a member is a general partner. Notes payable bore interest at rates varying between 8% and 13% per annum. All of the notes were repaid in September 1999. On January 12, 1999, the Company replaced its then existing $2,500,000 credit facility with a new revolving line of credit with the same bank. The facility included a fixed amount of $2,000,000 plus an amount based on a percentage of eligible accounts receivable and inventory with a maximum amount of $17,000,000 available. On August 31, 1999, the Company entered into an agreement under which a syndicate of banks, led by Fleet National Bank provided a $50,000,000 term loan and $15,000,000 revolving loan facility, which replaced the previous facility. Proceeds, net of issuance costs of approximately $1,100,000, from the term loan were $48,900,000. The issuance costs were capitalized and were being amortized to interest expense over the term of the loan using the effective interest method. The term loan and balance outstanding on the revolving loan facility were repaid in November 1999 using a portion of the proceeds from the initial public offering. As a result, the Company wrote off the balance of the capitalized issuance costs. Note 6--Commitments: The Company is obligated under various operating leases for both office and warehouse space. The remaining lease terms range in length from one to five years. Rent expense, net of sublease income, for the years ended December 31, 2000, 1999, and 1998 was $1,101,000, $579,000, and $297,000, respectively. 34 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Future minimum lease payments, net of sublease proceeds, under non-cancelable operating leases at December 31, 2000 are as follows (in thousands): Operating Leases ------ 2001 ....................... $2,099 2002 ....................... 2,043 2003 ....................... 1,890 2004 ....................... 1,163 2005 ....................... 584 ------ Total minimum lease payments $7,779 ====== Under the terms of the lease agreements, the Company is also responsible for internal maintenance, utilities and a proportionate share (based on square footage occupied) of property taxes. The Company is also exposed to credit risk in the event of default of the sublessee, because the Company is still liable to meet its obligations under the terms of the original lease agreement. In March 2001, the balance of approximately $180,000 due on two capital leases was settled in cash. As a result, the amount due under these leases has been presented as a current liability. Note 7--Stockholders' Equity/Members' Deficit: Somera's capital included two classes of units--Class A and Class B. At December 31, 1998 there were 23,993,000 Class A units and 14,070,000 Class B units outstanding. Each unit represented the members' proportionate allocation of net income or net loss. On July 23, 1998, the Company authorized the issuance and sale of an aggregate of 14,070,000 Class B units, which represented approximately 37.0% of the then outstanding units. Consideration of $51,750,000 was received in cash for the sale of these units. The Company then authorized the repurchase of an aggregate of 12,821,000 Class A units and an aggregate of 1,249,000 Class B units for an aggregate amount of $51,750,000. Each of the remaining 2,501,000 Class B units were exchanged for one Class A unit. The Class A units participated in the net income of the Company based on their percentage ownership. In addition, the holder of each Class A unit was entitled to one vote per unit. The Class B units issued in July 1998 differed from the Class A units as follows: (a) On a change in ownership the Class B unit holders could elect to redeem all or any part of the Class B units at an amount equal to the greater of: (i) the original cost thereof; or (ii) an amount equal to the number of Class B units to be redeemed multiplied by the maximum consideration payable with respect to any unit in such a change of ownership. (b) In the event of the bankruptcy of the Company, all of the Class B units were subject to immediate redemption at a price equal to the original cost thereof. (c) The Class B units converted on the closing of a firm commitment underwritten public offering of the Company's (or a corporate successor's) equity securities resulting in proceeds to the Company or such corporate successor (net of underwriting discounts and commissions and related offering expenses) of at least $30 million at a price per share to the public of at least 200% of the original cost of each Class B unit. (d) In a winding up or liquidation of the Company, the Class B units were to be paid out in preference to 35 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the Class A units up to the amount of the original cost of the Class B units. The members' liability was limited to the total balance held in the members' capital account. Stock Splits In May 1999, the Company effected a 2,500-for-1 split of the outstanding Class A and Class B units. In September 1999 the Company approved a 3-for-2 split of the Class A and B units. The effect of these splits has been retroactively reflected throughout the financial statements. Initial Public Offering In November 1999, Somera, Inc. completed an initial public offering of 9,775,000 shares of common stock, at $12.00 per share, receiving proceeds, net of underwriter's commissions and issuance costs, of $107,396,000. Concurrent with the closing of the initial public offering, each outstanding unit of Somera was exchanged for one share of Somera, Inc.'s common stock, and the assets, liabilities and operations of Somera were assumed by Somera, Inc. Issuance of Common Shares on Acquisition In October 2000, Somera, Inc. completed its acquisition of MSI Communications, Inc., issuing 693,391 shares of common stock into an escrow account. Pursuant to the purchase agreement, the shares shall be released from escrow upon meeting of various milestones. The milestones include certain levels of gross profit and continuing employment of certain employees. Those shares deemed likely to be released beyond a reasonable doubt are included in shares outstanding. At December 31, 2000, 288,913 shares in escrow are included in common stock outstanding. Warrants In May 1999, warrants exercisable into 95,155 Class A units were issued in consideration for recruitment services. The warrants became fully exercisable upon completion of the Company's initial public offering. The warrants are exercisable at $7.57 per share and have a two year term. The fair value of the warrants of approximately $193,000 has been recorded as an expense in 1999. The fair value of these warrants was estimated using the Black-Scholes option pricing model and the following assumptions: dividend yield of 0%; volatility of 40%; risk free interest rate of 5.58% and a term of two years. In May 2000, the warrants were exercised in a cash-less transaction resulting in the issuance of 26,634 shares. In July 1999, the Company issued warrants to purchase 112,500 shares of common stock in exchange for services. The warrants were immediately vested. The fair value of the warrants of approximately $337,000 has been recorded as an expense in 1999. The fair value of these warrants was estimated using the Black-Scholes option pricing model and the following assumptions: dividend yield of 0%; volatility of 40%; risk free interest rate of 5.65% and a term of two years. Option Plans In May 1999 the Company adopted the 1999 unit option plan (the "Unit Plan") under which 2,003,000 Class A units were reserved for issuance of stock options to employees, directors, or consultants under terms and provisions established by the Board of Managers. On October 19, 1999 the Board of Managers increased the number of units 36 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) issuable under the unit option plan to a total of 3,400,000 units. In September 1999 the Company adopted the 1999 Stock Option Plan (the "Plan") under which 6,750,000 common shares were reserved for the issuance of stock options to employees, directors and consultants. The primary purpose of the Plan is to attract and retain the best available personnel and to provide additional incentive to the grantees. Upon the completion of the initial public offering in November 1999, options granted under the Unit Plan were converted to options to purchase an equivalent number of common shares. Under the terms of the Plan, incentive options may be granted to employees, and nonstatutory options may be granted to employees, directors and consultants, at prices no less than 100% and 85%, respectively, of the fair market value of the common shares at the date of grant. Options granted under the Plan vest at a rate of 25% after one year with the remaining vesting evenly over the next three years. The options expire ten years from the date of grant. In July 1999, the Company issued stock options to two officers and one outside director resulting in unearned stock-based compensation of $830,000, which is being amortized over the vesting period of the underlying options of four years. Amortization expense associated with unearned stock-based compensation totaled $367,000 and $244,000 for the years ended December 31, 2000 and 1999. Activity under the Plan is set forth below: Weighted Average Available Exercise For Grant Shares Price --------- ------ ----- Shares reserved at plan inception ....... 6,750,000 Options assumed from Unit Plan ....... (2,943,343) 2,943,343 $ 9.53 Options granted ...................... (150,000) 150,000 11.00 ---------- --------- ------ Balances, December 31, 1999 ............. 3,656,657 3,093,343 $ 9.60 ---------- --------- ------ Options granted ...................... (2,683,500) 2,683,500 $10.90 Options canceled ..................... 237,520 (237,520) 11.26 ---------- --------- ------ Balances, December 31, 2000 ............. 1,210,677 5,539,323 $10.16 ========== ========= ====== At December 31, 2000, 976,823 options outstanding were exercisable. During 1999, options to purchase 830,000 shares of the Company's common stock, with a weighted average exercise price of $8.50 per share and a weighted average fair value of $3.05 per share, were granted with exercise prices below the estimated market value at the date of grant. During 2000 and 1999, options to purchase 2,683,500 and 2,263,343 shares of the Company's common stock, with a weighted average exercise price of $10.90 and $10.00 per share and a weighted average fair value of $4.82 and $2.54 per share, respectively, were granted with exercise prices equal to the estimated market value at the date of grant. The options outstanding and currently exercisable by exercise price at December 31, 2000 are as follows:
Options Outstanding Options Exercisable -------------------------------------------------------------- --------------------- Weighted Average Weighted Weighted Remaining Average Average Number Contractual Exercise Number Exercise Exercise Price Outstanding Life in Years Price Exercisable Price -------------- ----------- ------------- ----- ----------- ----- $7.57 - $8.50 1,490,093 8.46 $ 8.09 555,246 $ 8.06 $10.75 - $13.50 4,049,230 9.44 10.92 421,577 11.00 --------- ---- ------- ------- ------ 5,539,323 9.17 $ 10.16 976,823 $ 9.33 ========= ==== ======= ======= ======
37 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 1999 Director Option Plan In September 1999, the Company adopted the 1999 Director Option Plan (the "Director Plan"), which provides for the grant of non-statutory stock options to non-employee directors. The Director Plan has a term of ten years. A total of 300,000 shares of the Company's common stock, plus an annual increase equal to the number of shares needed to restore the number of shares of common stock that are available for grant under the Director Plan to 300,000 shares, have been reserved for issuance under the Director Plan. As of December 31, 2000, no options have been granted under the Director Plan. Employee Stock Purchase Plan In September 1999, the Company adopted the 1999 Employee Stock Purchase Plan (the "ESPP"), which provides eligible employees with an opportunity to purchase the Company's common stock at a discount through accumulated payroll deductions, during each six-month offering period. The price at which the stock is sold under the ESPP is equal to 85% of the fair market value of the common stock, on the first or last day of the offering period, which ever is lower. A total of 300,000 shares of common stock have been reserved for the issuance under the ESPP. In August 2000, 36,718 shares were issued under the ESPP generating contributions of $353,000. The weighted average estimated fair value of the ESPP awards issued during fiscal 2000 was $3.01 per share. Pro-forma Stock-based Compensation The Company has adopted the disclosure-only provisions of SFAS 123 for option grants to employees. Had compensation cost been determined based on the fair value at the grant date for the awards in 1999 and 2000 consistent with the provisions of SFAS 123, the Company's net income for 1999 and 2000 would have been as follows (in thousands, except per share data): Year Ended Year Ended December 31, December 31, 2000 1999 ---- ---- Net income--as reported ...................... $ 24,491 $ 40,234 Net income--as adjusted ...................... $ 19,088 $ 38,862 Net income per share--basic as reported ...... $ 0.51 $ 1.02 Net income per share--basic as adjusted ...... $ 0.40 $ 0.99 Net income per share--diluted as reported .... $ 0.51 $ 1.02 Net income per share--diluted as adjusted .... $ 0.39 $ 0.98 The Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option pricing model as prescribed by SFAS 123 using the following assumptions:
Employee Stock Option Plan Employee Stock Purchase Plan -------------------------- ---------------------------- 2000 1999 2000 ---- ---- ---- Risk-free interest rate ......... 5.88% 5.61% 6.13% Expected life (in years) ........ 5 5 0.50 Dividend yield .................. 0% 0% 0% Expected volatility ............. 40% 0% 40%
The Company has used a volatility factor of 0% for options granted while it was a private company. The determination of fair value of all options granted subsequent to the Company's initial public offering included an expected volatility factor of 40% in addition to the factors described in the preceding paragraph. Accordingly, the above results may not be representative of future periods. All options outstanding at December 31, 1999 were granted prior to the completion of the Company's initial public offering. 38 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 8--401(k) Savings Plan: In February 1998, the Company adopted a 401(k) Savings Plan (the "Savings Plan") which covers all employees. Under the Savings Plan, employees are permitted to contribute up to 15% of gross compensation not to exceed the annual IRS limitation for any plan year ($10,500 in 2000). The Company matches 25% of employee contributions for all employees who receive less than 50% of their total compensation in the form of commissions. The Company made matching contributions of $55,000, $24,000 and $15,000 for the years ended December 31, 2000, 1999, and 1998, respectively. Note 9--Loans to Officers: On July 12, 1999 the Company entered into a mortgage loan agreement under which it advanced $600,000 to an officer of the Company. The mortgage loan has a term of eight years, is interest free and is collateralized by the principal residence of the officer. Under the terms of the mortgage loan the amount advanced will be forgiven as to $50,000 on each of the first four anniversaries of the note and $100,000 on each of the fifth through eighth anniversaries. The loan can be forgiven in full in the event that the officer's employment is either terminated without cause or is constructively terminated within 12 months of a change in control of the Company. If the officer's employment with the Company ceases for any other reason, including death or disability, the remaining balance becomes repayable to the Company. The term of repayment is dependent upon the reason for the officer's employment ceasing and ranges from six to eighteen months from the date of termination of employment. On October 20, 1999 the Company entered into a mortgage loan agreement under which it advanced $1,351,000 to an officer of the Company. The mortgage loan had an original term of six months, is interest free and is collateralized by the principal residence of the officer. Notwithstanding the foregoing, $300,000 of the amount advanced will be forgiven over eight years as to $25,000 on each of the first four anniversaries of the note and $50,000 on each of the fifth through eighth anniversaries. In June 2000, the officer repaid $425,000 of the principal balance. In September 2000, the Company re-loaned $300,000 to the officer. The new loan is interest free and payable in October 2001. The due date of the remaining loan principal, excluding the new loan and the amount to be forgiven, was extended to October 19, 2001. As a result of the above, the Company recorded compensation charges of $75,000 and $37,000, equal to the total amounts forgiven in 2000 and 1999. The amounts scheduled to be repaid or forgiven during the year ended December 31, 2001 have been included in other current assets. Note 10--Income Taxes: The provision for (benefit from) income taxes for the years ended December 31, 2000 and 1999 consist of the following (in thousands):
December 31, December 31, ------------ ------------ 2000 1999 ---- ---- Current: Federal ................................................. $ 13,969 $ 1,071 State ................................................... 3,822 252 -------- -------- 17,791 1,323 -------- -------- Deferred: Federal--tax effects of incorporating flow-through entity -- $(16,730) State--tax effects of incorporating flow-through entity . -- (2,789) Federal--post incorporation ............................. (59) 667 State--post incorporation ............................... 5 126 -------- -------- (54) (18,726) -------- -------- $ 17,737 $(17,403) ======== ========
39 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As a limited liability company, Somera was not subject to federal or state income taxes prior to November 12, 1999. Concurrent with the assumption by Somera, Inc. of the assets liabilities and operations of Somera, a deferred tax asset of $19,018,000, arising from the difference in the tax and book basis of Somera's net assets, was recorded in net income on November 12, 1999. The net deferred tax asset as of December 31, 2000 and 1999 comprised of the following (in thousands):
December 31, December 31, ------------ ------------ 2000 1999 ---- ---- Deferred tax asset (liability): Property and equipment ............................................ $ (178) $ (7) Reserves and accruals ............................................. 2.558 961 Difference in tax and book basis of net assets upon conversion, net 16,889 17,772 Net operating loss carryforward ................................... 671 -- Intangible assets ................................................. (262) -- -------- -------- Total deferred tax asset ..................................... 19,678 18,726 Valuation allowance ............................................... -- -- -------- -------- Net deferred tax asset ....................................... $ 19,678 $ 18,726 ======== ========
A reconciliation of the actual income tax rate to the federal statutory rate follows:
December 31, December 31, ------------ ------------ 2000 1999 ---- ---- Tax at federal statutory rate ................................ 35.00% 34.00% State taxes (net of federal tax benefit) ..................... 6.11% 7.89% Difference in tax and book basis of net assets upon conversion -- (512.85)% Other ........................................................ 0.89% 1.67% ----- ------- Effective tax rate ........................................... 42.00% (469.29)% ===== =======
There was no foreign component of earnings before taxes for the years ended December 31, 2000 and 1999. Note 11--Geographic Information: The Company has adopted Statement of Financial Accounting Standards No. 131, or SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," effective January 1, 1998. The Company markets products and related services to customers in the United States, Canada, Europe, Asia, and Latin America. Operating segments are identified as components of an enterprise about which separate discrete financial information is available that is evaluated by the chief operating decision maker or decision making group to make decisions about how to allocate resources and assess performance. The Company's chief operating decision maker is the chief executive officer. To date the Company has reviewed its operations in principally two segments. The chief operating decision maker assesses performance based on the gross profit generated by each segment. The Company does not report operating expenses, depreciation and amortization, interest expense, capital expenditures or identifiable net assets by segment. All segment revenues are generated from external customers. Segment information is as follows (in thousands): 40 SOMERA COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) New De-installed Total --- ------------ ----- Year ended December 31, 1998 Revenue ................... $17,333 $ 55,847 $ 73,180 ------- -------- -------- Gross profit .............. $ 3,341 $ 25,713 $ 29,054 ------- -------- -------- Year ended December 31, 1999 Revenue ................... $44,316 $ 82,545 $126,861 ------- -------- -------- Gross profit .............. $ 7,410 $ 36,690 $ 44,100 ------- -------- -------- Year ended December 31, 2000 Revenue ................... $90,713 $120,479 $211,192 ------- -------- -------- Gross profit .............. $16,913 $ 59,661 $ 76,574 ------- -------- -------- Net revenue information by geographic area is as follows (in thousands): Net Revenue ----------- Year ended December 31, 1998: United States .............................. $ 58,756 Canada ..................................... 907 Latin America .............................. 13,231 Other ...................................... 286 -------- Total ................................. $ 73,180 ======== Year ended December 31, 1999: United States .............................. $113,065 Canada ..................................... 4,058 Latin America .............................. 7,662 Other ...................................... 2,076 -------- Total ................................. $126,861 ======== Year ended December 31, 2000: United States .............................. $194,663 Canada ..................................... 6,415 Latin America .............................. 6,640 Other ...................................... 3,474 -------- Total ................................. $211,192 ======== Substantially all long lived assets are maintained in the United States. 41 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated herein by reference to the information relating to the directors of the Registrant and compliance with Section 16(a) of the Exchange Act that is contained in the Proxy Statement relating the Company's 2001 Annual Meeting of Stockholders scheduled to be held on May 23, 2001, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2000. The information required by this Item relating to the executive officers is contained in Item 1 of Part I hereof. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the information relating to executive compensation that is contained in the Proxy Statement relating to the Company's 2001 Annual Meeting of Stockholders scheduled to be held on May 23, 2001, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to the information relating to security ownership of certain beneficial owners and management that is contained in the Proxy Statement relating to the Company's 2001 Annual Meeting of Stockholders scheduled to be held on May 23, 2001, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to the information relating to certain related party transactions that is contained in the Proxy Statement relating to the Company's 2001 Annual Meeting of Stockholders scheduled to be held on May 23, 2001, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2000. 42 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements and Financial Statement Schedules. 2. List of Financial Statement Schedules. II. Valuation and Qualifying Accounts and Reserves 3. Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Report Exhibit Number Exhibit Title - ------ ------------- 3.1* Amended and Restated Certificate of Incorporation of Somera Communications, Inc., a Delaware corporation, as currently in effect. 3.2* Bylaws of Somera Communications, Inc., as currently in effect. 4.1* Specimen common stock certificate. 10.1* Form of Indemnification Agreement between Somera Communications, Inc. and each of its directors and officers. 10.2* 1999 Stock Option Plan and form of agreements thereunder (as adopted September 3, 1999). 10.3* 1999 Employee Stock Purchase Plan (as adopted September 3, 1999). 10.4* 1999 Director Option Plan and form of agreements thereunder (as adopted September 3, 1999). 10.5* Loan Agreement by and between Somera Communications and Fleet National Bank, dated August 31, 1999. 10.6* Security Agreement by and between Somera Communications and Fleet National Bank, dated August 31, 1999. 10.7* Employment Agreement between Somera Communications and Jeffrey Miller, dated May 6, 1999. 10.8* Employment Agreement between Somera Communications and Gary Owen, dated July 16, 1999. 10.9* Lease dated January 20, 1998 between Santa Barbara Corporate Center, LLC and Somera Communications. 10.10* First Amendment to Lease, dated February 2, 1998, between Santa Barbara Corporate Center, LLC and Somera Communications. 10.11* Second Amendment to Lease, dated February 1, 1999, between Santa Barbara Corporate Center, LLC and Somera Communications. 10.12* Industrial/Commercial Lease, dated May 12, 1999, between Sunbelt Properties and Somera Communications. 43 10.13 Second Amendment to Sublease, dated January 31, 2001, between GRC International, Inc. and Somera Communications. 10.14* Form of Registration Agreement, between Somera Communications, Inc., and certain of its stockholders. 10.15 Employment Agreement between Somera Communications and Brandt Handley, dated January 8, 2001. 10.16 Sub-Sublease, dated August 2, 2000, between EDS Information Services, L.L.C. and Somera Communications, Inc. 10.17 Sublease Agreement, dated May 19, 2000, between Dames & Moore, Inc. and Somera Communications, Inc. 10.18** Stock Purchase Agreement, dated October 16, 2000 between the Company and MSI Communications, Inc. 10.19 Lease, dated November 1, 2000 through October 31, 2005, between Somera Communications BV i.o. and Stena Realty BV 10.20 Lease Agreement, dated November 1, 2000, between Jersey State Properties and Somera Communications, Inc. 10.21 First Amendment to Lease Agreement, dated January 1, 2001, between Jersey State Properties and Somera Communications, Inc. 10.22 Employment Agreement between Somera Communications and Glenn Berger, dated October 8, 1999. 23.1 Consent of PricewaterhouseCoopers LLP, independent accountants. * Incorporated by reference to the Company's Registration Statement on Form S-1, filed September 10, 1999, as amended (File No. 333-86927). ** Incorporated by reference to the Company's Report on Form 8-K, filed on October 27, 2000. (b) Reports on Form 8-K. The Company filed a Form 8-K on March 24, 2000 relating to announcement of a new contract. The Company filed a Form 8-K on October 27, 2000 announcing its acquisition of MSI Communications, Inc. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on this 29th day of March 2001. Somera Communications, Inc. By: /S/ DANIEL A. FIRESTONE (Daniel A. Firestone Chief Executive Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints jointly and severally, Daniel A. Firestone and Gary J. Owen, and each of them, as his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report (Form 10-K), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on March 29, 2001: Signature Title --------- ----- President, Chief Executive Officer /S/ DANIEL A. FIRESTONE and Chairman of the Board - -------------------------------- (Principal Executive Officer) (Daniel A. Firestone) /S/ GARY J. OWEN Chief Financial Officer and Assistant - -------------------------------- Secretary (Principal Financial and (Gary J. Owen) Accounting Officer) /S/ GIL VARON Director - -------------------------------- (Gil Varon) /S/ WALTER G. KORTSCHAK Director - -------------------------------- (Walter G. Kortschak) /S/ PETER Y. CHUNG Director - -------------------------------- (Peter Y. Chung) /S/ BARRY PHELPS Director - -------------------------------- (Barry Phelps) 45 Valuation and Qualifying Accounts and Reserves ---------------------------------------------- SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Additions Balance at Charged to Beginning of Costs and Balance at Period Expenses Deductions End of Period ------------ ---------- ---------- ------------- Year ended December 31, 1998 Allowance for sales returns...................... $150 $ 424 $ 289 $ 285 Allowance for doubtful accounts.................. 197 201 149 249 Allowance for excess and obsolete inventory...... 45 634 622 57 Year ended December 31, 1999 Allowance for sales returns...................... $285 $ 670 $ 485 $ 470 Allowance for doubtful accounts.................. 249 578 91 736 Allowance for excess and obsolete inventory...... 57 1,258 673 642 Year ended December 31, 2000 Allowance for sales returns...................... $470 $3,380 $3,118 $ 732 Allowance for doubtful accounts.................. 736 1,778 1,184 1,330 Allowance for excess and obsolete inventory...... 642 3,062 1,541 2,163
