-----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, EgoboAq3ActZXuutcCB38yWrQsas9KTtpUZS/dhRMAsBjQ5I5svKuZlZRlEdsgMx BEIN0rSnBm2cjEUQi/6zKw== 0000895755-98-000117.txt : 19981116 0000895755-98-000117.hdr.sgml : 19981116 ACCESSION NUMBER: 0000895755-98-000117 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARI L CO INC CENTRAL INDEX KEY: 0000917173 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 060678347 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23866 FILM NUMBER: 98746664 BUSINESS ADDRESS: STREET 1: 4895 PEORIA STREET CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 303/371-1560 MAIL ADDRESS: STREET 1: 11101 EAST 51ST AVENUE CITY: DENVER STATE: CO ZIP: 80239 10QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended Commission File No. 0-23866 September 30, 1998 VARI-L COMPANY, INC. (Exact name of Registrant as specified in its charter.) Colorado 06-067934 ---------------------- --------------------------------- (State of Incorporation) (I.R.S. Employer identification No.) 4895 Peoria Street Denver, Colorado 80239 ----------------------- (Address of principal executive offices) (303) 371-1560 ------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 1998: Class of Securities Outstanding Securities ------------------ ---------------------- $0.01 par value 5,459,934 shares Common shares PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ----------------------------- VARI-L COMPANY, INC. BALANCE SHEETS SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 9/30/98 12/31/97 ASSETS (UNAUDITED) (AUDITED) - ------ ----------- ---------
Current Assets: Cash and cash equivalents $ 6,421,196 $ 5,970,582 Trade receivables, less $18,000 allowance for doubtful accounts 5,942,460 5,172,874 Inventories 7,868,145 6,936,890 Prepaid expenses and other 1,406,092 887,272 ----------- ----------- Total Current Assets 21,637,893 18,967,618 ----------- ----------- Property and Equipment: Machinery and equipment 19,343,513 15,730,870 Furniture and fixtures 1,393,083 1,200,453 Leasehold improvements 7,221,279 4,707,324 ----------- ----------- 27,957,875 21,638,647 Less accumulated depreciation and amortization (4,141,941) (3,313,483) ----------- ----------- Net Property and Equipment 23,815,934 18,325,164 ----------- ----------- Other Assets: Long-term inventories 375,000 375,000 Covenant not to compete 41,495 66,389 Patents, net of accumulated amortization of $127,810 and $88,210 554,340 504,895 Other 1,328,858 1,317,238 ----------- ----------- Total Other Assets 2,299,693 2,263,522 ----------- ----------- TOTAL ASSETS $47,753,520 $39,556,304 - ------------ =========== ===========
(Continued) SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. VARI-L COMPANY, INC. BALANCE SHEETS, CONTINUED SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
9/30/98 12/31/97 LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) (AUDITED) - ------------------------------------ ----------- --------- Current Liabilities: Current installments of long-term debt $ 812,921 $ 596,645 Financed insurance premiums 133,834 23,730 Trade accounts payable 1,352,671 1,851,057 Accrued expenses 309,978 628,718 Income taxes payable 1,320,776 0 ----------- ----------- Total Current Liabilities 3,930,180 3,100,150 Bank line of credit 4,606,909 1,813,409 Long-term debt 5,260,667 4,464,021 Deferred income taxes 2,259,874 2,343,654 ----------- ----------- Total Liabilities 16,057,630 11,721,234 ----------- ----------- Stockholders' Equity: Common stock, $.01 par value, 50,000,000 shares authorized; 5,459,934 and 5,251,288 shares outstanding, respectively 54,599 52,513 Paid-in capital 22,089,160 20,211,589 Retained earnings 9,570,831 7,589,668 Less loans for purchase of stock (18,700) (18,700) ----------- ----------- Total Stockholders' Equity 31,695,890 27,835,070 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $47,753,520 $39,556,304 - ------------------------ =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. VARI-L COMPANY, INC. STATEMENTS OF INCOME FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended 9/30/98 9/30/97 9/30/98 9/30/97 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- --------- Net sales $ 4,805,149 $ 4,530,656 $13,181,436 $11,835,551 Cost of products sold 2,145,948 2,150,829 5,923,499 5,874,066 ----------- ----------- ----------- ----------- Gross profit 2,659,201 2,379,827 7,257,937 5,961,485 ----------- ----------- ----------- ----------- Other costs and expenses: General and administrative 491,919 486,398 1,461,299 1,262,097 Engineering 280,542 244,969 827,705 673,389 Selling 503,721 569,415 1,443,446 1,469,871 Interest expense 211,610 148,152 417,131 528,790 Interest income (88,620) (52,586) (247,150) (111,952) Other 10,639 6,692 53,567 52,014 ----------- ----------- ----------- ----------- 1,409,811 1,403,040 3,955,998 3,874,209 ----------- ----------- ----------- ----------- Income before taxes 1,249,390 976,787 3,301,939 2,087,276 Income taxes 499,756 410,251 1,320,776 876,656 ----------- ----------- ----------- ----------- NET INCOME $ 749,634 $ 566,536 $ 1,981,163 $ 1,210,620 =========== =========== =========== =========== Basic earnings per share $ 0.14 $ 0.11 $ 0.37 $ 0.29 ========== ========== ========== ========== Basic weighted average shares outstanding 5,459,784 4,972,832 5,377,713 4,163,945 ========== ========== ========== ========== Diluted earnings per share $ 0.14 $ 0.11 $ 0.36 $ 0.26 ========== ========== ========== ========== Diluted weighted average shares outstanding 5,528,980 5,348,187 5,562,606 4,717,767 ========== ========== ========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. VARI-L COMPANY, INC. STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Nine Months Nine Months Ended Ended 9/30/98 9/30/97 (Unaudited) (Unaudited) ---------- ---------- Net cash provided by (used in) operating activities (Note 8) $ 1,581,492 $(175,875) ----------- ----------- Cash flows from investing activities: Net purchases of property and equipment (6,319,228) (3,347,925) ----------- ----------- Net cash used in investing activities (6,319,228) (3,347,925) ------------ ----------- Cash flows from financing activities: Lease acquisition costs advanced 0 45,232 Net increases (repayments) in long-term debt 1,012,922 (48,840) Net repayments of capital lease obligations 0 (14,300) Net borrowings (repayments) under bank line of credit 2,793,500 (247,000) Net proceeds from insurance financing 110,104 21,711 Net proceeds from debenture offering 0 6,862,500 Net proceeds from warrant conversions 807,508 0 Net proceeds from stock issuances, net of income tax benefits 464,316 496,513 ----------- ----------- Net cash provided by financing activities 5,188,350 7,115,816 ----------- ----------- Net increase in cash 450,614 3,592,016 Beginning cash and cash equivalents 5,970,582 1,224,727 ----------- ----------- ENDING CASH AND CASH EQUIVALENTS $6,421,196 $4,816,743 =========== =========== Supplemental disclosure of cash flows information: Cash paid for interest $ 392,171 $ 521,129 =========== =========== Cash paid for income taxes $ 0 $ 0 =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. VARI-L COMPANY, INC. NOTES TO FINANCIAL STATEMENTS Vari-L Company, Inc. (the Company), was founded in 1953 and is a manufacturer of electronic components used in commercial and military communications systems where electrical processing of radio frequency signals is required. NOTE 1 - FINANCIAL PRESENTATION These financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 1997 and notes thereto. In the opinion of management, the accompanying interim, unaudited financial statements contain all the adjustments necessary to present fairly the financial position of the Company as of September 30, 1998, the results of its operations for the three-month and nine-month periods ended September 30, 1998 and September 30, 1997, and its cash flows for the nine- month periods ended September 30, 1998 and September 30, 1997. All adjustments made are of a normal recurring nature. NOTE 2 - INVENTORIES Inventories consist of the following:
9/30/98 12/31/97 (Unaudited) (Audited) ---------- --------- Finished goods $1,130,406 $1,173,847 Work in process 2,426,306 2,405,396 Raw materials 4,153,495 3,202,454 Gold bullion 157,938 155,193 ---------- ---------- $7,868,145 $6,936,890 ========== ========== Long-term inventories $ 375,000 $ 375,000 ========== ==========
NOTE 3 - INCOME TAXES Income tax expense reflects effective tax rates of 40% for 1998 and 42% for 1997. NOTE 4 - CREDIT FACILITY The Company has two credit facilities. The first consists of a line of credit. The second consists of a term loan and a revolving equipment term loan. On April 23, 1998, the Company renegotiated its line of credit. The line of credit now provides for borrowings of up to $5.0 million. Interest is payable monthly, calculated at prime. The line of credit matures April 30, 2000. At September 30, 1998, the outstanding balance due under the line of credit was $4,606,909. On August 21, 1998, the Company renegotiated its term loan and revolving equipment term loan. The Company extended its term loan for an additional year and converted the loan to a floating rate of Libor plus 1.50% and then obtained fixed rate protection by executing an interest rate swap which resulted in an all-in fixed rate of 7.75% through the maturity date of February 24, 2002. Monthly principal and interest payments of approximately $64,000 are required. At September 30, 1998, the balance due under the term loan was $4,190,650. The Company renewed its revolving equipment term loan for one year and increased the borrowing provision to $4.0 million. Interest accrues on the outstanding principal balance of the revolving equipment term loan at prime plus .25% when advances are made under the revolver. These borrowings can be converted to term notes at rates which adjust to the 3- year treasury note rate plus 1.95%. When converted, the term debt requires monthly principal and interest payments calculated on a