EX-10.13 2 0002.txt SECOND AMENDMENT TO SUBLEASE, DATED JANUARY 31, 2001 Exhibit 10.13 SECOND AMENDMENT TO SUBLEASE This SECOND AMENDMENT TO SUBLEASE (this "Second Amendment") is made and entered into as of the 31st day of January, 2001, by and between GRC INTERNATIONAL, INC. (the "Sublessor") and SOMERA COMMUNICATIONS, INC. (the "Sublessee"). R E C I T A L S: A. On or about January 30, 1998, Sublessor and Sublessee entered into that certain Sublease (the "Original Sublease"), whereby Sublessor subleased to Sublessee and Sublessee subleased from Sublessor approximately 10,859 rentable square feet (approximately 9,826 usable square feet) (the "Original Premises") on the first and second floors of the project located at 5383 Hollister Avenue, Santa Barbara, California (the "Property"). The Original Premises consisted of Suite A (approximately 8,263 rentable square feet on the first floor), Suite B (approximately 1,535 rentable square feet on the second floor), and Suite C (approximately 1,061 rentable square feet on the second floor). B. On or about November 18, 1999, Sublessor and Sublessee entered into that certain First Amendment to Sublease (the "First Amendment") pursuant to which Sublessor and Sublessee, among other things, (i) expanded the Original Premises to include an additional approximately 3,346 rentable square feet (Suite D) (the "First Expansion Space") on the second floor of the Property, and (ii) as a result of the addition of the First Expansion Space, (x) increased "Sublessee's Percentages", (y) increased Sublessee's annual rent, and (z) increased Sublessee's security deposit. The Original Premises, together with the First Expansion Space, are sometimes referred to herein collectively as the "Premises." C. Sublessor and Sublessee now desire to further modify and amend the Sublease in accordance with the terms and conditions contained in this Second Amendment. The Original Sublease and First Amendment are sometimes referred to herein collectively as the "Sublease." Copies of both the Original Sublease and the First Amendment are attached as Exhibit "A" to this Second Amendment and are incorporated herein by this reference. Capitalized terms that are not defined in this Second Amendment shall have the meanings ascribed to them in the Sublease. A G R E E M E N T: NOW, THEREFORE, incorporating and in consideration of the foregoing recitals, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Expansion of Premises. The Premises are hereby further expanded and increased to include approximately 6,380 additional square feet of rentable area (Suite 210) (the "Second Expansion Space") on the second floor of the Property. The Second Expansion Space has been previously subleased to Goleta National Bank ("GNB") and sub-subleased by GNB to Expertcity.com ("Expertcity"). The GNB Sublease and the Expertcity Sub-Sublease (as such terms are defined in Section 2 hereinbelow) shall terminate concurrently with the Effective Date (as that term is defined in Section 9 hereinbelow) of this Second Amendment. The location of the Second Expansion Space in the Property is illustrated on Exhibit "B" to this Second Amendment, which Exhibit "B" is attached hereto and incorporated herein by this reference. Accordingly, upon the Effective Date, the Premises shall include approximately 20,585 square feet of rentable area in the Property, which Premises shall consist of the Original Premises, the First Expansion Space and the Second Expansion Space. 2. Sublessor Representation. Sublessor hereby represents and warrants to Sublessee that (a) the Expertcity sub-sublease of the Second Expansion Space (the "Expertcity Sub-Sublease") shall be terminated prior to or concurrently with the Effective Date, (b) the GNB sublease of the of the Second Expansion Space (the "GNB Sublease") shall be terminated prior to or concurrently with the Effective Date, and (c) no party or entity other than the Sublessee shall have any right to possession or occupancy of the Second Expansion Space following the Effective Date hereof. 3. Increase in Initial Annual Rental. Prior to the Effective Date of this Second Amendment, Sublessee's Initial Annual Rental obligation for the Premises was $229,268.76 (which corresponded to a Base Monthly Rental Obligation of $19,105.73). Following the Effective Date, with the expansion of the Premises to include the Second Expansion Space, the Sublessee's Initial Annual Rental shall be increased to $336,348.12 (with the Base Monthly Rental Obligation to be correspondingly increased to $28,029.01). 4. Sublessee's Percentages. Upon the Effective Date, with the expansion of the Premises to include the Second Expansion Space, the Sublessee's Percentages shall be increased from 27.26% to 39.5%. 5. Possession. Sublessee shall be entitled to possession of the entire Second Expansion Space on the Effective Date. The Second Expansion Space is currently unoccupied and in broom clean condition. Sublessor hereby represents and warrants to Sublessee that Sublessor will not modify nor permit any other party to modify the Second Expansion Space in any manner from the date hereof through the Effective Date. Provided the Second Expansion Space is in the same condition on the Effective Date as the date hereof, Sublessee shall accept the Second Expansion Space in its "As-Is" condition on the Effective Date. 6. Construction of Sublessee Improvements to the Second Expansion Space. Sublessee shall be solely responsible for all costs and expenses incurred in connection with the design, layout and construction of any and all improvements to the Second Expansion Space (collectively, the "Improvements"). Notwithstanding the preceding, Sublessee may not commence construction of any Improvements to the Second Expansion Space which are structural in nature without (a) providing the Master Landlord and Sublessor with all plans and specifications related to any such proposed structural Improvements, and (b) receiving the Master Landlord's and Sublessor's prior written consent to such structural Improvement plans and specifications, which approval shall not be unreasonably withheld, conditioned or delayed. 7. Option to Extend. The Sublessee's Options to Extend (as set forth in the Original Sublease) shall be effective for the Second Expansion Space. 8. Right To Cancel. Pursuant to the Original Sublease, the Sublessee has the Right to Cancel the Sublease at anytime after April 1, 2001 by providing the Sublessor with at least 180 days advance written notice of Sublessee's election to so terminate the Sublease. Such Right to Cancel shall not apply to the Second Expansion Space. 9. Effective Date; Termination Date. This Second Amendment shall not be effective (and, accordingly, none of Sublessor's or Sublessee's obligations hereunder shall commence) until the last of the following conditions precedent to this Second Amendment has occurred: (a) the mutual execution of this Second Amendment, and (b) Santa Barbara Corporate Center's (the master landlord) written consent to the terms and conditions hereof, (c) the termination of the Expertcity Sub-Sublease (as evidenced by an executed, effective termination agreement therefor), (d) the termination of the GNB Sublease (as evidenced by an executed, effective termination agreement therefor), and (e) the mutual execution of the Reimbursement Agreement (to be executed by and between Expertcity and Sublessee). The date of the last to occur of the conditions precedent set forth in subsections (a)-(e) hereinabove shall be the "Effective Date" of this Second Amendment. Unless extended in accordance with the provisions of Section 7 hereinabove and the Sublease, this Second Amendment shall be effective and in full force and effect from the Effective Date through March 31, 2003. 10. Security Deposit. Upon the Effective Date, Sublessee shall increase its Security Deposit for the Premises from $18,888.55 to $27,811.83. Accordingly, on the Effective Date, Sublessee shall forward to Sublessor a check equal to exactly $8,923.28 in order to increase the Security Deposit as provided herein. 11. Additional Consideration to be Paid to Sublessor. As additional consideration to Sublessor for Sublessor's agreement to permit Sublessee to expand the Premises to include the Second Expansion Space in accordance with the terms and conditions of the Second Amendment, Sublessee hereby agrees to pay to Sublessor the exact sum of Ten Thousand Five Hundred Dollars ($10,500.00) (the "Additional Consideration"). Such Additional Consideration shall be paid by Sublessee to Sublessor on the Effective Date. 12. Return of Second Expansion Space Inventory upon Expiration of Sublease. Attached hereto as Exhibit "C" (which Exhibit "C" is hereby incorporated herein by this reference) is a list of equipment and furniture (collectively, the "Approved Inventory") which (a) is owned by Sublessor, and (b) is located in the Second Expansion Space as of the date hereof. Sublessee hereby agrees that upon Sublessee's return of the Second Expansion Space to Sublessor at the expiration or earlier termination of the Sublease, Sublessee shall return all of the Approved Inventory to the Second Expansion Space. In the event that Sublessee is unable to or fails to return all or any portion of the Approved Inventory to the Second Expansion Space at the expiration or earlier termination of the Sublease, Sublessor and Sublessee shall work together to determine the fair market value of the unreturned Approved Inventory, and Sublessee shall promptly reimburse Sublessor for the fair market value of the unreturned Approved Inventory. 13. Brokers Fees. Any and all brokers fees and commissions to be paid in connection with this Second Amendment and Sublessee's right to the Second Expansion Space shall be paid by Sublessee pursuant to a separate agreement between Sublessee and its broker. 14. No Further Modification. Except as otherwise provided herein, the Sublease shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Second Amendment as of the day and year first above written. SUBLESSOR: SUBLESSEE: GRC INTERNATIONAL, INC. SOMERA COMMUNICATIONS, INC. By: /s/ Herbert L. Raiche By: /s/ Glenn E. Berger ------------------------------- ----------------------------------- Name: Herbert L. Raiche Name: Glenn E. Berger Its: Assistant General Counsel Its: Vice President of Operations and Assistant Secretary EX-10.15 3 0003.txt EMPLOYMENT AGREEMENT BETWEEN SOMERA COMMUNICATIONS Exhibit 10.15 SOMERA COMMUNICATIONS, INC BRANDT A. HANDLEY EMPLOYMENT AGREEMENT This Agreement is made by and between Somera Communications (the "Company") and Brandt A. Handley ("Employee") as of January 8th, 2001. 1) DUTIES AND SCOPE OF EMPLOYMENT (a) Positions; Commencement Date; Duties Employee's employment with the Company pursuant to this Agreement shall commence on January 8th, 2001 (the "Commencement Date"). As of the Commencement Date, the Company shall employ the Employee as Vice President, International. The period of Employee's employment hereunder is referred to herein as the "Employment Term." During the Employment Term, Employee shall render such business and professional services in the performance of his duties, consistent with Employee's position within the Company, as shall reasonably be assigned to him by the President of the Company (the "President") to whom which the Employee will initially directly report Initial duties of the Employee are delineated in the letter from the Company dated December 22nd, 2000. (b) Obligations During the Employment Term, Employee shall devote his full business efforts and time to the Company. Employee agrees, during the Employment Term, not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the President; provided, however, that Employee may serve in any capacity with any civic, educational or charitable organization without the approval of the President including obligations that have already been communicated and agreed to in separate communication between Employee and the Company dated December 25th and 27th, 2000, and as described more fully on the attached Exhibit A. The Company also recognizes that the Employee has a corporation registered in the State of Florida, SeedVest, Inc., which he is the sole owner and intends to keep registered due to outstanding investments and other past client obligations, but will remain dormant with regards to any new consulting work following the completion of work previously communicated and describes as noted above. 2) EMPLOYEE BENEFITS (a) General During the Employment Term, Employee shall be eligible to participate in the appropriate employee benefit plans and insurance maintained by the Company that are applicable to other senior management to the full extent provided for under those plans and delineated in the abovementioned letter dated December 22nd, 2000. Promptly following the date hereof, the Company shall provide Employee with information regarding such plans and insurance. The Company reserves the right to cancel or change its benefits plans and programs it offers to its employees at any time. 3) AT-WILL EMPLOYMENT Employee and the Company understand and acknowledge that Employee's employment with the Company constitutes "at-will" employment. Subject to the Company providing severance and "Change in Control" benefits as specified herein, Employee and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the option either of the Company or Employee. 4) COMPENSATION (a) Base Salary While employed by the Company, the Company shall pay the Employee as compensation for his services a base salary at the annualized rate of $175,000 (the "Base Salary"). Such salary shall be paid semi-monthly in accordance with normal Company payroll practices and subject to the usual required withholding and will be reviewed annually. (b) Bonuses (i) Target Bonus Employee shall be eligible to receive an annual target bonus of approximately $61,250 (at 100% of plan)(the "Bonus") paid in quarterly installments. The actual amount of the Bonus will be based upon the achievement of the criteria specified by the President and calculated for Fiscal Year 2001 only as follows: > 20% of base salary if 90% to 99% of Plan is achieved > 35% of base salary if 100% to 114% of Plan is achieved > 50% of base salary if 115% to 129% of Plan is achieved > 75% of base salary if 130% to 149% of Plan is achieved > 100% of base salary if 150% or more of Plan is achieved Notwithstanding the foregoing, the Company's obligation to make any bonus payments, whether during the first or any subsequent period, should be dependent upon employee's employment with the company throughout the end of each payment period. For purposes of the Bonus, the annual period shall commence on the Commencement Date (or anniversary thereof) and continue for a one-year period. Employee will participate in the final establishment of the Fiscal Year 2001 revenue and profit targets upon which the above bonus incentive is based as well as all moving forward targets and bonus based criteria (c) Equity Compensation (i) Stock Option It will be recommended at the first meeting of the Company's Board of Directors following your start date that the Company grant you an option to purchase 220,000 shares of the Company's Common Stock at a price per share equal to the fair market value per share of the Common Stock on the date of grant, as determined by the Company's Board of Directors. This option grant shall be subject to the terms and conditions of the Company's Stock Option Plan and Stock Option Agreement, including vesting requirements. The option shall be for a term of ten years (or shorter upon termination of employment or consulting relationship with the Company) and, subject to accelerated vesting as set forth below, shall be vested with respect to twenty-five percent (25%) as of the first anniversary of your date of employment and shall thereafter vest at the rate of 1/36th of the remaining seventy-five percent (75%) on the first day of each month following the first anniversary of your date of employment. In addition, in the event of (i) a Change in Control (as defined below), and if, on or subsequent to the closing date of the transaction(s) giving rise to such Change in Control you are terminated without Cause or are Constructively Terminated, then the 25% of shares that are then unvested, if any, shall vest automatically immediately on the date that your employment with the Company (or its successors) is terminated in addition to being paid the Severance terms as outlined below. "Change in Control" shall mean (i) a merger of the Company with or into another corporation, or (ii) a transaction or series of transactions involving the sale of all the voting stock or all or substantially all of the assets of the Company where, in any such event, the shareholders of the Company immediately preceding such transaction(s) do not hold at least a majority of the voting stock of the entity surviving the merger (in the case of clause (i)) or purchasing the assets or stock (in the case of clause (ii)). Such vesting shall be conditioned upon Employee's continued employment with the Company as of each vesting date. (d) Severance (i) Termination Without Cause In the event that the Employee's employment with the Company is involuntarily terminated by the Company without "Cause" or is "Constructively Terminated" (both as defined below), then Employee shall receive a lump-sum payment equal to Four (4) Months of his Base Salary. Further, Employee shall also receive accelerated vesting of 25% of shares that are then unvested within any period between the first (6) and Twelve (12) months of service and then, thereafter, per the vesting schedule as detailed above. For the purposes of this Agreement, "Cause" is defined as: (i) an act of dishonesty made by Employee in connection with his responsibilities as an employee of the Company, (ii) Employee's conviction of, or plea of nolo contendere to, a felony, (iii) Employee's gross misconduct, or (iv) Employee's breach or failure to perform his employment duties as established by the President periodically and failure to cure such breach within thirty (30) days after receipt of written notice of breach from the Company. For this purpose, "Constructive Termination" is defined as the resignation of Employee within sixty (60) days following (i) the assignment to Employee of duties incommensurate with his status as Vice President, or any material reduction of the Employee's duties, authority, responsibilities or title, relative to the Employee's duties, authority, responsibilities or title as in effect immediately prior to such reduction, except if agreed to in writing by the Employee; (ii) a material reduction by the Company in the Base Salary, as in effect immediately prior to such reduction (in such situation, severance is calculated on the original base salary in this contract or whatever is most current at the time prior to the reduction);or (iii) the relocation of the Employee to a facility or a location more than thirty-five (35) miles from the Employee's then present location, without the Employee's written consent. 5) BUSINESS TRAVEL Employee will travel on a minimum of Business Class of service on all international air travel and on all domestic air travel that exceeds five (5) hours in length. 6) TOTAL DISABILITY OF EMPLOYEE Upon Employee's becoming permanently and totally disabled (as defined in accordance with Internal Revenue Code Section 22(e)(3) or its successor provision) during the term of this Agreement, employment hereunder shall automatically terminate, all payments of compensation by the Company to Employee hereunder shall immediately terminate (except as to amounts already earned) and all vesting of the Employee's unit options shall immediately cease. 7) DEATH OF EMPLOYEE If Employee dies while employed by the Company pursuant to this Agreement, all payments of compensation by the Company to Employee hereunder shall immediately terminate (except as to amounts already earned, which shall be paid to Employee's estate) and all vesting of the Employee's unit options shall immediately cease. 8) ASSIGNMENT This Agreement shall be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Employee upon Employee's death and (b) any successor of the Company. Any such successor of the Company shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Employee to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Employee following termination without cause. Any attempted assignment, transfer, conveyance or other disposition (other than as aforesaid) of any interest in the rights of Employee to receive any form of compensation hereunder shall be null and void. 9) NOTICES All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given if (i) delivered personally, (ii) one (1) day after being sent by Federal Express or a similar commercial overnight service, or (iii) three (3) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors in interest at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: If to the Company: Somera Communications 5383 Hollister Avenue, Suite 100 Santa Barbara, CA 93111 Attn: Chief Executive Officer If to Employee: Brandt Handley 4635 Via Vistosa Santa Barbara, CA 93110 10) SEVERABILITY In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 11) PROPRIETY INFORMATION AGREEMENT Employee agrees to enter into the Company's standard Proprietary Information Agreement (the "Proprietary Information Agreement") upon commencing employment hereunder. 12) ENTIRE AGREEMENT This Agreement, the Stock Option Plan, the Option Agreement, and the Proprietary Information Agreement represent the entire agreement and understanding between the Company and Employee concerning Employee's employment relationship with the Company, and supersede and replace any and all prior agreements and understandings concerning Employee's employment relationship with the Company. 13) ARBITRATION AND EQUITABLE RELIEF (a) Except as provided in Section 13(c) below, Employee agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof shall be settled by arbitration to be held in Santa Barbara County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator shall apply California law to the merits of any dispute or claim, without reference to rules of conflict of law. The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. Employee hereby expressly consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement and/or relating to any arbitration in which the parties are participants. (c) Employee understands that nothing in Section 13 modifies Employee's at-will status. Either the Company or Employee can terminate the employment relationship at any time, with or without cause. (d) EMPLOYEE HAS READ AND UNDERSTANDS SECTION 13, WHICH DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS: (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION. (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq; (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION. 14) NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE This Agreement may only be amended, canceled or discharged in writing signed by Employee and the Company. 15) WITHHOLDING The Company shall be entitled to withhold, or cause to be withheld, from payment any amount of withholding taxes required by law with respect to payments made to Employee in connection with his employment hereunder. 16) GOVERNING LAW This Agreement shall be governed by the laws of the State of California. 17) EFFECTIVE DATE This Agreement is effective January 8th, 2001. 18) ACKNOWLEDGMENT Employee acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. 19) CONFIDENTIALITY Both Employee and the Company agree that this document and the terms included herein are private and confidential to both the employee and to those within the Company that has a need to know this information. Both parties agree to keep this information private and confidential during the entire employment term. However, this confidentiality clause does not preclude employee from discussion any and all related employment and compensation matters with personal attorneys, accountants and business advisors at any time. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the respective dates set forth below: SOMERA COMMUNICATIONS, Inc. /s/ Dan Firestone ---------------------------------- Dan Firestone CEO and Chairman EMPLOYEE /s/ Brandt A. Handley - ------------------------------ Brandt Handley EX-10.16 4 0004.txt SUB-SUBLEASE, DATED AUGUST 12, 2000, BETWEEN EDS Exhibit 10.16 ELECTRONIC DATA SYSTEMS CORPORATION STANDARD SUB-SUBLEASE AGREEMENT THIS SUB-SUBLEASE AGREEMENT (the "Sub-Sublease") is entered into as of August 2, 2000, by and between Sub-Sublandlord and Sub-Subtenant hereinafter named. Upon the terms and conditions hereinafter set forth, Sub-Sublandlord and Sub-Subtenant agree as follows: 1. DEFINITIONS AND BASIC PROVISIONS. The following definitions and basic provisions shall be used in conjunction with and limited by the reference thereto in the provisions of this Sub-Sublease: A. "Sub-Sublandlord": ELECTRONIC DATA SYSTEMS CORPORATION, a Delaware corporation B. Address of Sub-Sublandlord: 5400 Legacy Drive, H3-2F-53 Plano, Texas 75024-3105 Attn.: Real Estate Leasing C. "Sub-Subtenant": SOMERA COMMUNICATIONS, INC., a Delaware corporation D. Address of Sub-Subtenant: 5383 Hollister Avenue Santa Barbara, California 93111 E. Sub-Subtenant Federal Tax ID: 75-0521878 F. "Sublandlord": GRC INTERNATIONAL, INC., a Delaware corporation G. Address of Sublandlord: 1900 Gallows Road Vienna, Virginia 22182 Attention: Dick Biller H. "Master Landlord": SANTA BARBARA CORPORATE CENTER, LLC, a California limited liability company, successor-in-interest to Bermant Development Company I. Address of Master Landlord: 5383 Hollister Avenue Santa Barbara, CA 93111 J. "Sub-Sublease Premises": All space to be occupied by Sub-Subtenant as shown on Exhibit "A", attached hereto and made a part of this Sub-Sublease, containing approximately 8,913 square feet of net rentable area being a portion of the Premises described in the Sublease (hereafter defined) being approximately 52,119 rentable square feet of space, and located at 5383 Hollister Avenue, Santa Barbara, California 93111 (the "Building"). K. "Sub-Sublease Term": The period that begins upon the later of (i) execution of this Sub-Sublease, or (ii) receipt of consent of Master Landlord and Sublandlord to this Sub-Sublease (the "Commencement Date") and expiring on March 31, 2004 (the "Expiration Date"). L. "Base Rent": Base Rent for the first year shall be $147,789.12 per year (subject to base rental abatement described in paragraph 8E hereinbelow), payable in the amount of $12,315.76 per month, based upon CPI increase which was effective as of April 1, 2000. The annual and monthly Base Rent may be modified after receipt of the amount verification from Landlord. This Sub-Sublease is triple net. The base rent shall be adjusted annually as provided under Paragraph 9 of the Master Lease. M. "Sub-Subtenant's Proportionate Share": For the purpose of allocating Sub-Subtenant's pro rata share of Operating Expenses, as defined in the Master Lease (as hereafter defined) and the Sublease, attributable to the Sub-Sublease Premises, Sub-Subtenant's Proportionate Share shall be a fraction, the numerator which is the total number of the rentable square feet of the Sub-Sublease Premises and the denominator which is the total of the rentable square feet of the Premises covered by the Sublease, it being agreed that Sub-Subtenant's Proportionate Share is 17.10%. N. "Sub-Subtenant's Representatives": Sub-Subtenant's agents, representatives and employees. O. "Sub-Sublandlord's Representatives": Sub-Sublandlord's agents, representatives and employees. 2. GRANTING CLAUSE. Sub-Sublandlord, in consideration of the covenants and agreements to be performed by Sub-Subtenant and upon the terms and conditions hereinafter stated, does hereby lease, demise and let unto Sub-Subtenant, and Sub-Subtenant in consideration of the covenants and agreements to be performed by Sub-Sublandlord and upon the terms and conditions in this Sub-Sublease, does hereby take and lease from Sub-Sublandlord, the Sub-Sublease Premises, subject to all laws, statutes, codes, rules, regulations and zoning ordinances promulgated by any governmental authority having jurisdiction now in affect or adopted in the future (collectively, the "Law"), to have and to hold for the Sub-Sublease Term (except as the Commencement Date and the Expiration Date may be adjusted as herein provided, or unless sooner terminated as provided in this Sub-Sublease or the Master Lease). 3. MASTER LEASE & SUBLEASE. This Sub-Sublease is subject to that certain (a) Net Net Net Building Lease (the "Original Lease"), dated April 25, 1995, by and between Bermant Development Company, as landlord, and Sublandlord, as tenant, as modified by that certain (i) First Amendment to Building Lease (the "First Amendment"), dated January 26, 1996, by and between Master Landlord and Sublandlord; and (ii) Second Amendment to Building Lease (the "Second Amendment"), dated May 9, 1997 (the Original Lease, the First Amendment and the Second Amendment are hereinafter collectively the "Master Lease", attached hereto as Exhibit "B-1", incorporated herein by reference), covering certain premises (the "Premises") more particularly described in the Master Lease; and (b) Sublease (the "Sublease"), dated March 1, 1999, by and between Sublandlord and Sub-Sublandlord, as subtenant, attached hereto as Exhibit "B-2"), incorporated herein by reference, covering the Sub-Sublease Premises as the sublease premises. This Sub-Sublease is made subject to all applicable covenants, restrictions, agreements, terms and conditions of the Master Lease and the Sublease, which are incorporated into and made a part of this Sub-Sublease as if: i) Sub-Sublandlord were Master Landlord or Sublandlord, as appropriate, insofar as Sublandlord has the rights or right by law to act as so, and ii) Sub-Subtenant were tenant or Subtenant, as appropriate, except as otherwise provided to the contrary herein, excluding paragraphs 11, 16 and 17 of the Sublease and paragraph 18, 19, 20 and 21 of the Master Lease. Sub-Subtenant shall in no case have any rights with respect to the Sub-Sublease Premises greater than Sub-Sublandlord's rights as tenant under the Master Lease and the Sublease, and Sub-Sublandlord shall have no liability to Sub-Subtenant for any matter or thing for which Sub-Sublandlord does not have co-extensive liability as tenant under the Master Lease and the Sublease. In the event the specific terms of this Sub-Sublease are in conflict with the terms of the Master Lease or the Sublease, then the specific terms of this Sub-Sublease shall prevail. 4. MASTER LANDLORD'S AND SUBLANDLORD'S CONSENT. Pursuant to the Master Lease and the Sublease, this Sub-Sublease is subject to Master Landlord's and Sublandlord's written consent and shall not be valid until Master Landlord's and Sublandlord's written consent is obtained and delivered to each party. Sub-Sublandlord shall diligently pursue obtaining Master Landlord's and Sublandlord's written consent to this Sub-Sublease. 5. WARRANTY BY SUB-SUBLANDLORD. Sub-Sublandlord warrants and represents to Sub-Subtenant, to the knowledge of Sub-Sublandlord, that the Master Lease and the Sublease have not been amended or modified, except as provided above, that Sub-Sublandlord is not now, and as of the Commencement Date of the Sub-Sublease Term hereof, will not be in default or breach of any of the provisions of the Master Lease and the Sublease, and that Sub-Sublandlord has no knowledge of any claim by Master Landlord or Sublandlord that Sub-Sublandlord is in default or breach of any of the provisions of the Master Lease or the Sublease. 6. CONDITION OF THE SUB-SUBLEASE PREMISES. Sub-Subtenant shall accept possession of the Sub-Sublease Premises on an "AS IS, WHERE IS" basis, in whatever physical condition the same may be, and Sub-Sublandlord makes no representations or warranties of any kind or nature, express, implied, or otherwise, or any covenants of any kind or nature, with regard to the condition of the Sub-Sublease Premises or with respect to the fitness thereof for Sub-Subtenant's intended uses or the quality of or manner of any services provided or to be provided by Master Landlord or Sublandlord, and any such representations, warranties or covenants are hereby expressly disclaimed. Without limitation of the foregoing, Sub-Sublandlord shall have no obligation to construct or pay for any tenant improvements to the Sub-Sublease Premises or make any repairs or modifications thereto for the benefit of Sub-Subtenant. 7. USE. A. Sub-Subtenant shall use the Sub-Sublease Premises for the uses set forth in the Sublease, unless specifically approved by Sub-Sublandlord, Master Landlord and Sublandlord. Sub-Subtenant shall additionally comply with the rules and regulations of the Building which Master Landlord or Sublandlord may reasonably require or amend from time to time during the term of this Sub-Sublease. B. Sub-Subtenant shall not do nor permit anything to be done in or about the Sub-Sublease Premises nor bring or keep anything therein which will in any way increase the existing rate or affect any fire or other insurance upon the Building or any of its contents (unless Sub-Subtenant shall pay an increased premium as a result of such use or acts), or cause a cancellation of any insurance policy covering the Building or any part thereof or any of its contents, nor shall Sub-Subtenant sell or permit to be kept, used or sold in or about the Sub-Sublease Premises any articles which may be prohibited by a standard form policy of fire insurance. C. Sub-Subtenant shall not do or permit anything to be done in or about the Sub-Sublease Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them or use or allow the Sub-Sublease Premises to be used for any unlawful or objectionable purpose, nor shall Sub-Subtenant cause, maintain or permit any nuisance in or about the Sub-Sublease Premises. Sub-Subtenant shall not commit or suffer to be committed any waste in or upon the Sub-Sublease Premises. D. Sub-Subtenant shall not knowingly use the Sub-Sublease Premises or knowingly permit anything to be done in or about the Sub-Sublease Premises which will in any way conflict with the Law. Sub-Subtenant shall at its sole cost and expense promptly comply with the Law and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Sub-Sublease Premises, excluding structural changes not relating to or affecting the condition, use or occupancy of the Sub-Sublease Premises, or not related or afforded by Sub-Subtenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Sub-Subtenant, in any action against Sub-Subtenant, whether Sub-Sublandlord be a party thereto or not, that Sub-Subtenant has violated the Law and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Sub-Sublease Premises, excluding structural changes not relating to or affecting the condition, use or occupancy of the Sub-Sublease Premises, or not related or afforded by Sub-Subtenant's improvements or acts, shall be conclusive of the fact as between Sub-Sublandlord and Sub-Subtenant. 8. RENT. A. Base Rent. Sub-Subtenant agrees to pay equal monthly installments of Base Rent to Sub-Sublandlord at the address indicated in Paragraph 1 above, or such other address as Sub-Sublandlord may from time to time notify Sub-Subtenant. Such monthly installments shall be payable on or before the first (1st) day of each calendar month (without demand, set-off or deduction) commencing as of the Commencement Date. Base Rent for any fractional month at the beginning or end of the Sub-Sublease Term shall be prorated on actual days. Additional rent shall include, without limitation, the Operating Expenses, as described below, and any and all other charges, costs or expenses otherwise as set forth in the Master Lease. B. Operating Expenses. Operating Expenses shall mean any and all costs and expenses incurred through the ownership, operation, maintenance and insurance of the Building, as more particularly set forth in the Master Lease. Sub-Subtenant shall pay Sub-Subtenant's Proportionate Share of Operating Expenses of any amounts in excess of the Operating Expense Stop in the provided in the Master Lease to Sub-Sublandlord. C. Late Charge. In the event that any monthly installment of the Base Rent, Operating Expenses and any other additional rent (collectively, the "Rent"), or any other payment required to made by Sub-Subtenant under this Sub-Sublease is not received within 5 days after the due date, Sub-Subtenant agrees to pay a late charge (the "Late Charge") in the amount of 3% of the installment of the Rent due and unpaid. It is hereby understood and acknowledged that the Late Charge shall constitute liquidated damages and such liquidated damages shall be solely for the purpose of reimbursing Sub-Sublandlord for the additional costs and expenses Sub-Sublandlord presently expects to incur in connection with the handling and processing of late payments of Rent and any other additional rent due and payable under this Sub-Sublease. Sub-Sublandlord and Sub-Subtenant agree that in the event of any such late payment by Sub-Subtenant, the damages resulting to Sub-Sublandlord will be difficult to ascertain precisely, and that the Late Charge constitutes a reasonable and good faith estimate by the parties of the extent of such damages. If the payment of the Rent and any other additional rent continues not to be paid by Sub-Subtenant within 30 days after the due date thereof, Sub-Subtenant shall additionally pay interest on such unpaid Rent or any other additional rent, at the rate of 10% per annum (but in no event in excess of the highest interest rate provided by law) which interest shall accrue from the due date to the date of payment. D. Non-Waiver of Rights. If Sub-Sublandlord, at any time or times, shall accept Rent or any other sum due to it hereunder after the same shall become due and payable, such acceptance shall not excuse delay upon subsequent occasions, or constitute, or be construed as, a waiver of any of Sub-Sublandlord's rights hereunder. E. Base Rental Abatement. Notwithstanding to the contrary contained in the Sub-Sublease Agreement, Sub-Sublandlord agrees and acknowledges that Sub-Subtenant shall receive an abatement of all Base Rent from August 1, 2000 through October 31, 2000 of the Sub-Sublease term. Accordingly, Sub-Subtenant's obligation to commence Base Rent payments hereunder shall begin on November 1, 2000. 9. ADDITIONAL SERVICES AND COSTS TO SUB-SUBTENANT. Any additional services other than those described in Subparagraph A or in the Sublease or Master Lease, services being the types of service which may be usual and customary in buildings comparable to the Building in the vicinity of the Building (the "Additional Services"), requested by Sub-Subtenant in writing to Sub-Sublandlord shall be delivered to Master Landlord or Sublandlord, as applicable. Master Landlord or Sublandlord may decide to provide the Additional Services in its sole respective discretion, provided, however, that the Additional Services shall be billed directly to Sub-Subtenant and Sub-Subtenant shall make payments for the Additional Services directly to the Master Landlord or Sublandlord. Sub-Sublandlord shall not be responsible or liable for Master Landlord's or Sublandlord's failure to provide any the Additional Services or the quality of the Additional Services. Sub-Subtenant shall pay the Additional Services cost within the time period specified by Master Landlord or Sublandlord when an invoice for such Additional Service is delivered. 10. FINANCIAL STATEMENTS. Upon request by Sub-Sublandlord, Sub-Subtenant will provide to Sub-Sublandlord financial statements of Sub-Subtenant certified by a certified public accountant, reasonably approved by Sub-Sublandlord. Sub-Sublandlord may, at Sub-Sublandlord's option request interim certified financial statements as may be required by the Master Landlord, the Sublandlord or any accounting, financing or legal requirement. 11. PARKING. In addition to the Sub-Sublease Premises, Sub-Sublandlord hereby grants to Sub-Subtenant, subject to the Master Lease and the Sublease and so long as this Sub-Sublease remains in effect, four (4) parking spaces for every 1,000 rentable square feet of office space. 12. ASSIGNMENT AND SUBLETTING. Sub-Subtenant shall not assign this Sub-Sublease or further sublet all or any part of the Sub-Sublease Premises without the prior written consent of Sub-Sublandlord (and the consent of Master Landlord and Sublandlord, if such is required under the terms of the Master Lease and the Sublease), which shall not be unreasonably withheld. Notwithstanding the foregoing, Sub-Sublandlord's refusal to consent shall not be deemed to be unreasonable if such proposed subtenant or assignee does not have the financial background to perform the obligations under the Master Lease, intends to utilize the Sub-Sublease Premises for purposes other than allowed under the Master Lease and the Sublease or Master Landlord or Sublandlord fail to consent to such assignment or sublease. Sub-Subtenant shall not be in default under the terms and conditions of this Sub-Sublease or the Master Lease at the time of any request for consent or through the period of time prior to the consent is granted by Master Landlord and Sublandlord. Any request by Sub-Subtenant for Sub-Sublandlord's consent to a specific assignment or Sub-Sublease shall include a) the name of the proposed assignee, sublessee, or occupant, b) the nature of the proposed assignee's, sublessee's or occupant's business to be carried on in the Sub-Sublease Premises, c) a copy of the proposed assignment or Sub-Sublease, and d) such financial information and such other information as Sub-Sublandlord may reasonably request concerning the proposed assignee, sublessee or occupant or its business. Any assignment or Sub-Sublease approved by Sub-Sublandlord, Sublandlord and Master Landlord shall be subject to the Master Lease, the Sublease and this Sub-Sublease. Sub-Subtenant shall pay to Sub-Sublandlord all reasonable costs incurred related to the review of the subletting or assignment documents and costs incurred in obtaining Master Landlord's and Sublandlord's consents. Additionally, for purposes of this Sub-Sublease, the following transactions relating to Sub-Subtenant shall be deemed an assignment of this Sub-Sublease and shall give rise to the requirement of approval or consent by Sub-Sublandlord, and may result in the right to terminate or alter this Sub-Sublease, based upon the above: any merger (including, without limitation, a reincorporation merger), consolidation, reorganization, stock exchange, one or more sales or transfers of stock, by operation of law or otherwise, or creation of new stock, by which an aggregate of more than 50% of Sub-Subtenant's stock shall be vested in a party or parties who are nonstockholders as of the date hereof; and the sale or transfer of substantially all of the assets or other similar or related transaction in which Sub-Subtenant is the surviving entity or, if Sub-Subtenant is not the surviving entity, the surviving entity which continues to conduct the business conducted by Sub-Subtenant prior to consummation of the transaction. The foregoing related to sale or transfer of stock shall not apply if Sub-Subtenant's stock is listed on a recognized security exchange. For the purpose of this paragraph, stock ownership shall be determined in accordance with the principles set forth in Section 544 of the Internal Revenue Code of 1954, as amended. If the Rent being charged or any other concessions granted under any assignment or Sub-Sublease exceeds the Rent charged under this Sub-Sublease, any excess amounts shall be shared as provided in the Master Lease and/or the Sublease. If the Master Lease or Sublease does not have a provision for sharing excess rent amounts, any excess amounts shall be shared equally between Sub-Sublandlord and Sub-Subtenant. 13. SUB-SUBTENANT'S INSURANCE. Sub-Subtenant shall, at its sole cost and expense, obtain and maintain commercial general liability insurance, including blanket contractual liability coverage, with limits of not less than $2,000,000.00 combined single limit for personal injury and property damage; comprehensive automobile liability insurance covering all owned, non-owned and hired vehicles with limits of not less than $1,000,000.00 combined single limit for personal injury and property damage; and statutory workers compensation (in amounts required by law) and reasonable employers liability, and naming Sub-Sublandlord, Sublandlord and Master Landlord as additional insureds, as their respective interests may appear. The insurance policy shall be written by good and solvent insurance companies able to do business in California, and satisfactory to Sub-Sublandlord, Sublandlord and Master Landlord, if required by the Master Lease. On or before the Commencement Date of the Sub-Sublease Term, and within 30 days prior to the expiration of any such policy, Sub-Subtenant shall deliver to Sub-Sublandlord a duplicate policy or certificate of insurance evidencing such coverages. Such insurance policies shall provide for no cancellation or material alteration without 30 days' prior written notice to Sub-Sublandlord. 14. INDEMNIFICATION A. Sub-Subtenant's Indemnification. Sub-Subtenant shall indemnify, defend and hold Sub-Sublandlord and Sub-Sublandlord's Representatives harmless from any and all liabilities, responsibilities or claims to Sub-Subtenant, or any person claiming by, through or under Sub-Subtenant, arising from (a) Sub-Subtenant's use and occupancy of the Premises; or (b) the conduct of Sub-Subtenant's business; or (c) from any activity, work or thing done, permitted or suffered by Sub-Subtenant in or about the Premises, the Building or the Property, or (d) any breach or default in the performance of any obligation to be performed by Sub-Subtenant under the terms of the Lease or arising from any act, neglect, fault or omission or Sub-Subtenant or Sub-Subtenant's Representatives, and from and against all costs, reasonable attorneys' fees, expenses and liabilities incurred in or about such claim or any action or proceeding brought, excluding consequential and punitive damages. In case any action or proceeding shall be brought against Sub-Sublandlord by reason or any such claim Sub-Subtenant, upon receipt of notice from Sub-Sublandlord shall defend the same at Sub-Subtenant's expense. B. Sub-Sublandlord's Indemnification. Sub-Sublandlord shall indemnify, defend and hold Sub-Subtenant and Sub-Subtenant's Representatives harmless from any and all liabilities, responsibilities or claims to Sub-Sublandlord, or any person claiming by, through or under Sub-Sublandlord, arising from (a) the ownership, operation, maintenance, repair and management of the Building and the Property; or (b) the conduct of Sub-Sublandlord's business; or (c) from any activity, work or thing done, permitted or suffered by Sub-Sublandlord in or about the Premises, the Building or the Property, or (d) any breach or default in the performance of any obligation to be performed by Sub-Sublandlord under the terms of this Lease or arising from any act, neglect, fault or omission or Sub-Sublandlord or Sub-Sublandlord's Representatives, and from and against all costs, reasonable attorneys' fees, expenses and liabilities incurred in or about such claim or any action or proceeding brought, excluding consequential and punitive damages. In case any action or proceeding shall be brought against Sub-Subtenant by reason or any such claim, Sub-Sublandlord, upon receipt of notice from Sub-Subtenant shall defend the same at Sub-Sublandlord's expense. 15. SUB-SUBLANDLORD'S OBLIGATIONS. Sub-Sublandlord shall have no obligation to perform any of Master Landlord's obligations under the Master Lease, or, Sublandlord's obligations under the Sublease, including, without limitation, (i) providing any of the services that Master Landlord or Sublandlord has agreed to provide pursuant to the Master Lease or Sublease (or required by law), or (ii) furnishing the electricity to the Sub-Sublease Premises that Master Landlord has agreed to furnish pursuant to the Master Lease (or required by law), or (iii) making any of the repairs or restorations that Master Landlord or Sublandlord has agreed to make pursuant to the Master Lease or Sublease (or required by law), or iv) complying with any laws or requirements of any governmental authorities, unless Sub-Sublandlord occupies a portion of the Original Premises which would affect the Sub-Sublease Premises, or v) take any other action that Master Landlord or Sublandlord has agreed to provide, furnish, make, comply with, or take, or cause to be provided, furnished, made, complied with or taken under the Master Lease or the Sublease. Sub-Subtenant shall have no rights against Sub- Sublandlord arising out of the Master Landlord's or Sublandlord's failure to perform any of its obligations under the Master Lease or Sublease, as applicable. Sub-Subtenant shall have the right to institute an action under the provisions of the Master Lease to the extent such action relates to the Sub-Sublease Premises, provided Sub-Subtenant gives Sub-Sublandlord at least 30 days prior written notice and Sub-Sublandlord has failed to take action within that time. Notwithstanding the foregoing, if an action or cure cannot be completed within 30 days after receipt, however, such action or cure is commenced within 30 days after receipt of notice, and is diligently being pursued, Sub-Subtenant shall have no right to pursue Master Landlord or Sub-Sublandlord. If Sub-Subtenant subsequently pursues such action, Sub-Subtenant agrees to reimburse Sub-Sublandlord for its proportionate share of any costs incurred by Sub-Sublandlord in connection with Sub-Subtenant instituting any such action. Sub-Sublandlord shall give reasonable assistance to Sub-Subtenant in enforcing the terms of the Master Lease or the Sublease, and will execute all documents reasonably necessary to enable Sub-Subtenant to pursue Master Landlord or Sublandlord in its failure to perform any of its obligations under the Master Lease or the Sublease. 16. CONSENTS. Wherever consent by Master Landlord is required under the Master Lease and Sublandlord is required under the Sublease, Sub-Sublandlord's consent shall also be required. Except as specifically set forth herein, Sub-Sublandlord agrees that whenever its consent or approval is required hereunder, or where something must be done to Sub-Sublandlord's satisfaction, it shall not unreasonably withhold or delay such consent or approval; provided, however, that whenever the consent or approval of Master Landlord, Sublandlord, the landlord under a superior lease, or the mortgagee under a mortgage shall withhold its consent or approval for any reason whatsoever, Sub-Sublandlord shall not be deemed to be acting unreasonably if it shall also withhold its consent or approval. 17. LIMITATION OF LIABILITY OF SUB-SUBLANDLORD. In the event Sub-Sublandlord shall be liable to Sub-Subtenant for any matter relating to or arising in connection with this Sub-Sublease, whether based upon an action or claim in contract, equity, negligence, intended conduct, tort or otherwise, the amount of damages recoverable against Sub-Sublandlord for all events, acts or omissions shall in no event include, nor will Sub-Sublandlord be liable for, any amounts for loss of profits, income or savings or indirect, consequential, speculative or punitive damages of any party, including third parties. Further, no cause of action may be asserted against Sub-Sublandlord later than the earlier of a) the applicable statute of limitations for notice of such cause of action, or b) 2 years following the date after the date on which Sub-Subtenant becomes aware of the matter which gives to the cause of action shall have accrued. Sub-Sublandlord and Sub-Subtenant expressly acknowledge that the limitations contained in this Paragraph 17 have been the subject of active and complete negotiation between the parties and represent the parties' agreement. 18. NOTICES. All notices and demands which may or are to be required or permitted to be given by either party to the other hereunder shall be in writing and shall be deemed given when actually received, or if refused, when delivery was attempted. All notices and demands by Sub-Sublandlord to Sub-Subtenant shall be sent by c) Federal Express or some other bonded, national, professional overnight courier; d) United States Mail, certified or registered mail, return receipt requested, postpaid; or (c) sent by telecommunication ("Fax") during normal business hours in which case it shall be deemed delivered on the day sent, provided an original is received by the addressee after being sent by a nationally recognized overnight courier within 1 business day of the Fax, addressed to Sub-Subtenant at the address indicated in Paragraph 1 E above or to such other person or place as Sub-Subtenant may from time to time designate in a notice to Sub-Sublandlord. All notices and demands by Sub-Subtenant to Sub-Sublandlord shall be sent in the same manner as set forth above to the address set forth in Paragraph 1 B above or to such other person or place as Sub-Sublandlord may from time to time designate in a notice to Sub-Subtenant. 19. OPTIONS PERSONAL. Any option (the "Option") set forth in the Master Lease or the Sublease shall be personal to Sublandlord, as tenant, under the Master Lease and to Sub-Sublandlord, as subtenant, under the Sublease, and may not be exercised or assigned, voluntarily or involuntarily, by, or to, any person or entity other than Sublandlord, as tenant. The Option is not assignable separate and apart from the Master Lease or the Sublease. Sublandlord's option to cancel under the Sublease has expired. IN WITNESS WHEREOF, this Sub-Sublease is executed as of the date first written above. SUB-SUBLANDLORD: SUB-SUBTENANT: ELECTRONIC DATA SYSTEMS CORPORATION SOMERA COMMUNICATIONS, INC. By: /s/ Daniel F. Busch By: /s/ Jeffrey G. Miller --------------------------------- ------------------------------------ Daniel F. Busch Printed Name: Jeffrey G. Miller -------------------------- Title: Director of Real Estate Title: Exec. VP of Sales & Marketing --------------------------------- Dated: 8/3/00 Dated: 8/2/00 ------------------------------ --------------------------------- EX-10.17 5 0005.txt SUBLEASE AGREEMENT, DATED MAY 19, 2000 BETWEEN DAM Exhibit 10.17 SUBLEASE AGREEMENT THIS SUBLEASE AGREEMENT (this "Sublease") is entered into as of May 19, 2000, by and between DAMES & MOORE, INC., a Delaware corporation ("Sublessor"), and SOMERA COMMUNICATIONS, INC., a Delaware Corporation ("Subtenant"). RECITALS A. Sublessor is the tenant under that certain Lease dated December 1, 1995, as amended by First Amendment to Lease dated January 30, 1996 and First Amendment to Net, Net, Net Lease effective as of February 1, 1999, wherein Santa Barbara Corporate Center, LLC, a California limited liability company ("Landlord") leased to Sublessor certain premises described as 5383 Hollister Avenue in the unincopotared area of Santa Barbara County, California (the "Master Premises") in the building known as GRCI Building (the "Building"). Said Lease as amended prior to the date hereof is herein referred to as the "Master Lease" and is attached hereto as Exhibit A and made a part hereof. B. Subtenant desires to sublease from Sublessor, and Sublessor is willing to sublease to Subtenant, on the terms and conditions set forth herein, including without limitation, Section 1 of this Sublease, all of the Master Premises known herein as the "Sublease Premises" consisting of Suite 120, containing approximately Eight Thousand Six Hundred Ninety-Six (8,696) rentable square feet as delineated on the floor plan attached hereto as Exhibit B and hereby made a part hereof; provided, however, upon the Commencement Date, Sublessor shall deliver to Subtenant only that certain portion of the Premises consisting of approximately Two Thousand One Hundred Thirty Two (2,132) rentable square feet as delineated on the floor plan attached hereto as Exhibit D and hereby made a part hereof (the "Partial Premises"). NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained, Sublessor and Subtenant (together, the "Parties" and each sometimes a "Party") hereby agree and covenant with each other as follows: 1. Demise of Sublease Premises. (a) Sublessor shall sublease and demise to Subtenant, and Subtenant shall hire and accept from Sublessor, the Sublease Premises on and subject to the terms and conditions set forth in this Sublease; provided, however, upon the Commencement Date, Sublessor shall deliver to Subtenant only the Partial Premises and the remainder of the "Sublease Premises" ("Remainder Premises") shall be delivered on or before October 1, 2000. The term "Sublease Premises", as used in this Sublease, shall mean and refer only to the Partial Premises until Sublessor delivers the Remainder Premises to Subtenant in which case, upon such delivery of the Remainder Premises, Subtenant shall be obligated to sublease all of the Sublease Premises and the term "Sublease Premises" shall mean and refer to all of the Sublease Premises. Notwithstanding anything to the contrary contained in this Section 1, if Sublessor does not so tender possession to Subtenant of the Remainder Premises (without any tenant improvements being made therto) by January 1, 2001 (The "Outside Date"), then as Subtenant's sole and exclusive remedy against Sublessor for Sublessor's failure to deliver and/or delay in the delivery of the Remainder Premises, Subtenant may terminate this Sublease by delivering written notice therof to Sublessor at any time after the Outside Date, but prior to Sublessor's tender of possession of the Remainder Premises. If Subtenant fails to deliver such termination notice, or if Sublessor tenders to Subtenant possession of the Sublease Premises (without any tenant improvements being made thereto) at any time earlier than the expiration of ten (10) business days following receipt of Subtenant's termination notice, then upon the occurrence of any such events the foregoing right given to Subtenant to terminate this Sublease as provided herein shall lapse and be null and void and the Sublease shall remain in full force and effect with Subtenant having no further right to terminate this Lease pursuant to the foregoing provision. If Sublessor does so timely deliver to Subtenant possession of the Sublease Premises (without any tenant improvements being made thereto), Subtenant shall promptly deliver written notice to Sublessor confirming same (however, any failure by Subtenant to so notify Sublessor shall not affect the enforceability of this Sublease). (b) In consideration of the obligations contained in this Sublease, Subtenant shall pay to Sublessor, upon the full possession of the Sublease Premises (including the Remainder Premises), a moving reimbursement fee in an amount equal to $50,000 or such lesser amount, if any, as Sublessor pays to NanoMotion pursuant to a separate agreement between Sublessor and NanoMotion ("Moving Fee"); provided, however, that such Moving Fee shall not be owed to Sublessor if possession of the Remainder Premises are tendered to Sublessee after October 1, 2000. Furthermore, Sublessor shall have the right to increase said amount to a total of $150,000 by requesting an additional amount up to $100,000 within thirty (30) days after Sublessor's delivery of possession of the Remainder Premises, which $100,000 shall be amortized over 36 months at a fixed rate of interest equal to 8% per annum and credited back to Sublessee as a partial rent credit spread evenly over the 36 month period commencing on the first (1st) day of the calendar month following deliver of the $100,000. For example, in the event Sublessor receives $100,000 from Subtenant, the monthly credit due to Subtenant shall be $3,133.64 each month for a period of 36 months. Subtenant shall pay such $100,000 to Sublessor within ten (10) days after Sublessor's written request therefore. The payment by Subtenant of the Moving Fee and $100,000 referred to above shall constitute "Rent" under this Sublease. 2. Term. The term of this Sublease shall commence upon Sublease execution, or the date upon which Landlord consents to this Sublease (if such consent is required under the Master Lease), whichever shall last occur (the "Commencement Date"), and shall end on February 14, 2004 (the "Term") unless sooner terminated, or extended, as provided herein. If Landlord's consent to this Sublease is required under the Master Lease and (i) Landlord for any reason disapproves this Sublease, this Sublease shall be of no further force and effect; and (ii) if Landlord fails to give such consent by May 19, 2000, either Party may then cancel this Sublease by giving written notice of cancellation to the other Party before such consent is actually received. Neither Party shall have liability to the other for any termination or cancellation under this Section 2, unless such Party by its willful act caused Landlord to refuse timely consent to this Sublease. 3. Rent and Security Deposit. (a) Base Rent. Subtenant shall pay to Sublessor upon execution of the Sublease the sum of Three Thousand One Hundred Fifty Three and 66/100 Dollars ($3,153.66) as rent ("Base Rent") for the first (1st) month of the Term and Subtenant shall pay to Sublessor such Base Rent, each month, in advance on the first (1st) day of each month of the Term without offset, deduction or counterclaim; provided, upon Sublessor's tender of possession of the Remainder Premises to Subtenant, Base Rent shall increase to and Subtenant shall pay to Sublessor without offset, deduction or counterclaim, Twelve Thousand Eight Hundred Sixty Three and 14/100 Dollars ($12,863.14) per month in advance on the first (1st) day of each month of the Term after such tender of possession of the Remainder Premises. Subtenant shall receive a credit (as set forth in Section 1 (b) above) against monthly Base Rent in the event Subtenant pays to Sublessor the $100,000 referenced in Section 1 (b) above. In the event of a partial rent month, the Rent will be prorated on the basis of a thirty (30) day month. (b) Additional Rent. In addition to Base Rent, Subtenant shall pay to Sublessor as Additional Rent ("Additional Rent") 100% (if all the Sublease Premises is then subleased to Subtenant) or 24.5% (if only the Partial Premises is then subleased to Subtenant) of all operating expenses, taxes and assessments payable by Sublessor under the Lease ("Operating Expenses") and any other charges assessed against the Sublease Premises under the Master Lease or this Sublease. The Base Rent and Additional Rent may sometimes be referred to herein collectively as the "Rent." (c) Method of Payment. All Rent shall be paid to Sublessor in lawful money of the United States, at the address specified for notices in Section 22 below (or such other place as Sublessor may designate by written notice to Subtenant from time to time), and shall be payable without requirement of notice or demand thereof and without any rights of setoff or deduction whatsoever. (d) Escalation. Subtenant's base rent shall be adjusted per paragraph 3.5 of the Master Lease. (e) Late Charges. The Parties agree that late payments of Rent by Subtenant to Sublessor will cause Sublessor to incur costs not contemplated by this Sublease, the amount of which is extremely difficult to ascertain. Therefore the Parties agree that if any installment of Rent is not received by Sublessor within five (5) days after due, Subtenant will pay to Sublessor a late charge equal to five percent (5%) of the late payment. Interest on any amounts payable by Subtenant under this Sublease shall accrue at the rate of twelve percent (12%) per annum from the date delinquent until paid in full. (f) Rent Defined. As used herein, the term "Rent" shall mean Base Rent and the Additional Rent (including, without limitation, Subtenant's share of the Operating Expenses). (g) Free Rent; No Tenant Improvement Allowance. During the first thirty (30) days following delivery by Sublessor of the (i) Partial Premises, Base Rent applicable to the Partial Premises shall be forgiven and (ii) Remainder Premises, Base Rent applicable to the Remainder Premises shall be forgiven. Sublessor shall provide no tenant improvement allowance to Subtenant under this Sublease. 4. Master Lease. (a) Incorporation by Reference; Assumption. All of the Articles of the Master Lease are incorporated into this Sublease as if fully set forth in this Sublease, except the following: Basic Lease Provision 4,6,7 and 9, and the following Master Lease Sections: 3.1, last sentence of Section 5.1, the final two sentences of Section 17.17, Section 18, and Exhibits D and E. In addition, Section 7.6, the second paragraph of Section 7.7 and Seciton 6.1 of the Master Lease are incorporated into this Sublease except in no event or circumstance shall Sublessor (i) be obligated to perform any of Landlord's obligations under Sections 6.1 or 7.6 or (ii) indemnify Subtenant (as Landlord indemnifies Sublessor, as "Lessee") under the second paragraph of Section 7.7 of the Master Lease and Sublessor shall have no obligation or liability to indemnify Subtenant except to the extent expressly set forth in this Sublease. Section 17.29 of the Master Lease shall not be applicable unless and until Subtenant ceases to be a publicly held company. Where applicable, references in the Master Lease to Landlord will mean Sublessor and to Lessee will mean Subtenant (for examply, Sublessor shall not be obligated to repair damage or destruction of the Premises or Building under Section 8 of the Master Lease). If any provisions of this Sublease conflict with any portion of the Master Lease as incorporated herein, the terms of this Sublease will govern. (b) Assumption of Lease Obligations. Subtenant will assume and perform Sublessor's obligations as lessee under the Master Lease during the Sublease Term to the extent such obligations are applicable to the Sublease Premises. Subtenant will not commit or suffer any act or omission that will violate any of the provisions of the Master Lease. (c) No Assumption by Sublessor. Sublessor does not assume any of the obligations of the Landlord under the Master Lease, including without limitation, the requirement to carry insurance under Section 7.6 of the Master Lease or to perform Landlord's maintenance, repair and alteration obligations under Section 6.1 of the Master Lease. Subtenant acknowledges that Sublessor's obligation to perform services, provide utilities, make repairs and carry insurance shall be satisfied only to the extent that the Landlord under the Master Lease satisfies those same obligations. With respect to the performance by Landlord of its obligations under the Master Lease, Sublessor's sole obligation with respect thereto will be to request the same, on request in writing by Subtenant, and to use reasonable efforts to obtain the same from Landlord; provided, however, Sublessor will have no obligation to institute legal action against Landlord. (d) Performance Directly to Landlord. At any time and on reasonable prior notice to Subtenant, Sublessor can elect to require Subtenant to perform its obligations under this Sublease directly to Landlord, in which event Subtenant will send to Sublessor from time to time copies of all notices and other communications it will send to and receive from Landlord. (e) Landlord Defaults; Consents. Notwithstanding any provision of this Sublease to the contrary, (a) Sublessor will not be liable or responsible in any way for any loss, damage, cost, expense, obligation or liability suffered by Subtenant by reason of or as the result of any breach, default or failure to perform by the Landlord under the Master Lease, and (b) whenever the consent or approval of Sublessor and Landlord is required for a particular act, event or transaction (i) any such consent or approval by Sublessor will be subject to the consent or approval of Landlord, and (ii) should Landlord refuse to grant such consent or approval, under all circumstances, Sublessor will be released from any obligation to grant its consent or approval. (f) Termination of Master Lease. If the Master Lease is terminated for any reason whatsoever, this Sublease will terminate simultaneously and any unearned Rent paid in advance by Subtenant shall be refunded to Subtenant. 5. Maintenance and Repairs. At all times during the Sublease Term, Subtenant, at its sole cost, will maintain the Sublease Premises and every part thereof and all equipment, fixtures and improvements therein in good condition and repair in accordance with the terms of the Master Lease. At the end of the Sublease Term, Subtenant will surrender the Sublease Premises in as good condition as when received, reasonable wear and tear excepted. Subtenant will be responsible for all repairs required to be performed by the Lessee under the Master Lease. 6. Use. Subtenant shall use the Sublease Premises solely for general office use in keeping with the character of a first class office building and shall not use or permit the use of the Sublease Premises in any manner which will tend to create waste or a nuisance, or shall tend to disturb Sublessor or other tenants of the Building. 7. Parking. Subtenant shall be entitled to that portion of Sublessor's parking allotment under the Master Lease which is allocable to the Sublease Premises. 8 Hazardous Substances. (a) Definitions. For the purposes of this Sublease, the following terms have the following meanings: 1. "Environmental Laws" means any and all laws, statutes, ordinances or regulations pertaining to health, industrial hygiene or the environment including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), as amended, 42 U.S.C.ss.9601 et seq. and the Resource Conservation Recovery Act of 1976 ("RCRA"), as amended, 42 U.S.C.ss.6901 et seq. 2. "Hazardous Material(s)" means any hazardous, toxic or radioactive substance, material, matter or waste which is or becomes regulated by any federal, state or local law, ordinance, order, rule, regulation, code or any other governmental restriction or requirement, and shall include asbestos, petroleum products and the terms "Hazardous Substance" and "Hazardous Waste" as defined in CERCLA and RCRA. 3. "Environmental Problem" shall mean (A) any release or discharge, or threatened release or discharge, of a Hazardous Material in, on, under, from or about the Sublease Premises, the Master Premises or the Building or (B) any violation or threatened violation of any Environmental Laws, whether or not intentional, in, on, under or about the Sublease Premises, the Master Premises or the Building. 4. "Subtenant Related Environmental Problem" shall mean any Environmental Problem resulting from or related to (A) any act or omission of Subtenant, Subtenant's agents, servants, employees, contractors, subcontractors, visitors, licensees or invitees (collectively, "Subtenant's Representatives") or anyone allowed to enter onto the Sublease Premises or the Building by Subtenant or (B) Subtenant's use of the Sublease Premises or the Building. (b) Prohibition. Subtenant shall not cause or permit the manufacture, generation, production, storage, use, transportation, treatment, incineration, disposal, discharge, threatened discharge, release or threatened release of any Hazardous Material in, on, under, from or about the Sublease Premises or the Building, or into the environment surrounding the Building. Notwithstanding the preceding sentence, Subtenant may store and use cleaning or office supplies ("Supplies") containing Hazardous Materials so long as (i) the Supplies are of a type and chemical composition commonly used by businesses in general (and not used solely as an incident to Subtenant's particular business or use of the Sublease Premises); (ii) Subtenant stores and uses the Supplies only in such quantities as may reasonably be expected to be stored or used by persons occupying space the size of the Sublease Premises for general office purposes; and (iii) Subtenant stores and uses the Supplies in compliance with any manufacturer's directions or warnings and all applicable federal, state or local laws, regulations and judicial decrees or orders. Subtenant shall store and use all Supplies in a manner which minimizes to the greatest extent reasonably practical the threat of any spill or release of such Supplies into or onto the Sublease Premises, the Building or the environment and shall promptly and with reasonable care clean up any such spill or release to the satisfaction of Sublessor and any governmental authority having jurisdiction thereof. In no event shall Subtenant use or store any asbestos-containing materials or PCBs on the Sublease Premises. (c) Compliance with Laws. Subtenant and Subtenant's Representatives (e.g., its agents, employees, contractors and invitees) shall comply in all respects with any and all Environmental Laws applicable to the Sublease Premises and Subtenant's use thereof. (d) Environmental Problems. Subtenant shall exercise reasonable care to avoid the occurrence of any Subtenant Related Environmental Problem. If Subtenant causes, permits or learns of any Environmental Problem, Subtenant shall immediately notify Sublessor. Subtenant shall give any and all notices of any Subtenant Related Environmental Problem required by applicable Environmental Laws, including, without limitation, any notice required by CERCLA. Subtenant shall immediately give Sublessor notice of any governmental investigation or any governmental or regulatory action, proceeding, order or decree relating to any Subtenant Related Environmental Problem and, at Subtenant's expense, shall comply in all respects with any such order or decree within the time period allowed thereby for compliance, unless Sublessor notifies Subtenant that Sublessor intends to contest such order or decree. Prior to commencing any corrective or remedial action with respect to any Environmental Problem (except for any such action taken to comply with an order or decree which Sublessor has not elected to contest), Subtenant shall obtain the consent of Sublessor (which shall not be unreasonably withheld or delayed) and all governmental entities having jurisdiction thereof. Subtenant shall not be responsible or liable to Sublessor for any costs incurred due to any Hazardous Material which was present on the Sublease Premises prior to Subtenant's occupancy thereof. (e) Indemnity. Subtenant shall indemnify, defend and hold harmless Sublessor (through counsel reasonably satisfactory to Sublessor) against any and all claims, demands, actions, proceedings, liabilities, punitive damages, civil, administrative or criminal penalties, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses, fines and forfeitures) incurred by Sublessor or to which Sublessor may be exposed by reason of any of the following (an "Environmental Default"): (i) the manufacture, generation, production, storage, use, transportation, treatment, incineration, disposal, discharge, threatened discharge, release or threatened release of any Hazardous Material (including any Supplies) in, on, or from the Sublease Premises or by Subtenant or Subtenant's Representatives, in, on or about the Building during the term of this Sublease; (ii) Subtenant's violation of any of the provisions of this Section 8; or (iii) any Subtenant Related Environmental Problem. Without limiting the generality of the foregoing, Subtenant shall reimburse Sublessor upon demand for (I) any investigative, consulting, legal, response, remedial, monitoring or clean up costs incurred by Sublessor (whether or not in response to any governmental or judicial action, decree or order) relating to any Environmental Default; and (II) any investigative, consulting or legal costs incurred by Sublessor in defending against any regulatory or judicial order or decree, or satisfying any judgment or the terms of any settlement or consent decree, relating to any Environmental Default. Subtenant's indemnity obligations under this Section 8 shall survive the expiration or earlier termination of this Sublease. (f) Sublessor hereby represents and warrants to Subtenant that (i), to Sublessor's actual knowledge (without duty of inquiry or investigation), from the date of Sublessor's initial occupancy of the Sublease Premises to the date of this Sublease, Sublessor has not caused any Environmental Problem and (ii) during Sublessor's occupancy of the Sublease Premises, Sublessor used the Sublease Premises for general office uses and did not conduct laboratory testing at the Sublease Premises. 9. Alterations. (1) Alterations and Improvements by Subtenant. Subtenant will not make any alterations, additions or improvements to the Sublease Premises ("Alterations") without obtaining the prior written consent of Sublessor thereto, which consent shall be deemed granted if Subtenant obtains Landlord's consent thereto and notifies Sublessor in writing thereof at least ten (10) days prior to commencement of such Alterations; provided, however, Subtenant shall indemnify, defend (by counsel reasonably acceptable to Sublessor) and hold Sublessor harmless from and against all claims, damages, losses, liabilities, judgments, costs and expenses suffered or incurred by Sublessor arising from or related to Subtenants' failure to (i) surrender the Sublease Premises in the condition in which Sublessor must surrender the Sublease Premises to Landlord pursuant to the Master Lease, and (ii) remove any Alterations made by Subtenant to the extent required by Landlord and (iii) restore the Subleased Premises to the condition required by t the terms of the Master Lease. The term "Alterations" includes any alterations, additions or improvements made by Subtenant to comply with the ADA as required in Section 11 below. All Alterations must be constructed (i) in a good and workmanlike manner using materials of a quality comparable to those on the Sublease Premises, (ii) in conformance with all relevant codes, regulations and ordinances and (iii) only after necessary permits, licenses and approvals have been obtained by Subtenant from the appropriate governmental agencies. All Alterations will be made at Subtenant's sole cost and diligently prosecuted to completion. Any contractor or other person making any Alterations must first be reasonably approved in writing by Sublessor; provided, however, Sublessor hereby approves of Trabucco Construction, Inc. as a contractor. (2) Disposition on Termination. Upon the expiration of the Sublease Term or earlier termination of this Sublease, Sublessor may elect to have Subtenant either (i) surrender with the Sublease Premises any or all of the Alterations as Sublessor may determine (except personal property as provided in Section 10 below), which Alterations will become the property of Sublessor, or (ii) promptly remove any or all of the Alterations designated by Sublessor to be removed, in which case Subtenant must, at Subtenant's sole cost, repair and restore the Sublease Premises to its condition as of the Commencement Date, reasonable wear and tear excepted. 10. Removal of Personal Property. All articles of personal property, and all business and trade fixtures, machinery and equipment, cabinet work, furniture and movable partitions, if any, owned or installed by Subtenant at its expense in the Sublease Premises will be and remain the property of Subtenant and may be removed by Subtenant at any time, provided that Subtenant, at its expense, must repair any damage to the Sublease Premises caused by such removal or by the original installation. In the event Master Lessor so requires, Sublessor shall require that Subtenant remove all or any part of Subtenant's personal property at the expiration of the Sublease Term or sooner termination of this Sublease, in which event the removal will be done at Subtenant's expense and Subtenant, prior to the end of the Sublease Term or upon sooner termination of this Sublease, will repair any damage to the Sublease Premises caused by its removal. 11. Condition of Premises. Subtenant agrees to accept the Sublease Premises in an "AS IS" and "WITH ALL FAULTS" condition. Without limiting the foregoing, Subtenant's rights in the Sublease Premises are subject to all local, state and federal laws, regulations and ordinances governing and regulating the use and occupancy of the Sublease Premises and subject to all matters now or hereafter of record. Subtenant acknowledges that neither Sublessor nor Sublessor's agent has made any representation or warranty as to: (1) the present or future suitability of the Sublease Premises for the conduct of Subtenant's business; (2) the physical condition of the Sublease Premises; (3) the expenses of operation of the Sublease Premises; (4) the safety of the Sublease Premises, whether for the use of Subtenant or any other person, including Subtenant's employees, agents, invitees or customers; (5) the compliance of the Sublease Premises with any applicable laws, regulations or ordinances; or (6) any other matter or thing affecting or related to the Sublease Premises. Subtenant acknowledges that no rights, easements or licenses are acquired by Subtenant by implication or otherwise except as expressly set forth herein. Subtenant will, prior to acceptance of delivery of possession of the Sublease Premises, inspect the Sublease Premises and become thoroughly acquainted with its condition. Subtenant acknowledges that the taking of possession of the (i) Partial Premises by Subtenant will be conclusive evidence that the Partial Premises were in good and satisfactory condition at the time such possession was taken and (ii) Remainder Premises by Subtenant, as and when possession is taken, will be conclusive evidence that the Remainder Premises were in good and satisfactory condition at the time such possession is taken. Subtenant specifically agrees that, except as specifically provided by laws in force as of the date hereof, Sublessor has no duty to make any disclosures concerning the condition of the Building and the Sublease Premises or the appropriateness of the Sublease Premises for Subtenant's intended use and Subtenant expressly waives any duty which Sublessor might have to make any such disclosures. Subtenant further agrees that, in the event Subtenant subleases all or any portion of the Sublease Premises, Subtenant will indemnify and defend Sublessor for, from and against any matters which arise as a result of Subtenant's failure to disclose any relevant information about the Building or the Sublease Premises to any employee, agent, subtenant or assignee. Subtenant will comply will all laws and regulations relating to the use or occupancy of the Sublease Premises, including without limitation, making structural alterations or providing auxiliary aids and services to the Sublease Premises as required by the Americans with Disabilities Act of 1990, 42 U.S.C. ss. 12101 et seq. (the "ADA"). 12. Insurance. (a) Coverage. At all times during the Sublease Term, Subtenant will, at its sole cost, procure and maintain the types and amounts of insurance coverage as is required of Sublessor in the Master Lease. (b) Policies. All insurance required to be carried by Subtenant must be in a form satisfactory to Landlord and Sublessor and carried with companies reasonably acceptable to Sublessor and Landlord. Subtenant must provide Sublessor with an original certificate of insurance showing Sublessor and Landlord as additional insureds on all policies of insurance excluding the insurance required under Section 12(a)(5). Subtenant's policies of insurance shall provide that they are primary coverage for all matters insured therein. The certificate must provide for a thirty (30) day written notice to Sublessor in the event of cancellation or material change in coverage. (c) Subrogation. Sublessor and Subtenant will each obtain from their respective insurers under all policies of fire, theft, public liability and other insurance maintained by either of them at any time during the Sublease Term insuring or covering the Sublease Premises excluding the insurance required under Section 12(a)(5), a waiver of all rights of subrogation which the insurer of one party might otherwise have, if at all, against the other party and each party waives any and all rights of recovery against the other and their respective officers, employees and agents for loss of or any damage to such waiving party or its property to the extent such loss or damage is insured against under any insurance policy in effect at the time of such loss or damage. 13. No Encumbrance. Subtenant will not voluntarily, involuntarily or by operation of law mortgage or otherwise encumber all or any part of Subtenant's interest in the Sublease or the Sublease Premises. 14. Default. The occurrence of any of the following shall constitute a default (an "Event of Default") by Subtenant: (a) Failure to pay Rent when due, if such failure continues for five (5) days after notice has been given to Subtenant; provided that if Subtenant fails to pay Rent when due more than three (3) times during a consecutive twelve (12) month period during the Sublease Term, Sublessor's obligation to notify Subtenant of any such failure will end after the third such occurrence, and a noncurable Event of Default shall occur if Subtenant fails to pay any Rent due thereafter when such Rent is due; or (b) Failure to pay any other sum or charge payable by Subtenant hereunder as and when the same becomes due and payable, and such failure continues for more than ten (10) days after Sublessor gives written notice thereof to Subtenant; provided that if Subtenant fails to pay any sum or charge when due more than three (3) times during a consecutive twelve (12) month period during the Sublease Term, Sublessor's obligation to notify Subtenant of any such failure will end after the third such occurrence, and a noncurable Event of Default shall occur if Subtenant fails to pay any sum or charge due thereafter when such sum or charge is due; or (c) Subtenant abandons or vacates the Sublease Premises; or (d) Failure to perform or observe any other agreement, covenant, condition or provision of this Sublease to be performed or observed by Subtenant as and when performance or observance is due, and such failure continues for more than twenty five (25) days after Sublessor gives written notice thereof to Subtenant, or if the default cannot be cured within said twenty five (25) day period and Subtenant fails within said period to commence with due diligence and dispatch the curing of such default or, having so commenced, thereafter fails to prosecute or complete with due diligence and dispatch the curing of such default; or (e) Any act or omission on the part of Subtenant which is the basis of a claim by Landlord of a default on the part of Tenant under the Master Lease (whether or not Landlord gives Sublessor written notice of default under the Master Lease) unless Subtenant cures such act or omission to Landlord's satisfaction within three (3) days after either Landlord or Sublessor give Subtenant notice of such act or omission; or (f) The filing of a petition by or against Subtenant under the Federal Bankruptcy Code or any state bankruptcy or insolvency law (unless, in the case of a petition filed against Subtenant, Subtenant contests such petition and obtains a dismissal thereof within sixty (60) days after filing); Subtenant's making any general assignment for the benefit of its creditors; the appointment of a trustee or receiver to take possession of all or any portion of Subtenant's assets located at the Sublease Premises or of Subtenant's interest under this Sublease (unless Subtenant contests such appointment and obtains repossession of such assets or interest within sixty (60) days); the attachment, execution or other judicial seizure of all or any portion of Subtenant's assets located at the Sublease Premises or of Subtenant's interest under this Sublease; or Subtenant's acknowledgment in writing that it is insolvent or generally unable to pay its obligations as they fall due. 15. Remedies for Subtenant Default. Upon and after the occurrence of any Event of Default (and until cure of such default has been tendered by Subtenant and accepted by Sublessor), Sublessor shall have the following rights and remedies: (a) The right to terminate this Sublease and the interest and estate granted in the Sublease Premises hereby, by giving Tenant written notice of such termination (which shall be effective upon the later of the receipt of such notice or the date and time of termination specified therein). (b) In the event Sublessor elects to terminate this Sublease, the right to recover from Subtenant: (1) The worth at the time of award of the unpaid rent earned at the date of such termination, (2) The worth at the time of award of the amount by which the unpaid Rent which would have earned after the date of such termination until the time of award exceeds the amount of such rental loss that Subtenant proves could have been reasonably avoided, (3) The worth at the time of award of the amount by which the unpaid Rent which would have been earned for the balance of the Sublease Term after the time of award exceeds the amount of such rental loss that Subtenant proves could have been reasonably avoided, and (4) Any other amount necessary to compensate Sublessor for all of the detriment proximately caused by Subtenant's failure to observe or perform any of its obligations under this Sublease or which in the ordinary course of events would be likely to result therefrom, including, without limitation, expenses incurred in re-entering and taking possession of the Sublease Premises, costs incurred in cleaning and refitting the Sublease Premises for a new tenant and costs (including reasonable broker's commissions) incurred in reletting the Sublease Premises. The "worth at the time of award" shall be computed, for purposes of clauses (1) and (2) above, by allowing interest at two percent over the prime or corporate reference rate announced from time to time by Bank of America, or, if lower, the maximum rate permitted by law during the period in question, and, for purposes of clause (3) above, by discounting such amount at the discount rate of the Federal Reserve Bank in the State in which the Sublease Premises are located in effect at the time of the award, plus one percent (1%). (c) The right to re-enter and repossess the Sublease Premises, and remove all persons and property therefrom, by any suitable action or proceeding without liability to Subtenant or anybody claiming by, through or under Subtenant. No such re-entry or repossession shall be deemed an election to terminate this lease, unless Sublessor has given Subtenant written notice of termination pursuant to subparagraph (a) above or such termination is otherwise decreed by a court of competent jurisdiction. Sublessor may store any property removed from the Sublease Premises at Subtenant's expense and, if Subtenant does not pay the cost of such removal and storage within the later of ten (10) days after written demand to Subtenant therefor or thirty (30) days after the removal and storage of such property, Sublessor may sell such property and apply the proceeds of such sale to the cost of such removal and storage and to any other amounts then owed Sublessor hereunder. (d) Sublessor has the remedy described in California Civil Code Section 1951.4 (Sublessor may continue Sublease in effect after Subtenant's breach and abandonment and recover Rent as it becomes due, if Subtenant has right to sublet or assign, subject only to reasonable limitations). (e) Without terminating this Sublease, Sublessor shall have the right to relet the Sublease Premises or any part thereof, for Subtenant's account, but on such terms and conditions and at such rentals as Sublessor in its sole discretion deems advisable, with the right at Subtenant's expense to make such alterations and repairs in the Sublease Premises and to incur such other expenses as Sublessor in its discretion deems necessary for such reletting. Rents and other sums received by Sublessor from any such reletting shall be applied: first, to the payment of expenses incurred by Sublessor in reletting and repossessing the Sublease Premises and in the reletting thereof; second, to sums other than Rent then owed by Subtenant to Sublessor hereunder; third, to installments of Rent then owed Sublessor hereunder; fourth, to future installments of Rent, as they become due; and, fifth, any balance to Subtenant. If the rents and other revenues received by Sublessor from any such reletting are insufficient to pay in full the amounts due Sublessor hereunder (including, without limitation, reimbursement of the expenses of reentering, repossessing and reletting the Sublease Premises), Subtenant shall, upon demand and from time to time, pay the deficiency to Sublessor. (f) Without terminating this Sublease, seek and obtain the appointment of a receiver to take possession of the Sublease Premises, relet the same, collect and receive any Rents and other amounts payable to Subtenant with respect to the Sublease Premises and apply such receipts, first, to the expenses of such receivership and, then, in accordance with subparagraph (e) above. (g) To cure any default on the part of Subtenant and to recover from Subtenant the cost of such cure, upon demand, together with interest thereon from the date paid at an annual rate of ten percent (10%). Sublessor's cure of any default hereunder shall not be deemed to waive such default or any other Event of Default. (h) Any other right or remedy provided by law or in equity or in the Master Lease. The rights and remedies of Sublessor provided in this Sublease are, to the maximum extent permitted by law, cumulative and not mutually exclusive. 16. Indemnification and Limitation on Liability. The terms of subsections 16(a), (b) and (c) below shall not be effective unless and until Sublessor tenders possession of the Remainder Premises to Subtenant and Section 16(f) shall be in full force and effect until Sublessor tenders possession of the Remainder Premises to Subtenant. Upon such tender of possession of the Remainder Premises to Subtenant, subsections 16(a), (b) and (c) shall be in full force and effect and fully enforceable, and the terms of Section 16(f) below shall be of no further force or effect and shall be deemed deleted from this Sublease. (a) Subtenant hereby agrees to indemnify Sublessor and Sublessor's directors, officers, shareholders, partners, members, principals, employees, agents, servants, contractors, subcontractors, visitors, licensees, successors and assigns (collectively, "Sublessor's Representatives") against and save Sublessor and Sublessor's Representatives harmless from any and all losses, costs, damages, charges, liabilities, obligations, fines, penalties, claims, demands, or judgments and any and all expenses, including, without limitation, reasonable attorneys' fees and expenses, court costs, and costs of appeal, settlement and negotiations (collectively, "Claims"), arising out of or in connection with: (a) Subtenant's use of the Sublease Premises; (b) the conduct of Subtenant's business or any activity, work or thing done, permitted or suffered by Subtenant in, on or about the Sublease Premises or the Building; (c) any failure to perform or observe any of the terms, covenants, conditions or provisions required to be performed or observed by Subtenant under this Sublease or the Master Lease; or (d) any negligence or other misconduct of Subtenant or any of Subtenant's Representatives in connection with the performance of Subtenant's obligations under this Sublease; or (e) any mechanic's lien and other liens and encumbrances filed by any person claiming by, through or under Subtenant, including security interests in any materials, fixtures, equipment and any other improvements or appurtenances installed in, located on or constituting part of the Sublease Premises. In the event that any action or proceeding is brought against Sublessor by reason of any of clauses (a) through (e) inclusive of this Section 16, Subtenant shall, at the request of Sublessor, assume the defense of the same at Subtenant's sole cost with counsel reasonably satisfactory to Sublessor. Sublessor and its insurers shall each have the right to employ, at its expense, separate counsel in any such action or proceeding and to participate in the defense thereof. Subtenant shall consent to and indemnify Sublessor against the costs of any reasonable settlement agreed to by Sublessor of such action or proceeding. (b) Subtenant hereby assumes all risk of damage to property or injury to persons in or on the Sublease Premises or arising from the use or occupation thereof from any cause whatsoever, except when caused by the gross negligence or willful misconduct of Sublessor. (c) Sublessor shall not be responsible or liable to Subtenant or to those claiming by, through or under Subtenant for any injury, loss or damage that may be occasioned by or through the acts or omissions of: (i) persons occupying other premises in the Building, or (ii) Sublessor or Sublessor's Representatives unless proximately caused by (A) the gross negligence or willful misconduct of Sublessor or Sublessor's Representatives or (B) the negligence of Sublessor or Sublessor's Representatives if such negligence is covered by and compensable under insurance obtained by Sublessor. Sublessor shall not be responsible or liable to Subtenant for any defect or failure, in (or any act or omission in the construction of) the Building, the Sublease Premises or any Building system, nor shall it be responsible or liable for any injury, loss or damage to any person or property of Subtenant or Subtenant's Representatives or any other person caused by or resulting from fire, electricity, gas, water, or other utility (or interruption therein) or from rain, snow, ice, theft, bursting, breakage, explosion, implosion, leakage, steam, running, backing up, seepage, or the overflow of water or sewerage in any part of the Building or for any injury, loss or damage caused by or resulting from acts of God or the elements. Subtenant shall give prompt notice to Sublessor in case of fire, casualty, defect or accident in the Sublease Premises or in the Building or of defects therein or in any Building systems. (d) Subtenant's indemnity obligations under this Section 16 shall survive the expiration or earlier termination of this Sublease. (e) Subtenant hereby expressly assumes any and all indemnity obligations of Sublessor under the Master Lease that relate to the Partial Premises arising and accruing on or after the date of the Sublease and (ii) Remainder Premises arising and accruing on or after the date Subtenant takes possession of the Remainder Premises. (f) Until Sublessor delivers the Remainder Premises to Subtenant, (i) Subtenant shall indemnify, defend and hold harmless Sublessor to the same extent as Sublessor, as Lessee under the Master Lease (under the terms of Section 7.7 of the Master Lease), has agreed to indemnify, defend and hold harmless Landlord, as Lessor, under the Master Lease, (ii) Sublessor shall be exempt from liability, and shall neither be liable for injury to Sublessee's business or any loss of income therefrom or for damage to the property of the Subtenant nor liable for injury to the person of Subtenant, to the same extent as Landlord, under Section 7.8 of the Master Lease, is exempt from liability and not liable to Sublessor, as Lessee under the Master Lease and (iii) Sublessor shall indemnify, defend and hold Subtenant harmless from and against any and all Claims caused by the negligent acts, negligent omissions or willful misconduct of Sublessor, except to the extent caused by Subtenant. This subsection 16(f) shall be applicable and in full force and effect until Sublessor tenders possession of the Remainder Premises to Subtenant and, upon Sublessor's tender of possession of the Remainder Premises to Subtenant, this subsection 16(f) shall be of no further force or effect and shall be deemed deleted from this Sublease. 17. Assignment and Subletting. Subtenant shall not voluntarily or by operation of law assign, transfer, mortgage, sublet or otherwise transfer or encumber all or any part of Subtenant's interest in this Sublease or in the Sublease Premises, without Sublessor's prior written consent which shall not be unreasonably withheld and the prior written consent of the Landlord, as provided in the Master Lease. 18. Signs. Subtenant shall not place any sign upon the Sublease Premises without Sublessor's prior written consent; provided, however, that Sublessor shall not unreasonably withhold its consent to any sign approved by Landlord; provided, further, that Subtenant shall have the right to place identification signs on doors leading from the common corridor into the Sublease Premises with Landlord's approval, but Subtenant shall repair, or reimburse Sublessor on demand for the cost of repairing, any damage to such doors resulting from the installation or removal of such signage. Subtenant shall be solely responsible for negotiating with the Landlord appropriate informational lines on the Building directory. 19. Brokers. Each of Sublessor and Subtenant represents to the other Party that it has not employed or consulted with any broker other than Blair Hayes Commercial and Pacifica Commercial Realty (collectively, "Brokers") with respect to this Sublease. Each Party shall indemnify and hold the other harmless from and against all Claims incurred or resulting from the claim of any person, except Brokers, that a commission or fee is due in connection with this Sublease if such claim is based upon any statement or agreement alleged to have been made by such Party. Payment of Brokers is Sublessor's responsibility. Sublessor shall pay to Blair Hayes Hayes Commercial and Pacifica Commercial Realty a commission equal to two percent (2%) each of the total Base Rent for the Partial Premises and, in the event the Remainder Premises is delivered to Subtenant, for the Remainder Premises in addition to the Partial Premises. The commission applicable to the (i) Partial Premises shall be paid 1/2 upon submittal of a fully executed approved Sublease Agreement and 1/2 upon Subtenant's occupancy of the Partial Premises for purposes of conducting its business and (ii) Remainder Premises shall be paid upon Subtenant's occupancy of the Remainder Premises for purposes of conducting its business. 20. Holding Over. If Subtenant holds over after the expiration of the Sublease Term or earlier termination of this Sublease, with or without the express or implied consent of Sublessor, then at the option of Sublessor, Subtenant will become and be only a month-to-month tenant at a rent equal to one hundred twenty five percent (125%) of the rent payable by Subtenant immediately prior to such expiration or termination, and otherwise upon the terms, covenants and conditions herein specified. Notwithstanding any provision to the contrary contained herein, (i) Sublessor expressly reserves the right to require Subtenant to surrender possession of the Sublease Premises upon the expiration of the Sublease Term or upon the earlier termination of this Sublease and the right to assert any remedy at law or in equity to evict Subtenant and/or collect damages in connection with any holding over, and (ii) Subtenant will indemnify, defend and hold Sublessor harmless from and against any and all liabilities, claims, demands, actions, losses, damages, obligations, costs and expenses, including, without limitation, attorneys' fees incurred or suffered by Sublessor by reason of Subtenant's failure to surrender the Sublease Premises on the expiration of the Sublease Term or earlier termination of this Sublease. 21. Subordination. This Sublease is subject and subordinate to the Master Lease, to all ground and underlying leases, and to all mortgages and deeds of trust which may now or hereafter affect such leases, the leasehold estate or estates thereby created or the real property of which the Sublease Premises form a part, and to any and all renewals, modifications, consolidations, replacements and extensions thereof. 22. Notices. Any notice required or permitted to be given hereunder shall be in writing and delivered to the applicable party personally, or by United States Postal Service, first class registered or certified mail, postage prepaid, return receipt requested, in either case to the address indicated for such party below; and shall be deemed given, delivered and received only upon such personal delivery or at the time of delivery or attempted delivery shown upon such receipt: If to Sublessor: Mr. Rich Travaglini URS Greiner Woodward Clyde Mack Centre II One Mack Centre Drive Paramus, NJ 07652-3909 With a copy to: John Rakow III, Esq. O'Brien Kreitzberg 50 Fremont Street, 24th Floor San Francisco, CA 94105 If to Subtenant: Mr. Glenn Berger Somera Communications, Inc. 5383 Hollister Avenue Goleta, CA 93111 23. Waivers. The failure or delay of either Party to insist in any instance upon the strict performance or observance of any obligation or condition on the part of the other under this Sublease, or to exercise any right or remedy provided herein, shall not be deemed a waiver of such obligation, condition, right or remedy, except where this Sublease provides expressly that a right or remedy must be exercised within a specific time and such time has elapsed. No waiver by either Party of any right or obligation contained in this Sublease shall be deemed to have been made, unless made expressly in writing by the Party entitled to the performance of the obligation, satisfaction of the condition or exercise of the right in question. Sublessor's acceptance of any partial payment of Rent due Sublessor hereunder shall not satisfy or discharge Subtenant's obligation to pay the balance of Rent then due, nor shall Sublessor's acceptance of any payment of Rent when Subtenant is in breach of any other obligation or condition under this Sublease be deemed a waiver of such breach. 24. Estoppel Certificates. (1) Obligation to Provide. Subtenant will at any time upon not less than ten (10) days' prior written notice from Sublessor execute, acknowledge and deliver to Sublessor a statement in writing (i) certifying that this Sublease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Sublease, as so modified, is in full force and effect), the amount of any security deposit, and the date to which the Rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Subtenant's knowledge, any uncured defaults on the part of Sublessor hereunder or of Landlord under the Master Lease, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer to the Sublease Premises. (2) Failure to Provide. At Sublessor's option, Subtenant's failure to deliver a statement within the time required by Section 24(a) above, will be conclusive upon Subtenant (i) that this Sublease is in full force and effect, without modification except as may be represented by Sublessor, (ii) that there are no uncured defaults in Sublessor's performance hereunder or in Landlord's performance under the Master Lease, and (iii) that not more than one month's Rent has been paid in advance, or such failure may be considered by Sublessor as a material default by Subtenant under this Sublease. 25. Computation of Time. The term "day" means a calendar day, and the term "business day" means any day other than a Saturday, Sunday or a bank holiday under the laws of the United States or the State of California. Any period of time specified in this Sublease which would otherwise end upon a non-business day shall be extended to, and shall end upon, the next following business day. 26. Quiet Enjoyment. Subtenant, upon paying the Rent and performing each of its obligations under this Sublease, shall lawfully and quietly hold, occupy and enjoy the Sublease Premises, as is relevant, during the Term of this Sublease without hindrance or molestation of anyone lawfully claiming by, through or under Sublessor, subject, however, to the provisions set forth in this Sublease. Sublessor will have the right to enter the Sublease Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Sublease Premises and for verifying compliance by Subtenant with this Sublease and the Master Lease and permitting Sublessor to perform its obligations under this Sublease and the Master Lease. 27. Entire Agreement; Modification; Binding Effect. This Sublease constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings and representations of the Parties with respect to the subject matter hereof. This Sublease may not be modified, amended, supplemented or otherwise changed, except by a writing executed by both Parties. Except as otherwise expressly provided herein, this Sublease shall bind and inure to the benefit of the Parties and their respective successors and assigns. 28. Attorneys' Fees. Should either Party institute any action or proceeding against the other for any reason or to enforce any provision of this Sublease or for damages by reason of an alleged breach of any provision hereof, the prevailing Party shall be entitled to receive all costs and expenses (including reasonable attorneys' fees) incurred by such prevailing Party in connection with such action or proceeding. 29. Execution in Counterparts. This Sublease may be executed in two counterparts, and by each Party on a separate counterpart, each of which when so executed and delivered shall be deemed an original, and both of which when taken together shall constitute but one and the same instrument. 30. Governing Law. This Sublease shall be governed by and interpreted in accordance with the laws of the State of California. 31. WAIVER OF JURY TRIAL. SUBLESSOR AND SUBTENANT, TO THE EXTENT THEY MAY LEGALLY DO SO, HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS SUBLEASE, OR IN ANY WAY CONNECTED WITH, OR RELATED TO, OR INCIDENTAL TO, THE DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS SUBLEASE OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. TO THEY EXTENT THEY MAY LEGALLY DO SO, SUBLESSOR AND SUBTENANT AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER PARTY OR PARTIES HERETO TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY. THE PARTIES HAVE SET FORTH THEIR INITIALS BELOW TO INDICATE THEIR AGREEMENT WITH THE JURY TRIAL WAIVER PROVISION CONTAINED IN THIS SECTION. Sublessor's Initials /s/ TJC Subtenant's Initials /s/ JGM ----------- ---------------- 32. Warranty of Signers. Each individual executing and delivering this Sublease Agreement on behalf of a Party hereby represents and warrants that he or she is authorized and empowered to make such execution and delivery. 33. Partial Invalidity. If any term or provision of this Sublease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Sublease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Sublease shall be valid and enforced to the fullest extent permitted by law. 34. Captions. The captions appearing within the body of this Sublease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Sublease or of any provision thereof. 35. Lan Room. Sublessor shall be allowed to keep its Lan Room as shown in Exhibit B until such time as all of the Sublease Premises is delivered to Subtenant. Subtenant shall grant 24-hour access (without notice or permission of any kind) to Sublessor to said Lan Room. 36. Contingencies. This Sublease is contingent upon (i) the execution and delivery by the parties thereto of a termination of that certain lease between Taltec, as tenant, and University Research Park, as landlord ("URP"), regarding premises located at 130 Robin Hill Road ("Other Premises") (ii) the execution and delivery by the parties thereto of a termination of that certain sublease between Taltec, as sublessor, and NanoMotion, as subtenant, regarding the Other Premises, (iii) the execution and delivery by URP and Woodward-Clyde Consultants ("WCC"), and affiliate of Sublessor, of a First Amendment to Lease and (iv) the execution and delivery by WCC and NanoMotion of a letter agreement. In the event any of these contingencies are not satisfied on or before five (5) business days following the date of this Sublease, this Sublease shall terminate and be of no further force or effect. IN WITNESS WHEREOF, Sublessor and Subtenant have executed this Sublease as of the date first written above. SUBLESSOR: DAMES & MOORE, INC., a Delaware corporation By: /s/ Timothy J. Cohen ------------------------------------------------ Timothy J. Cohen Its: Vice President ------------------------------------------------ SUBTENANT: SOMERA COMMUNICATIONS, INC. a Delaware corporation By: /s/ Jeffrey G. Miller ------------------------------------------------ Jeffrey G. Miller Its: Executive Vice President of Sales & Marketing ------------------------------------------------ EX-10.19 6 0006.txt LEASE BETWEEN STENA REALTY & SOMERA COMMUNICATIONS Exhibit 10.19 LEASE November 2000 made between Stena Realty BV and Somera Communications BV i.o. ================================================================================ LEASE OF OFFICE PREMISES And other business premises not as defined in Section 7A: 1624 Civil Code - -------------------------------------------------------------------------------- in the form as determined by the de Raad voor Onroerende Zaken on 29 February 1996. References to this model are allowed only if the text inserted, added or altered can be recognised as such. Additions and alterations shall preferably be included under the heading "special provisions". The Raad voor Onroerende Zaken excludes any liability for adverse effects caused by the use of the text of this model. - -------------------------------------------------------------------------------- The undersigned: Stena Realty BV whose registered office is at Schiphol Boulevard 237 in Schiphol hereinafter to be referred to as the "Landlord" duly represented herein by Mr P.M. de Ligt and Somera Communications B.V. i.o., a private limited company in the process of incorporation whose office address is at J. Paxtonstraat 47 in (1992 BK) Velserbroek, which company (after having been incorporated) will have its registered office in Amsterdam and its place of business at Hoekstreen 129 in Hoofddorp. Somera Communications B.V. i.o. is registered at the Commercial Register in Amsterdam under number 34142889 and is represented herein by its incorporator Somera Communications, Inc., the latter corporation duly represented herein by Mr D. Firestone hereinafter to be referred to as the "Tenant" Have agreed as follows: The Property, Purpose, Use 1.1 This lease relates to the premises comprised of approx. 775 m(2) business accommodation and around 500 m(2) office accommodation as well as to 10 parking places, all this referred to hereinafter as: "the Property", known locally as Hoeksteen 129 in Hoofddorp, identified at the Land Register as Municipality of Haarlemmermeer, Section AK, lots numbers 1055, 1056 and 1057 (partly) and further specified on the drawing and/or description of the Property as attached to this document which constitute(s) part of this agreement. 1.2 The Property may be used only as office and business accommodation, and car parking facility respectively. 1.3 Without the Landlord's written authorisation previously obtained the Tenant shall not be permitted to use the Property for any other purpose than as defined in 1.2. 1.4 The maximum allowable load of the floors of the Property is: - 250 kg/m(2)for the office accommodation. - 2.500 kg/m(2)for the business accommodation. General Conditions 2.1 The General Conditions Lease of Office Premises and Other Business Premises not as defined in Section 7A: 1624 Civil Code, registered at the Registry of the District Court in The Hague on 29 February 1996 under number 34/1996, hereinafter the "General Conditions", are part of this agreement. The General Conditions are known to the parties and the Tenant has received a copy thereof. 2.2 The General Conditions shall apply unless the provisions of this agreement contain an express variation from them or unless in respect of the Property the General Conditions cannot be applied. Term, Renewal and Termination of the Lease 3.1 This agreement has been made for a term of five (5) years, commencing on 1 November 1999 and ending on 31 October 2005, without prejudice to the provisions of article 10 of this agreement. 3.2 After expiry of the term stated in 3.1. this agreement shall continue in force for a subsequent term of five (5) years, therefore until 31 October 2010, unless the Tenant gives notice of termination. The Landlord's first opportunity to terminate this agreement shall be as at 31 October 2010. 3.3 Termination of this agreement shall be effected by giving notice of termination for the end of a lease period with due observance of a term of at least twelve (12) months, without prejudice to the provisions of article 10 of this agreement. 3.4 Notice of termination must be given by bailiff's writ or by letter sent by recorded delivery. 3.5 Termination of this agreement before the expiry of its agreed term shall be permitted in an event as defined in article 7 of the General Conditions and as defined in article 10 hereof. Payment Obligations; Instalment Periods 4.1 The payments which the Tenant shall be required to make comprise: - the rent - the charges for the additional supplies and services and the Value Added Tax (VAT) payable thereon - the VAT payable on the rent or a corresponding sum in accordance with and subject to articles 15.2 and 15.3 of the General Conditions, provided at any rate that the parties have agreed that VAT is to be chargeable on the rent. 4.2 The rent shall be NLG 251,250 per annum. (two hundred fifty-thousand two hundred and fifty guilders) 4.3 The rent shall be adjusted annually on 1 November, for the first time on 1 November 2001 and subsequently each year thereafter in accordance with articles 4.1 and 4.2 of the General Conditions. The annual price index figure will be used instead of the monthly price index figure. 4.4 The charges for additional supplies and services shall be determined in accordance with article 12 of the General Conditions and, as provided therein, with respect to said charges a system of payment in advance with settlement at a later date shall be applied. 4.5 The various sums to be paid by the Tenant to the Landlord shall be payable in advance in one payment combined, such payments to be made by the instalments specified in article 4.6 and to be received by the Landlord on or before the first day of the instalment period concerned. 4.6 For each instalment period of three (3) calendar months - the rent is NLG 62,812.50 - the advance payment for additional supplies and services provided by or in the name of the Landlord is NLG 7,281.25 --------------- total NLG 70,093.75 =============== (seventy-thousand ninety-three guilders and 75 cents) These amounts are exclusive of VAT. 4.7 With a view to the date of commencement of the lease and a rent-free period of two (2) months, the first instalment period shall be the period from 1 January 2000 through 31 March 2001 and the amount payable for this first period shall be NLG 70,093.75 not including VAT. The Tenant shall pay this amount, together with the VAT charged thereon, if any, on or before 1 January 2001. Value Added Tax 5.1 All amounts stated in this Agreement are exclusive of VAT. The Tenant shall pay VAT on the charges for additional supplies and services. If VAT is chargeable on the rent the same shall apply to the rent. The Landlord shall invoice the Tenant for VAT and said tax is to be paid at the same time as the rent and the charges for additional supplies and services, or the advance payment thereon. 5.2 It is agreed that the Landlord shall charge to the Tenant VAT on the rent, referring to the Decree of 10 April 1996, no VB 96/354, amended by Decree of 24 March 1999, no VB 99/571. 5.3 Where it has been agreed that VAT shall be charged on the rent, the Tenant hereby irrevocably authorises the Landlord and his successor(s) to file on the parties' joint behalf an application as referred to in Section 11 (1) [b] [5] of the Turnover Tax Act 1968 (Wet op de Omzetbelasting 1968) (application for tax to be chargeable on the rent). The Tenant shall countersign such application and return it to the Landlord within 14 days of receiving it. Supplies and Services 6 The parties agree that the supplies and services to be provided by the Landlord shall be composed of the items listed below: (a) gas and/or oil consumption, including flat rate (b) electricity consumption, including flat rate, for the equipment and lighting of the communal areas; (c) supply of water, including flat rate; (d) maintenance and periodic inspection of central heating and/or airconditioning system(s); (e) ditto for lift installation(s) (f) ditto for water pressure installation; (g) ditto for fire alarm, building security, breakdown signalling and emergency power installation(s); (h) sanitary facilities, towel dispensers, soap, etc; (i) cleaning costs of the communal areas, glazing communal areas, terraces, parking lot; (j) maintenance of the grounds and paving; (k) administration charge of 5% on the supplies and services ticked Guarantee 7 The amount of the guarantee mentioned in article 8.1 of the Special Conditions is NLG 82.360,16, in words eighty-two thousand three hundred sixty guilders and sixteen cents. Manager 8 Until further notice by the Landlord, the manager of the Property shall be the Landlord. Special Conditions 9.1 The Tenant and the Landlord expressly declare that the rent has been determined on the basis that for at least the minimum percentage laid down or to be laid down by law, currently 90%, the Tenant shall continuously use the Property for purposes in respect of which the parties shall be entitled to deduct VAT, in a manner which shall allow the parties to opt for taxed rent. 9.2a In the event that the decision granting the request to opt for taxed rent is cancelled because the Tenant does not use or no longer uses the Property or does not let the Property be used for purposes in respect of which the parties are entitled to deduct VAT, as referred to under 9.1, the Tenant shall no longer be required to pay turnover tax on the rent to the Landlord, but the Tenant shall then be required to pay to the Landlord as from the date on which the decision was cancelled, in addition to the rent, exclusive of VAT, and as a separate payment, an amount that will fully compensate the Landlord for: I The VAT on the operating costs of the Property or investments therein which the Landlord cannot (or can no longer) deduct as a result of the cancellation of the decision. II The VAT which the Landlord is required to pay to the Tax Authorities as a result of the cancellation of the decision on account of a recalculation as referred to in Section 15(4) of the Wet op de omzetbelasting 1968 [Turnover Tax Act 1968] or review as referred to in Sections 11 up to and including 13 of the Uitvoeringsbeschikking omzetbelasting 1968 [Turnover Tax (Implementation) Decree 1968]. III All other losses the Landlord suffers as a result of the cancellation of the decision. 9.2b The VAT which the Landlord cannot (or can no longer) deduct as a result of the cancellation of the decision, as referred to in I under 9.2(a), as well as the future loss of return on this deductible amount shall in that event be determined between the parties. 9.2c The Tenant shall pay to the Landlord the financial loss the Landlord has suffered after and as result of the cancellation of the decision, to the extent that such loss has been or can be determined at that time, at the same time as the Tenant makes its regular rent payments, which financial loss, except for the loss referred to in I under 9.2.(a), shall be divided equally over the remaining term of the Lease, if possible by means of an annuity, but shall immediately become payable in full by the Tenant if the Lease is terminated prematurely for any reason. 9.3 The Tenant shall issue to the Landlord no later than the signing of the Lease a statement signed by him that he will use the Property for purposes which entitle the parties to deduct taxes in full or practically in full on the basis of Section 15 of the Turnover Tax Act, which statement shall be in accordance with the model presented to him by the Landlord. The provisions of 9.2 shall also be applicable if the request to opt for taxed rent pursuant to Section 11(1)(b), 5e of the Turnover Tax Act 1968 is rejected by the Tax Authorities for any reason, unless the Tenant is able to show that the request was not granted or not granted on the agreed date through the fault of the Landlord. 9.4 If a situation referred to in 9.2 occurs, the Landlord shall inform the Tenant of the amounts the Landlord must pay to the Tax Authorities and shall provide an insight into the other losses as referred to in 9.2, save for the losses that were established in advance as referred to in I under 9.2(a). The Landlord shall co-operate if the Tenant wishes to have the Landlord's statement audited by an independent registeraccountant [chartered accountant]. The costs thereof shall be for the Tenant's account. 9.5 Without prejudice to the other provisions of the Lease in this respect, the Tenant shall at any rate occupy the Property or let the Property be occupied before the end of the financial year in which he began to lease the real property with the right of option regarding taxes. Within four weeks of the end of the financial year in which the condition that he should use the real property or let the real property be used for purposes which entitle the parties to deduct taxes in full or practically in full on the basis of Section 15 of the Turnover Tax Act was not fulfilled, the Tenant shall notify the Landlord thereof by means of a statement signed by him. The Tenant shall in that event send a copy of his statement to the tax inspector within the same term. 9.6 If the Tenant does not occupy the Property or provide the information as described above or if it turns out afterwards that he made the wrong assumptions and that, consequently, the Landlord has wrongly charged VAT on the rent, the Tenant shall be in default and the Landlord shall be entitled to recover the resulting financial loss from the Tenant. This loss shall consist of all the VAT which the Landlord shall have to pay to the Tax Authorities in this respect increased by interest and any increases. The provisions of this paragraph constitute an arrangement for damages, in addition to the arrangement set forth under 9.2, which shall apply in the event that the decision is cancelled with retroactive effect. The extra loss suffered by the Landlord as a result of the retroactive effect shall immediately be payable in full by the Tenant. The Landlord shall co-operate if the Tenant wishes the have the statement of this extra loss audited by an independent chartered accountant. The costs thereof shall be for the account of the Tenant. 9.7 The provisions of 9.2, 9.4 and 9.6 shall also be applicable if the Landlord suffers a loss after the termination, whether or not premature, of the Lease as a result of the cancellation of the decision, which loss shall then immediately be payable in full by the Tenant. 9.8 The provisions of 9.2(a) under II shall not be applicable if the review period for deducting input tax with respect to the Property has expired at the time this Lease is concluded. 9.9 Articles or, as the case may be, parts hereof in the Lease and the general provisions which are not consistent with the provisions of this Article shall not be applicable. 9.10 The Tenant expressly declares that he shall use the Property for purposes which entitle the parties to deduct VAT in full (or practically in full), at least 90%. 9.11 The financial year of the Tenant starts on 1 January and ends on 31 December. 10 The Tenant shall be entitled to terminate the Lease as at 1 January 2002 with due observance of a notice period of four (4) months. If the Tenant exercises this right he shall so notify the Landlord no later than on 1 September 2001 by registered letter. If the Tenant does not exercise this right, the Lease will end on 1 November 2005. 11 The Tenant shall be entitled to assign (his rights and obligations under) this Lease or to sublet (completely or partly) the Property to companies affiliated with the Tenant or vice versa. Assignment of this Lease or (complete or partial) subletting to third parties shall require the prior written approval of the Landlord, which approval will not be unreasonably withheld. 12 The Tenant has an option to rent the office and business accommodation, which accommodation is situated in the building of which the Property forms part. The Tenant shall be granted a decision period of fifteen (15) days. 13 In addition to Article 1.2 of the General Conditions the Parties hereby explicitly record that before the Tenant takes occupancy of the Property, the Parties shall together draw up a completion statement in which the (maintenance) condition of the Property shall be recorded. Said completion statement will form an integral part of the Lease. 14 The Landlord warrants to the Tenant that the Property and/or the land on which the Property is built suit for the intended use by the Tenant. 15 Varying from Article 4.1 of the General Conditions, in indexing the rent price (i) the annual price index figure will be used instead of the monthly price index figure and (ii) the basic year shall be 1995 (1995 = 100 instead of 1990 = 100). 16 The provisions of Article 5.1 of the General Conditions shall apply, save with respect to the normal and/or customary wear and tear on account of use of the Property. 17 In Article 6.5 and 6.6 of the General Condition the phrase the words "serious" and "gross" shall be deleted. 18 Varying from Article 14 .2 of the General Conditions, interest at the statutory rate plus two percent shall be applied, and the minimum amount shall not apply. 19 The Tenant shall be required to pay a deposit to the Landlord in the amount equal to three months rent and the VAT payable thereon, therefore NLG 82,360.16 (eighty-two thousand three hundred sixty guilders and sixteen cents). 20 Varying from the provisions of Article 2.8 of the General Conditions, applies that the Tenant is allowed -after prior written approval of the landlord- is allowed to install advertising signs in or on the building from which the Property forms part. The costs of installing the advertising signs required by the Tenant shall be for his own account. The Tenant shall be responsible for obtaining any permits which official authorities may require in respect of such installation. The landlord shall not withheld his approval unreasonable. 21 Immediately after its incorporation Somera Communications B.V. will ratify this Lease and therefore accept and assume all rights and obligations of the Tenant arising from this Lease. Drawn up and signed in two original copies: Stena Realty B.V. Somera Communications B.V. i.o. /s/ P.M. de Ligt /s/ D. Firestone - ---------------------------- -------------------------------------- P.M. de Ligt D. Firestone City: City: Date: Date: Annexes - the General Conditions; - VAT-option statement; - completion statement (to be drawn up); - extract Chamber of Commerce regarding the Landlord; - extract Chamber of Commerce regarding the Tenant; - the General Conditions EX-10.20 7 0007.txt LEASE AGREEMENT, DATED NOVEMBER 1, 2000, BETWEEN Exhibit 10.20 COMMERCIAL LEASE AGREEMENT This Commercial Lease Agreement ("Lease") is made and effective November 1, 2000 and between Jersey State Properties, a New Jersey limited liability company ("Landlord") and Somera Communications, Inc., a Delaware corporation ("Tenant"). R E C I T A L S: A. Landlord is the owner of land and improvements commonly known as the Jersey State Properties Building (the "Building") and located at 7 Waterloo Road, Stanhope, New Jersey 07874 (the "Property"). The Property is legally described as follows: Block 29 of Lot 201.3, Byram Township, New Jersey. The Building contains approximately 15,840 square feet of rentable space. B. Landlord desires to lease to Tenant approximately 12,800 square feet of the Building (the "Leased Premises"). Approximately 10,400 square feet of the Leased Premises shall be used by the Tenant as office space (the "Office Space") and approximately 2,400 square of the Leased Premises shall be used by the Tenant as warehouse space (the "Warehouse Space"). A depiction of the Building and the Leased Premises (including illustrations of the locations of the Office Space and the Warehouse Space) is attached to this Lease as Exhibit "A", which Exhibit "A" is hereby incorporated into this Lease by this reference. C. Tenant desires to lease the Leased Premises from Landlord in accordance with the terms, conditions and provisions herein set forth. NOW, THEREFORE, incorporating and in consideration of the foregoing recitals, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, Landlord and Tenant hereby agree as follows: A G R E E M E N T: 1. Term; Extension Term. A. Initial Term. Landlord hereby leases the Leased Premises to Tenant, and Tenant hereby leases the Leased Premises from Landlord, for an "Initial Term" of sixty (60) months, beginning November 1, 2000 (the "Commencement Date") and ending October 31, 2005 (the "Termination Date"). B. Extension Term. Landlord hereby grants Tenant the option (the "Extension Option") to extend the Initial Term of the Lease for one additional sixty (60) month period (the "Extension Term"). Tenant shall exercise such Extension Option, if at all, by giving Landlord written notice of Tenant's election to so exercise the Extension Option not less than ninety (90) days prior to the expiration of the Initial Term. The rent to be paid by the Tenant for the Leased Premises during the Extension Term (if exercised) is set forth in Section 2 hereinbelow. 2. Base Rental. A. Initial Term. During the Initial Term, Tenant shall pay to Landlord the Annual Base Rent set forth hereinbelow for the Office Space and the Warehouse Space (as applicable). Payments of Annual Base Rent shall be due in advance on the first day of each calendar month during the Initial Term (and the Extension Term, if applicable) to Landlord at Jersey State Properties, 7 Waterloo Road., Stanhope, New Jersey 07874 or at such other place designated by written notice from Landlord or Tenant. Payments of Annual Base Rent for any partial calendar months shall be prorated on a daily basis. Office Space (10,400 sq. ft.) Months Per Sq. Ft. Annual Monthly - ------ ----------- ------ ------- Months 1-12 $ 7.85 $ 81,640.00 $ 6,803.33 Months 13-24 $10.00 $104,000.00 $ 8,666.67 Months 25-36 $12.00 $124,800.00 $10,400.00 Months 37-48 $14.00 $145,600.00 $12,133.33 Months 49-60 $16.00 $166,400.00 $13,866.67 Warehouse Space (2,400 sq. ft.) Months Per Sq. Ft. Annual Monthly - ------ ----------- ------ ------- Months 1-12 $6.00 $14,400.00 $1,200.00 Office Space (10,400 sq. ft.) Months Per Sq. Ft. Annual Monthly - ------ ----------- ------ ------- Months 1-12 $ 7.85 $ 81,640.00 $ 6,803.33 Months 13-24 $10.00 $104,000.00 $ 8,666.67 Months 25-36 $12.00 $124,800.00 $10,400.00 Months 37-48 $14.00 $145,600.00 $12,133.33 Months 49-60 $16.00 $166,400.00 $13,866.67 Warehouse Space (2,400 sq. ft.) Months Per Sq. Ft. Annual Monthly - ------ ----------- ------ ------- Months 1-12 $6.00 $14,400.00 $1,200.00 Months 13-24 $6.00 $14,400.00 $1,200.00 Months 25-36 $6.00 $14,400.00 $1,200.00 Months 37-48 $6.00 $14,400.00 $1,200.00 Months 49-60 $6.00 $14,400.00 $1,200.00 B. Extension Term (if applicable). The Annual Base Rental for the Extension Term (if the Extension Option is exercised) shall be ninety percent (90%) of the Fair Market Rental Rate of the Leased Premises for the Extension Term. The Fair Market Rental Rate of the Leased Premises shall mean the Annual Base Rent at which tenants, as of the commencement of the Extension Term, would pay to lease space comparable in size, location and quality to the Leased Premises for a comparable term, taking into consideration all concessions and inducements generally being granted at such time including tenant improvements or improvement allowances provided in connection therewith (taking into account the age, quantity and layout of the existing improvements in the Leased Premises). Upon Tenant's exercise of the Extension Option, the Landlord and Tenant shall work together in good faith to mutually agree on the Fair Market Rental Rate for the Leased Premises during the Extension Term. If the Landlord and the Tenant are unable to agree on the Fair Market Rental Rate for the Leased Premises for the Extension Term within fifteen (15) business days (the "Outside Date") after Landlord's receipt of Tenant's notice of its election to exercise the Extension Option, then each party shall submit to the other party a separate written determination of the Fair Market Rental Rate within five (5) business days after the Outside Date, and such determinations shall be submitted to arbitration in accordance with the provisions of Subsections 2B(i) through 2B(v) hereinbelow. The failure of either Tenant or Landlord to submit a written determination of the Fair Market Rental Rate within such five (5) business day period shall conclusively be deemed to be such party's approval of the Fair Market Rental Rate submitted within such five (5) business day period by the other party. i. Landlord and Tenant shall each appoint one (1) appraiser who shall by profession be a real estate appraiser who shall have been active over the five (5) year period ending on the date of such appointment in the appraisal of office buildings/warehouse space in the general vicinity of the Building. The determination of the appraisers shall be limited solely to the issue of whether Landlord's or Tenant's submitted Fair Market Rental Rate is the closer to the actual Fair Market Rental Rate as determined by the appraisers, taking into account the requirements with respect thereto set forth in Section 2 above. Each such appraiser shall be appointed within ten (10) business days after the Outside Date. ii. The two (2) appraisers so appointed shall, within fifteen (15) days of the date of the appointment of the last appointed appraiser, agree upon and appoint a third appraiser who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) appraisers. The three (3) appraisers shall, within thirty (30) days of the appointment of the third appraiser, reach a decision as to which of Landlord's or Tenant's submitted Fair Market Rental Rate is closer to the actual Fair Market Rental Rate and shall select such closer determination (but not any other number) as the Fair Market Rental Rate and notify Landlord and Tenant thereof. The decision of the majority of the three (3) appraisers shall be binding upon Landlord and Tenant. iii. If either Landlord or Tenant fails to appoint an appraiser within the time period specified hereinabove, the appraiser appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such appraiser's decision shall be binding upon Landlord and Tenant. iv. If the two (2) appraisers fail to agree upon and appoint a third appraiser, a third appraiser shall be appointed by the senior judge of the trial court in the county in which the Building is located. v. The party whose Fair Market Rental Rate is not selected shall pay the fees and expenses of the entire appraisal process and all of the appraisers. 3. Use Tenant may use the Leased Premises for all lawful activities; provided, however, that Tenant may not use the Leased Premises to store, manufacture or sell any inherently dangerous substance, chemical, thing or device. 4. Sublease and Assignment. Tenant shall have the right, without Landlord's consent, to assign this Lease or sublease any or all of the Leased Premises to any other entity; provided, that, Tenant shall be required to notify the Landlord of any such assignment and/or sublease, and, provided, further, that any such assignment and/or sublease shall not release the Tenant from any of its obligations under this Lease without Landlord's consent. 5. Condition of Leased Premises; Repairs and Maintenance of the Leased Premises. A. Condition of Leased Premises. Landlord warrants and covenants to Tenant that the existing plumbing, electrical systems, fire sprinkler system, lighting, air conditioning and heating systems and loading doors, if any, in the Leased Premises, are in good operating condition on the Commencement Date. If Tenant determines that such warranty and covenant is/was untrue, Landlord shall, promptly after receipt of written notice from Tenant setting forth with specificity the nature and extent of such non-compliance, rectify same at Landlord's expense. Landlord further warrants and covenants that any improvements on or in the Leased Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. In addition, Landlord warrants to Tenant, that except as provided in writing to Tenant prior to the Commencement Date, Landlord has not received any notice from any governmental agency that a violation or violations of applicable building codes, regulations, or ordinances exist with regard to the Leased Premises as of the Commencement Date. If the Leased Premises do not comply with said warranties, Landlord shall, promptly after receipt of written notice from Tenant setting forth with specificity the nature and extent of such non-compliance, take such action, at Landlord's expense, as may be reasonable or appropriate to rectify the non-compliance. B. Landlord's Obligation. Landlord shall maintain in good condition and repair the foundations, roofs and exterior surfaces of walls of the Building (including doors, door frames, door checks, windows and window frames), and all utility facilities serving the Property; provided, however, to the extent any repairs or replacements are necessitated by the gross negligence or willful acts of Tenant or caused by alterations, additions or improvements made by Tenant, the cost of same shall be the responsibility of Tenant. Landlord shall also be responsible for the replacement, as necessary, of the heating, ventilating and air conditioning equipment and any elements, components or portions thereof. If Landlord fails to make repairs or alterations and/or fails to maintain the Building, the Leased Premises and/or the Property (and such repairs, alteration and/or repairs are typically those that a Landlord would be required to complete) after notice from Tenant, Tenant may make such repairs and offset the cost thereof from the next installment(s) of Annual Base Rental then coming due. C. Tenant's Obligation. Tenant, at its expense, shall keep the Leased Premises in such order, condition and repair as when Tenant first occupied the applicable space. Should Tenant fail to keep the Leased Premises in such order, condition and repair or otherwise reasonably maintain the Leased Premises after written notice from Landlord of Tenant's failure to do the same, Landlord may make any such repairs and/or replacements to the Leased Premises, and Tenant shall pay to Landlord, the costs incurred by Landlord in the making of such repairs or replacement. 6. Alterations and Improvements. Tenant, at Tenant's expense, shall have the right (without the requirement of obtaining Landlord's consent) to remodel, redecorate, and make non-structural additions, improvements and replacements of and to all or any part of the Leased Premises from time to time as Tenant may deem desirable, provided the same are made in a workmanlike manner and utilizing good quality materials. Tenant shall have the right to place and install personal property, trade fixtures, equipment and other temporary installations in and upon the Leased Premises, and fasten the same to the premises. All personal property, equipment, machinery, trade fixtures and temporary installations, whether acquired by Tenant at the commencement of the Lease term or placed or installed on the Leased Premises by Tenant thereafter, shall remain Tenant's property free and clear of any claim by Landlord. Tenant shall have the right to remove the same at any time during the term of this Lease provided that all damage to the Leased Premises caused by such removal shall be repaired by Tenant at Tenant's expense. Notwithstanding anything herein to the contrary, Tenant shall not have the right to make structural modifications to the Leased Premises and/or the Building without first obtaining the Landlord's consent to such modifications, which consent shall not be unreasonably withheld, delayed or conditioned. 7. Property Taxes. Tenant shall pay its portion of all general real estate taxes and installments of special assessments coming due during the Lease term on the Leased Premises, and all personal property taxes with respect to Tenant's personal property, if any, on the Leased Premises. 8. Insurance. A. Landlord's Insurance. Landlord shall, at all times, from the Commencement Date through the Termination Date, maintain in effect a policy or policies of insurance covering the Property (as applicable) and the Building, in an amount not less than the full replacement cost thereof. Such insurance shall provide protection against any peril generally included in the classification "Fire and Extended Coverage" and such other additional insurance as covered in an "all risks" standard insurance policy. In addition, Landlord shall maintain the following insurance coverages: (a) general liability insurance in an amount not less than $3,000,000.00, (b) flood and mudslide insurance in amount equal to one hundred percent (100%) of the full replacement value of all improvements; provided that such flood and mudslide insurance shall not be required if the Property is not situated within an area with a high flood and/or mudslide hazard, (c) twelve (12) months rent loss or business interruption insurance, and (d) workers' compensation and all other insurance, if any, of whatsoever description and in such amounts as may be required by any ordinance, law or governmental regulation to be carried or maintained by Landlord in connection with Landlord's operation of the same or the use of the same or in connection with the construction, demolition, maintenance or repair of the Property or any part thereof B. Tenant's Insurance. Tenant, at its sole cost and expense, commencing on the Commencement Date, shall procure and keep in full force and effect the following types of insurance, in at least the amounts specified herein: (a) liability insurance with coverage limits of not less than $2,000,000.00 per occurrence for bodily injury, personal injury, death and property damage liability per occurrence, (b) worker's compensation insurance as required by law, (c) twelve (12) months business interruption or loss of income insurance, and (d) insurance covering all of Tenant's leasehold improvements, alterations and personal property from time to time in, on or about the Leased Premises.. C. Policy Forms. All policies of insurance provided for herein shall be issued by insurance companies with general policy holder's rating of not less than A- and a financial rating of not less than Class X, as rated in the most current available "Best's Key Rating Guide", and which are qualified to do business in the State of New Jersey. All such policies shall name and shall be for the mutual and joint benefit and protection of Landlord and Tenant as additional insureds. Executed copies of renewal policies or certificates thereof shall be delivered to Landlord and Tenant (as the case may be) within 30 days prior to the expiration of the term of each policy. All policies of insurance delivered to a party hereunder must contain a provision that the company writing the policy will give to the other party 30 days' notice in writing, in advance, of any cancellation or lapse or the effective date of any reduction in the amounts of insurance. All public liability, property damage and other casualty policies shall be endorsed to read that such policies are primary policies. 9. Utilities. Electricity for the Leased Premises is separately metered to the Leased Premises. Accordingly, Tenant shall pay all electricity charges on the Leased Premises during the term of this Lease directly to the utility company providing electricity to the Leased Premises. Tenant shall not be charged any electricity charges for the Leased Premises as part of the common area charges and expenses set forth in Section 16 hereinbelow. Tenant acknowledges that (a) the Office Space is designed to provide standard office use electrical facilities and standard office lighting, and (b) the Warehouse Space is designed to provide standard warehouse use electrical facilities and standard warehouse lighting. Tenant shall not use any equipment or devices that utilize excessive electrical energy or which overload the wiring or interfere with electrical services to other tenants. None of the other utilities (i.e., water, sewer, oil, gas, etc.) serving the Leased Premises are separately metered to the Leased Premises. Accordingly, Tenant shall reimburse Landlord for Tenant's pro-rata share of the costs of such utilities as part of the common area charges and expenses, as specifically set forth in Section 16 hereinbelow. 10. Signs. Tenant shall have the right to place on the Leased Premises, at locations selected by Tenant, any signs, which are permitted by applicable zoning ordinances and laws. Landlord shall assist and cooperate with Tenant in obtaining any necessary permission from governmental authorities or adjoining owners and occupants for Tenant to place or construct the foregoing signs. Tenant shall repair all damage to the Leased Premises resulting from the removal of signs installed by Tenant. 11. Entry. Landlord shall have the right to enter upon the Leased Premises at reasonable hours to inspect the same, provided Landlord shall (a) provide Tenant with at least 48 hours prior written notice of Landlord's intent to enter the Leased Premises (except in the event of an emergency) and (b) not interfere with Tenant's business in the Leased Premises. 12. Parking. The Property parking lot currently contains 100 parking spaces. Accordingly, there are approximately 6.3 parking spaces for each 1,000 rentable square feet of the Property. Pursuant to this Lease, Tenant will lease approximately 12,800 square feet of space at the Property. Landlord and Tenant hereby agree that Tenant shall be entitled to use up to 80 of the 100 parking spaces available at the Property. Landlord shall not decrease the number of available parking spaces at the Property without Tenant's prior written consent. 13. Indemnities. Tenant shall defend (unless Landlord waives its right to such defense) indemnify and protect Landlord from any claim, demand, liability, judgment, award, loss, damage, expense, charge or cost of any kind or character (including reasonable attorneys' fees and costs) (hereinafter collectively referred to as "Claims") actually incurred by Landlord and to the extent caused by (a) the construction, repair, alteration, improvement, use, occupancy or enjoyment of the Leased Premises by Tenant, its agents, employees, contracts or invitees, and/or (b) a breach of Tenant's obligations under this Lease. Landlord shall defend, indemnify and protect Tenant from and against any and all liabilities, obligations, damages, penalties, claims, costs, charges and expenses (including actual attorney fees and costs) to the extent such liabilities, obligations, damages, penalties, claims, costs, charges and expense are caused by a breach of Landlord's (and/or its agents, contractors and/or employees) obligations under the Lease. Tenant and Landlord's obligations under this section shall survive the expiration or earlier termination of the Lease. 14. Damage and Destruction. In the event the Leased Premises are damaged or destroyed by fire or other peril covered by insurance Landlord is required to carry pursuant to the terms of this Lease, Landlord shall, within thirty (30) days following the casualty, apply for all necessary permits and approvals to repair, reconstruct and restore (collectively referred to herein as "Reconstruction") the damaged or destroyed portion of the Leased Premises. Within a period of sixty (60) days after obtaining all required permits and approval, Landlord shall commence Reconstruction of that portion of the Leased Premises damaged or destroyed and prosecute the same diligently to completion. If the cost of Reconstruction exceeds the greater of (a) the amount of Landlord's insurance, or (b) the amount of insurance proceeds Landlord would have collected if Landlord had complied with its insurance obligations under the Lease, Landlord may elect to terminate this Lease by giving notice thereof to Tenant within thirty (30) days following Landlord's good faith determination that the cost of Reconstruction exceeds Landlord's insurance; provided, however, Tenant may rescind Landlord's election to so terminate this Lease by agreeing to pay the difference, in which event this Lease shall not terminate and Landlord shall diligently prosecute the Reconstruction to completion. Any Reconstruction to be performed by Landlord shall be performed in a manner so as to minimize interference with Tenant's business at the Leased Premises. Landlord shall, subject to the above and the events of Force Majeure, complete such Reconstruction within 180 days after obtaining all required permits and approvals for such Reconstruction. If Landlord has not completed the Reconstruction within such 180 day period (subject to events of Force Majeure) or if Landlord sooner informs Tenant that Landlord will be unable to complete the Reconstruction within such period, Tenant shall have the right to terminate this Lease at the end of such period or within five (5) business days of receipt of such notice, as the case may be. In the event the Leased Premises are destroyed or materially damaged by any casualty not required to be covered under Landlord's insurance, Landlord shall have the election, and shall within thirty (30) days following the date of such damage give Tenant written notice of Landlord's election, either (i) to commence Reconstruction of the Leased Premises and complete the same within 180 days following the date of such damage, in which event this Lease shall continue in full force and effect, or (ii) not to perform such Reconstruction of such portion of the Leased Premises, in which event this Lease shall cease and terminate not later than sixty (60) days after Landlord's notice of its election to terminate. Upon any termination of this Lease under any of the provisions of this Section 14, the parties shall be released thereby without further obligation to the other party coincident with the surrender of possession of the Leased Premises to Landlord, expect for its obligations which have theretofore accrued and are then unpaid. In the event of Reconstruction as herein provided, then the Base Rent shall be abated proportionately with the degree to which Tenant's use of the Leased Premises is impaired, commencing upon the date of the casualty and continuing until the date the Tenant recommences normal business in the portion of the Leased Premises affected by the Reconstruction. Tenant shall continue it operations at the Leased Premises following a partial destruction of the same if, in Tenant's reasonable discretion, Tenant's operations at the Leased Premises during any such period can be continued from the standpoint of prudent business management. If Tenant continues operations, Tenant's obligation to pay additional rent (calculated based on the reduced square footage actually being utilized by Tenant) shall remain in full force and effect. 15. Default. A. Tenant. If Tenant shall fail to pay rent when due to Landlord as herein provided, and if said failure to pay rent shall continue for fifteen (15) days after written notice thereof shall have been given to Tenant by Landlord, or if Tenant shall fail to perform any other material covenants or conditions required to be kept, observed and performed by Tenant, and such failure shall continue for thirty (30) days after notice thereof in writing to Tenant by Landlord without correction thereof then having been commenced and thereafter diligently prosecuted, Landlord may declare Tenant in default of this Lease. In such instance, Landlord shall have any and all rights and remedies available to Landlord, both in law and in equity, including, but not limited to, the right to terminate the Lease. Landlord shall use reasonable efforts to mitigate its damages. B. Landlord. Should Landlord fail to perform any other material covenants or conditions required to be kept, observed and performed by Landlord under this Lease, and such failure shall continue for thirty (30) days after notice thereof in writing to Landlord by Tenant without correction thereof then having been commenced and thereafter diligently prosecuted, Tenant may declare Landlord in default of this Lease. In such instance, Tenant shall have any and all rights and remedies available to Tenant, both in law and in equity, including, but not limited to (a) the right to correct the default and offset all costs and expenses incurred by Tenant with respect to the same from the next installments of Base Rent due hereunder, and (b) the right to terminate the Lease. Tenant shall use reasonable efforts to mitigate its damages. 16. Common Area and Maintenance Expenses. A. Expenses Included. Landlord shall keep, or cause to be kept, the common areas of the Building and the Property in a neat, clean and orderly condition, properly lighted and landscaped, and shall operate, repair and maintain, as reasonably necessary, all equipment and facilities thereof. It is understood and agreed that the term common area expenses shall mean all sums actually expended (excluding financing costs) for the repair, operation and maintenance of the following: general repairs; resurfacing; restriping; cleaning; trash removal; sweeping and janitorial services; repair and maintenance of public toilets, paving, sidewalks, curbs, common signs, sprinkler systems, planting and landscaping, lighting and other utilities, directional signs, fire protection, lighting, storm drainage and other utility systems; snow removal, taxes assessed on the land comprising the common area; all personal property taxes assessed and levied on any personal property owned by Landlord for use in the common area; Landlord's insurance (as required by this Lease); maintenance and operation of parking lot. In addition, the common area expenses may include an amount payable to the Landlord for the supervision and maintenance of the common area and for accounting, bookkeeping and collection of the common area expenses equal to no more than three percent (3%) of the total of the aforementioned expenses for each calendar year. B. Expenses Excluded. Notwithstanding anything to the contrary contained herein, common area expenses shall not include (a) depreciation of real or personal property, (b) leasing commissions, advertising expenses and other costs incurred in leasing space to other tenants; (c) the cost of work, including painting, decorating and tenant change work which Landlord performs in any tenant space; (d) the cost of installing, operating and maintaining any specialty services at the Property; (e) the cost of correcting defects in the construction of the Building equipment or the cost of complying with Building and fire codes; (f) salaries of Landlord's employees; (g) the cost of any work or service performed for any facility other than the Property; (h) the costs of any item for which the Landlord is entitled to be reimbursed by insurance; (i) the costs of any repairs, alterations, additions, changes, replacements or other items which under generally accepted accounting principals, are properly classified as capital expenditures; (j) insurance premiums to the extent Landlord is reimbursed therefor; (k) loan fees, charges or interest on debt or amortization payments on any mortgage; (l) any expenses for repairs or maintenance which are actually covered by warranties or service contracts; (m) the cost of any HVAC, janitorial, garage or other service provided to other tenants; (n) penalties or costs arising from Landlord's violation of laws or breach of contracts with third parties or resulting from late payments; (o) to the extent that the operating services are performed by Landlord or by entities affiliated with Landlord, common area expenses shall not include amounts paid in excess of the fair market rate at which such services could be obtained from unrelated third parties; (p) any bad debt loss, rent loss or reserves for bad debt or rent loss; (q) costs associated with operating the business of the partnership or entity that constitutes Landlord (as the same is distinguished from the course of operation of the Property); (r) costs of defending any lawsuits; (s) costs of selling or financing the Property; (t) legal fees and other costs incurred resulting from the acts or omissions of Landlord, its agents, contractors or employees. C. Payment of Common Area Expenses; Expense Cap. Tenant shall pay its pro-rata share of Landlord's actual cost of operating and maintaining (in accordance with the terms and conditions of Sections 16A and 16B hereinabove) the common areas of the Property. As of the Commencement Date, Tenant's pro-rata share was equal to 81%. Tenant shall pay to Landlord on the first day of each month, an amount equal to one/twelfth (1/12) of Tenant's annual pro rata share of common area expenses. Landlord hereby represents to Tenant that the total common area expenses for the Property for calendar year 2000 was $44,548.00. Accordingly, Tenant's pro rata share of the common area expenses for the Property (including taxes and insurance) for calendar year 2000 (to be prorated from the Commencement Date) is approximately $36,084.00 ($2.82 per square foot). Landlord estimates that the common area expenses for the Property for calendar year 2001 will be $53,429.00. Accordingly, Tenant's pro rata share of common area expenses for calendar year 2001 shall be approximately $43,277.00 ($3.38 per square foot). Landlord and Tenant agree that on the first (1st) day of each calendar year after calendar year 2001 during the Initial Term (and the Extension Term, if applicable), the fee paid by Tenant to Landlord pursuant to this Section 16 shall be adjusted to reflect any increase or decrease in the cost to maintain the common areas of the Property. Notwithstanding the previous sentence, Tenant and Landlord agree that during any calendar year (after calendar year 2001) during the term of this Lease and any extension thereof, the fees paid by Tenant under this Section 16 shall not increase by more than four percent (4%) over the common area expenses (including taxes and insurance) paid by Tenant during the immediately proceeding calendar year. As noted hereinabove, the common area expenses due in any partial calendar year shall be prorated. Prior to the commencement of each calendar year, Landlord shall provide Tenant with an estimate of Tenant's proportionate share of the common area expenses for the upcoming calendar year. Within ninety (90) days after the end of each calendar year, Landlord shall provide Tenant with a statement of actual common area expenses incurred during the previous calendar year. The statement of common area expenses shall include an itemization of each type of expense in reasonable detail. In the event Tenant's proportionate share of the common area expenses is less than the sum actually paid by Tenant the prior year, Landlord shall apply the excess paid by Tenant to the next payment of common area expenses owed by Tenant. In the event that Tenant's proportionate share of the common area expenses is greater than the sums actually paid by Tenant the prior year, Tenant shall pay such difference to Landlord within ninety (90) days of receipt of notice of Tenant's shortfall from Landlord. 17. Condemnation. If any legally, constituted authority condemns the Building or such part thereof which shall make the Leased Premises unsuitable for Tenant's operation of its business in the Leased Premises, this Lease shall cease when the public authority takes possession, and Landlord and Tenant shall account for rental as of that date. Such termination shall be without prejudice to the rights of either party to recover compensation from the condemning authority for any loss or damage caused by the condemnation. Neither party shall have any rights in or to any award made to the other by the condemning authority. 18. Subordination; Non-Disturbance; Estoppel Certificate. Tenant accepts this Lease subject and subordinate to any mortgage or deed of trust presently existing or hereafter placed upon the Property and to any renewals, refinancing and extensions thereof, but Tenant agrees that any such mortgagee shall have the right at any time to subordinate such mortgage, deed of trust or other lien to this Lease on such terms and subject to such conditions as such mortgagee may deem appropriate in its discretion. Tenant agrees, within 30 days following written demand therefore, to execute such further instruments subordinating this Lease or attorning to the holder of any such liens as may be reasonable and which do not increase Tenant's obligations under the Lease (provided, however, that any such documents and/or instruments shall be deemed to be unreasonable if they do not include standard tenant non-disturbance language). Tenant and Landlord each agree that such party will from time to time (upon at least fifteen (15) business days' notice from the other party and not more than one time in any calendar year) upon request by the other party execute and deliver to such persons as Landlord or Tenant (as the case may be) shall request a statement in recordable form certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as so modified), stating the dates to which rent and other charges payable under this Lease have been paid, stating that (to Tenant's/Landlord's knowledge) the other party is not in default hereunder (or if such party alleges a default stating the nature of such alleged default) and further stating such other matters as the requesting party shall reasonably require. 19. Tenant's Right of First Refusal to Lease Additional Space in the Building. In the event that any other space ("Available Space") in the Building becomes available for lease or sublease, Landlord shall give Tenant written notice of any such availability (the "Availability Notice"). Following receipt of the Availability Notice, Tenant shall have thirty (30) days to provide Landlord with written notice of Tenant's election to expand (or not to expand) into the Additional Space. If Tenant elects to expand into the Additional Space, the term for such Additional Space shall run concurrently with the Initial Term (and Extension Term, as applicable) of the Lease. Base Rent for the Additional Space shall be the lesser of (a) ninety percent (90%) of the fair market rental rate for the Additional Space (which, if required, shall be determined in accordance with the procedure outlined in Section 2B hereinabove), or (b) the Base Rent which Tenant is then-currently paying for other similar space in the Building, or (c) as otherwise agreed to in writing by Landlord and Tenant (provided, that neither Landlord not Tenant shall be obligated to agree on any Base Rent other than as set forth in (a) or (b) hereinabove). Tenant shall be responsible for all of the same tax, insurance and common area expense costs with respect to the Additional Space as it is for the Leased Premises. The Additional Space shall be delivered to Tenant in good operating condition. The expansion of the Leased Premises to include the Additional Space shall be memorialized in an amendment to this Lease which contains the approved terms as outlined herein and other typical terms and conditions (the "Additional Space Lease Amendment"). The date on which Tenant shall be required to pay rent for the Additional Space shall be mutually approved by Landlord and Tenant. The Lease Term for the Additional Space shall expire, unless sooner terminated in accordance with the Additional Space Lease Amendment, at midnight on the Termination Date of the Lease (as the same may be extended). 20. Notice. Any notice required or permitted under this Lease shall be deemed sufficiently given or served if sent by United States certified mail, return receipt requested, or overnight courier (with a nationally recognized reputable courier company), addressed as follows: If to Landlord to: Jersey State Properties 7 Waterloo Road., Stanhope, NJ 07874 Attention: Mr. Jay Van Orden If to Tenant to: Somera Communications 7 Waterloo Road, Stanhope, NJ 07874 with a copy to: Somera Communications 5383 Hollister Avenue Santa Barbara, California 93111 Attention: Mr. Glenn Berger Landlord and Tenant shall each have the right from time to time to change the place notice is to be given under this paragraph by written notice thereof to the other party. 21. Brokers. Landlord and Tenant each represent to the other that (a) it has not engaged the services of any real estate broker or agent in connection with this Lease, and (b) it has not otherwise engaged in any activity which could form the basis for a claim for a real estate commission, brokerage fee, finder's fee or other similar charge, in connection with this Lease. Landlord and Tenant each agree to indemnify, defend and hold the other harmless from and against any claim or liability, as well as court costs and legal fees, arising out of any breach of such representation. 22. Waiver. No waiver of any default of Landlord or Tenant hereunder shall be implied from any omission to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default specified in the express waiver and that only for the time and to the extent therein stated. One or more waivers by Landlord or Tenant shall not be construed as a waiver of a subsequent breach of the same covenant, term or condition. 23. Memorandum of Lease. The parties hereto contemplate that this Lease should not and shall not be filed for record, but in lieu thereof, at the request of either party, Landlord and Tenant shall execute a Memorandum of Lease to be recorded for the purpose of giving record notice of the appropriate provisions of this Lease. 24. Headings. The headings used in this Lease are for convenience of the parties only and shall not be considered in interpreting the meaning of any provision of this Lease. 25. Successors. The provisions of this Lease shall extend to and be binding upon Landlord and Tenant and their respective legal representatives, successors and assigns. 26. Consent. Landlord shall not unreasonably withhold or delay its consent with respect to any matter for which Landlord's consent is required or desirable under this Lease. 27. Performance. If there is a default with respect to any of Landlord's covenants, warranties or representations under this Lease, and if the default continues more than fifteen (15) days after notice in writing from Tenant to Landlord specifying the default, Tenant may, at its option and without affecting any other remedy hereunder, cure such default and deduct the cost thereof from the next accruing installment or installments of rent payable hereunder until Tenant shall have been fully reimbursed for such expenditures, together with interest thereon at a rate equal to the lessor of twelve percent (12%) per annum or the then highest lawful rate. If this Lease terminates prior to Tenant's receiving full reimbursement, Landlord shall pay the unreimbursed balance plus accrued interest to Tenant on demand. 28. Compliance with Law. Tenant shall comply with all laws, orders, ordinances and other public requirements now or hereafter pertaining to Tenant's use of the Leased Premises. Landlord shall comply with all laws, orders, ordinances and other public requirements now or hereafter affecting the Leased Premises. 29. Hazardous Substances. A. Neither Landlord nor Tenant shall cause or permit any "Hazardous Substances" (as hereinafter defined) to be used, placed, held, located, stored, or disposed of in the Leased Premises, the Building or the Property or any part thereof; provided, however, that Tenant shall have the right to use and store in the Leased Premises those Hazardous Substances which are customarily used in Tenant's business operations, but only in such reasonable quantities as are reasonably necessary for Tenant's use of the Leased Premises and only in full compliance with all applicable laws and regulations. Landlord and Tenant covenant and agree to obey and comply with at all times and in all respects, at its sole expense, all applicable laws and regulations concerning the use, storage, disposal, containment, removal, transportation, or remediation of Hazardous Substances in the Leased Premises, the Building and the Property. B. "Hazardous Substances" shall mean and include those substances which are contained in the list of hazardous substances adopted by the United States Environmental Protection Agency (EPA), as amended from time to time, or the list of toxic pollutants designated by Congress or the EPA, as amended from time to time, or which are regulated by any federal, state or local law, ordinance code, rule, regulation, order or decree regulating, relating to or imposing liability (including without limitation, strict liability) or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance, or material, as now or at any time hereafter in effect (collectively, "Environmental Laws"). C. Tenant hereby agrees to indemnify Landlord and hold Landlord harmless from and against any and all losses, liabilities, damages, injuries, and expenses (including reasonable attorneys' fees), costs of any settlement or judgment and claims paid, incurred or suffered by Landlord to the extent caused by (i) the violation of any Environmental Laws by Tenant or by its agents, employees, contractors or invitees in connection with Tenant's use of the Leased Premises; or (ii) Tenant's use of any Hazardous Substance in the Leased Premises. Conversely, Landlord hereby agrees to indemnify Tenant and hold Tenant harmless from and against any and all losses, liabilities, damages, injuries, and expenses (including reasonable attorneys' fees), costs of any settlement or judgement and claims paid, incurred or suffered by Tenant to the extent caused by (x) the violation of any Environmental Laws by any other tenant at the Building, (y) the violation of any Environmental Laws by Landlord or by its agents, employees, contractors or invitees in connection with Landlord's ownership of the Building and/or the Property; or (z) Landlord's use of any Hazardous Substance in the Building and/or at the Property. The indemnification obligations under this subparagraph C shall apply only to direct, actual damages and shall in no event apply to any consequential damages. 30. Attorneys Fees.. In the event that, at any time after the date of this Lease, either Landlord or Tenant shall institute any action or proceeding against the other relating to the provisions of this Lease or any default hereunder, the party not prevailing in such action or proceeding shall reimburse the prevailing party all costs and expenses including, without limitation, any fees, costs or disbursements incurred on any appeal from the action or proceeding.) 31. Final Agreement. This Agreement terminates and supersedes all prior understandings or agreements on the subject matter hereof. This Agreement may be modified only by a further writing that is duly executed by both parties. IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year first above written. LANDLORD: TENANT: Jersey State Properties, Somera Communications, Inc. a New Jersey limited liability company a Delaware corporation By: /s/ Jay Van Orden By: /s/ Glenn Berger ------------------------------- --------------------------- Name: Jay Van Orden Name: Glenn Berger ------------------------------- --------------------------- Its: Its: Vice President, Operations ------------------------------- --------------------------- EX-10.21 8 0008.txt FIRST AMENDMENT TO LEASE AGREEMENT, DATED JANUARY Exhibit 10.21 FIRST AMENDMENT TO COMMERCIAL LEASE AGREEMENT This FIRST AMENDMENT TO COMMERCIAL LEASE AGREEMENT (this "Amendment") is made and entered into as of the 1st day of January, 2001, by and between Jersey State Properties, a New Jersey limited liability company (the "Landlord") and Somera Communications, Inc., a Delaware corporation (the "Tenant"). R E C I T A L S: A. On or about November 1, 2000, Landlord and Tenant entered into that certain Commercial Lease Agreement (the "Lease") pursuant to which Landlord leased to Tenant and Tenant leased from Landlord approximately 12,800 square feet (the "Leased Premises") in the building located at 7 Waterloo Road, Stanhope, New Jersey (the "Property"). The Leased Premises consists of approximately 10,400 square feet of office space and 2,400 square feet of warehouse space. B. Landlord and Tenant now desire to modify and amend the Lease in order to, among other things, expand the Leased Premises to include an additional approximately 1,250 square feet of office space, in accordance with the terms and conditions contained in this Amendment. A copy of the Lease is attached as Exhibit "A" to this Amendment and is incorporated herein by this reference. Capitalized terms that are not defined in this Amendment shall have the meanings ascribed to them in the Lease. A G R E E M E N T: NOW, THEREFORE, incorporating and in consideration of the foregoing recitals, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Expansion of Leased Premises; Term. The Leased Premises are hereby expanded and increased to include approximately 1,250 additional square feet of space (the "Expansion Space") at the Property. The location of the Expansion Space in the Property is illustrated on Exhibit "B" to this Amendment, which Exhibit "B" is attached hereto and incorporated herein by this reference. Accordingly, as of the date hereof, the Leased Premises shall include approximately 14,050 square feet of space at the Property. The Lease Term for the Expansion Space shall run concurrently with the Lease Term for the Leased Premises (including, if applicable, the Extension Term). 2. Landlord Representation. Landlord hereby represents and warrants to Tenant that, as of the date hereof, no party or entity other than Tenant shall have any right to possession or occupancy of the Expansion Space. 3. Expansion Space Annual Base Rental. The Annual Base Rental and correspondence monthly rental for the original Leased Premises shall not be modified by the addition of the Expansion Space. Rather, the Landlord and the Tenant have agreed that the Base Rental for the Expansion Space shall be exactly Fifteen Dollars ($15.00) per square foot ($18,750 per annum; $1,562.50 per month) for the entire Lease Term. 4. Tenant's Pro Rata Share of Common Area Expenses. As of the date hereof, Tenant's pro-rata share of Common Area Expenses pursuant to Section 16 of the Lease shall be increased to include the Expansion Space. As a result of the increase in the Leased Premises to include the Expansion Space, Tenant's pro-rata share of the Building and, accordingly, the common area expenses, shall be increased from 81% to 88.7%. 5. Possession. Tenant shall be entitled to possession of the entire Expansion Space on the date hereof. As of the date hereof, the Expansion Space is unoccupied and in broom clean condition. 6. Construction of Improvements to the Expansion Space. Tenant shall be solely responsible for all costs and expenses incurred in connection with the design, layout and construction of any and all improvements to the Expansion Space. Tenant may not commence construction of any structural improvements to the Expansion Space without obtaining the Landlord's consent to such structural improvements, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant may make such non-structural improvements to the Expansion Space as it desires (in accordance with all applicable laws) without obtaining the consent of the Landlord. 7. No Brokers. Landlord and Tenant each represent to the other that (a) it has not engaged the services of any real estate broker or agent in connection with the Expansion Space and/or this Amendment, and (b) it has not otherwise engaged in any activity which could form the basis for a claim for a real estate commission, brokerage fee, finder's fee or other similar charge, in connection with the Expansion Space and/or this Amendment. Landlord and Tenant each agree to indemnify, defend and hold the other harmless from and against any claim or liability, as well as court costs and legal fees, arising out of any breach of such representation 8. No Further Modification. Except as otherwise provided herein, the Lease shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day and year first above written. LANDLORD: TENANT: Jersey State Properties, Somera Communications, Inc., a New Jersey limited liability company a Delaware corporation By: /s/ Jay Van Orden By: /s/ Glenn Berger ------------------------------- --------------------------- Name: Jay Van Orden Name: Glenn Berger ------------------------------- --------------------------- Its: Its: Vice President, Operations ------------------------------- --------------------------- EX-10.22 9 0009.txt EMPLOYMENT AGREEMENT BTWN SOMERA COMM. AND GLENBERGER Exhibit 10.22 SOMERA COMMUNICATIONS, LLC GLENN BERGER EMPLOYMENT AGREEMENT This Agreement is made by and between Somera Communications, LLC (the "Company") and Glenn Berger ("Employee") as of October 8th, 1999. 1) DUTIES AND SCOPE OF EMPLOYMENT (a) Positions; Commencement Date; Duties Employee's employment with the Company pursuant to this Agreement shall commence on November 8th, 1999 (the "Commencement Date"). As of the Commencement Date, the Company shall employ the Employee as Vice President, Operations of the Company. The period of Employee's employment hereunder is referred to herein as the "Employment Term." During the Employment Term, Employee shall render such business and professional services in the performance of his duties, consistent with Employee's position within the Company, as shall reasonably be assigned to him by the Chief Executive Officer of the Company (the "CEO"). (b) Obligations During the Employment Term, Employee shall devote his full business efforts and time to the Company. Employee agrees, during the Employment Term, not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the CEO; provided, however, that Employee may serve in any capacity with any civic, educational or charitable organization without the approval of the CEO. 2) EMPLOYEE BENEFITS (a) General During the Employment Term, Employee shall be eligible to participate in the appropriate employee benefit plans and insurance maintained by the Company that are applicable to other senior management to the full extent provided for under those plans. Promptly following the date hereof, the Company shall provide Employee with information regarding such plans and insurance. The Company reserves the right to cancel or change its benefits plans and programs it offers to its employees at any time. (b) Relocation Expense Reimbursement The Company will reimburse Employee for the following reasonable relocation costs: (i) Transaction costs associated with buying Employee's new residence (closing costs, inspections, title insurance, brokerage and related fees, etc.). (ii) Transaction costs associated with selling Employee's old residence (closing costs, inspections, title insurance, brokerage and related fees, etc.). (iii) Moving household furnishings, personal effects and two automobiles (including packing and unpacking of household furnishings and personal effects, and California registration for two automobiles). (iv) Two "house-hunting" trips to Santa Barbara, California, including economy airfare, and related costs for one individual per trip. (v) Up to three months temporary storage of household furnishings and personal effects if necessary. Employee will be fully grossed-up by the Company for any imputed income required to be recognized with respect to this reimbursement so that the economic effect to Employee, after taking into account any tax deductions available to Employee, is the same as if this reimbursement was provided to Employee on a non-taxable basis. (c) Temporary Living Expenses The Company will pay for Employee's reasonable rent accommodation costs until the earlier of (i) such time as the Employee permanently relocates to Santa Barbara, California, or (ii) four (4) months from the Commencement Date. Such costs will cover rent, and up to two (2) round trip economy airfares per month for the Employee to return to Houston. Employee will be fully grossed-up by the Company for any imputed income required to be recognized with respect to this reimbursement so that the economic effect to Employee, after taking into account any tax deductions available to Employee, is the same as if this reimbursement was provided to Employee on a non-taxable basis. (d) Relocation Loan In connection with the transfer of Employee's principal place of employment to Santa Barbara, California, the Company shall provide Employee with a eight (8) year interest-free mortgage loan in the amount of $300,000 for purposes of Employee's acquisition of a new principal residence (the "Loan"), payable at the close of escrow. The Loan shall be forgiven over eight years with $25,000 per year for the first four years, $50,000 per years five, six, and seven, and $27,500 forgiven in the eighth year. The Loan shall be subject to, and governed by, the terms and conditions of a loan agreement and mortgage between the Employee and the Company attached hereto as Exhibit A (the "Loan Agreement"). The Company shall retain a mortgage security interest in the residence during the term of the Loan. The Loan is intended to satisfy the Requirements of Proposed Treasury Regulation Section 1.7872-5T(c)(1) and the Employee and the Company agree to execute such documents as are necessary to comply therewith. In the event of termination of employment for any reason, the Loan will be due and repayable within six (6) months of the effective date of termination. In the event Employee is terminated due to (I) an act of dishonesty made by Employee in connection with his responsibilities as an employee of the Company, (ii) Employee's conviction of, or plea of nolo contendere to, a felony, or (iii) Employee's gross misconduct, then the outstanding balance of the Loan shall be due and repayable to the Company within thirty (30) days of such termination. In the event Employee is terminated due to Employee's breach or failure to perform his employment duties as established by the CEO periodically and failure to cure such breach within thirty (30) days after receipt of written notice of breach from the Company, the outstanding balance of the Loan shall be due and repayable six (6) months from the termination date. (e) Payment of actual COBRA benefit expense until Employee Standard Benefits commence. 3) AT-WILL EMPLOYMENT Employee and the Company understand and acknowledge that Employee's employment with the Company constitutes "at-will" employment. Subject to the Company providing severance benefits as specified herein, Employee and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the option either of the Company or Employee. 4) COMPENSATION (a) Base Salary While employed by the Company, the Company shall pay the Employee as compensation for his services a base salary at the annualized rate of $200,000 (the "Base Salary"). Such salary shall be paid periodically in accordance with normal Company payroll practices and subject to the usual required withholding. (b) Bonuses (i) Target Bonus Employee shall be eligible to receive an annual target bonus, of $45,000 (the "Target Bonus") paid in equal quarterly installments, except in the first year which will be paid in equal monthly installments. The Target Bonus shall be based upon performance criteria specified by the CEO. The Employee shall be guaranteed the $45,000 Target Bonus for the first annual period, with $22,500 of the first year bonus committed to pay down the Relocation Loan amount, thereby guaranteeing a monthly bonus amount payable to Employee equal to $1875.00 during the first year of employment. Notwithstanding the foregoing, the Company's obligation to make any bonus payments, whether during the first or any subsequent period, should be dependent upon employee's employment with the company throughout the end of each payment period. For purposes of the Target Bonus, the annual period shall commence on the Commencement Date (or anniversary thereof) and continue for a one year period. (c) Equity Compensation (ii) Membership Unit Option The Company will recommend to the Board of Managers (the "Board") that the Employee receive a nonstatutory membership unit option to purchase 150,000 shares (post split) of the Company's then issued and outstanding membership units at a price equal to the fair market value as reasonably determined by the Board prior to the Commencement Date (the "Unit Option"). The Unit Option shall be for a term of ten years (or shorter upon termination of employment or consulting relationship with the Company) and, subject to accelerated vesting as set forth elsewhere herein, shall be vested with respect to twenty-five percent (25%) as of the first anniversary of the Commencement Date and shall thereafter vest at the rate of 1/36th of the remaining seventy-five percent (75%) on the first day of each month following the first anniversary of the Commencement Date. Such vesting shall be conditioned upon Employee's continued employment with the Company as of each vesting date. Except as specified otherwise herein, the Unit Option shall be subject to the terms, definitions and provisions of the Company's 1999 Unit Plan (the "Unit Plan") and the standard form of unit option agreement thereunder to be entered into by and between Employee and the Company (the "Option Agreement"), both of which documents are to be approved by the Board. (d) Severance (i) Termination Without Cause In the event that the Employee's employment with the Company is involuntarily terminated by the Company without "Cause" or is "Constructively Terminated" (both as defined below), then (i) Employee's Unit Option shall have its vesting accelerated as to (ii) if such termination occurs prior to the first anniversary of the Commencement Date twenty-five percent (25%) of the units subject to the Unit Option, or (iii) if such termination occurs following the first anniversary of the Commencement Date that number of units subject to the Unit Option that would have become vested had Employee remained employed by the Company for an additional six (6) months; (iv) Employee shall receive a lump-sum payment equal to Six (6) Months of his Base Salary and Target Bonus, less applicable withholding, promptly receive coverage under the Company's health and other welfare benefit plans for a period of six (6) months, or, if and to the extent ineligible under the terms of such plans, Employee shall receive an amount equal to the Company's costs of providing such benefits. For the purposes of this Agreement, "Cause" is defined as: (i) an act of dishonesty made by Employee in connection with his responsibilities as an employee of the Company, (ii) Employee's conviction of, or plea of nolo contendere to, a felony, (iii) Employee's gross misconduct, or (iv) Employee's breach or failure to perform his employment duties as established by the CEO periodically and failure to cure such breach within thirty (30) days after receipt of written notice of breach from the Company. For this purpose, "Constructive Termination" is defined as the resignation of Employee within sixty (60) days following (i) the assignment to Employee of duties incommensurate with his status as Vice President, Operations, or any material reduction of the Employee's duties, authority, responsibilities or title, relative to the Employee's duties, authority, responsibilities or title as in effect immediately prior to such reduction, except if agreed to in writing by the Employee; (ii) a material reduction by the Company in the Base Salary, as in effect immediately prior to such reduction; or (iii) the relocation of the Employee to a facility or a location more than thirty-five (35) miles from the Employee's then present location, without the Employee's written consent. 5) CHANGE OF CONTROL VESTING ACCELERATION In the event of a Change of Control, a number of membership units equal to 25% of Employee's entire Unit Option as of the Commencement Date, together with any additional option grants Employee may receive from the Company while employed hereunder, shall become vested and any remaining unvested units subject to the Unit Option, or any additional option grants, shall be subject to vesting as otherwise provided herein or in the applicable option agreements. 6) TOTAL DISABILITY OF EMPLOYEE Upon Employee's becoming permanently and totally disabled (as defined in accordance with Internal Revenue Code Section 22(e)(3) or its successor provision) during the term of this Agreement, employment hereunder shall automatically terminate, all payments of compensation by the Company to Employee hereunder shall immediately terminate (except as to amounts already earned) and all vesting of the Employee's unit options shall immediately cease. 7) DEATH OF EMPLOYEE If Employee dies while employed by the Company pursuant to this Agreement, all payments of compensation by the Company to Employee hereunder shall immediately terminate (except as to amounts already earned, which shall be paid to Employee's estate) and all vesting of the Employee's unit options shall immediately cease. All payment for relocation loan will be payable by the Employee's estate to the Company within six (6) months of death. 8) ASSIGNMENT This Agreement shall be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Employee upon Employee's death and (b) any successor of the Company. Any such successor of the Company shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Employee to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Employee following termination without cause. Any attempted assignment, transfer, conveyance or other disposition (other than as aforesaid) of any interest in the rights of Employee to receive any form of compensation hereunder shall be null and void. 9) NOTICES All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given if (i) delivered personally, (ii) one (1) day after being sent by Federal Express or a similar commercial overnight service, or (iii) three (3) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors in interest at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: If to the Company: Somera Communications, LLC 5383 Hollister Avenue, Suite 100 Santa Barbara, CA 93111 Attn: Chief Executive Officer If to Employee: Glenn Berger 4910 Dunwoody Bend Cypress, TX 77429 10) SEVERABILITY In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 11) PROPRIETY INFORMATION AGREEMENT Employee agrees to enter into the Company's standard Proprietary Information Agreement (the "Proprietary Information Agreement") upon commencing employment hereunder. 12) ENTIRE AGREEMENT This Agreement, the Unit Plan, the Option Agreement, and the Proprietary Information Agreement represent the entire agreement and understanding between the Company and Employee concerning Employee's employment relationship with the Company, and supersede and replace any and all prior agreements and understandings concerning Employee's employment relationship with the Company. 13) ARBITRATION AND EQUITABLE RELIEF (a) Except as provided in Section 13(c) below, Employee agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof shall be settled by arbitration to be held in Santa Barbara County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator shall apply California law to the merits of any dispute or claim, without reference to rules of conflict of law. The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. Employee hereby expressly consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement and/or relating to any arbitration in which the parties are participants. (c) Employee understands that nothing in Section 13 modifies Employee's at-will status. Either the Company or Employee can terminate the employment relationship at any time, with or without cause. (d) EMPLOYEE HAS READ AND UNDERSTANDS SECTION 13, WHICH DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS: (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION. (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq; (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION. 14) LEGAL FEE REIMBURSEMENT The Company agrees to pay Employee's reasonable legal fees associated with entering into this Agreement upon receiving invoices for such services. 15) NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE This Agreement may only be amended, canceled or discharged in writing signed by Employee and the Company. 16) WITHHOLDING The Company shall be entitled to withhold, or cause to be withheld, from payment any amount of withholding taxes required by law with respect to payments made to Employee in connection with his employment hereunder. 17) GOVERNING LAW This Agreement shall be governed by the laws of the State of California. 18) EFFECTIVE DATE This Agreement is effective November 8th, 1999. 19) ACKNOWLEDGMENT Employee acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the respective dates set forth below: SOMERA COMMUNICATIONS, LLC /s/ Dan Firestone -------------------------------------- Dan Firestone Chief Employee Officer EMPLOYEE /s/ Glenn Berger - ---------------------------- Glenn Berger EX-23.1 10 0010.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No.333-93295) of Somera Communications, Inc. of our report dated January 26, 2001 relating to the financial statements and financial statement schedules, which appears in this Form 10-K. PricewaterhouseCoopers LLP San Jose, California March 20, 2001 -----END PRIVACY-ENHANCED MESSAGE-----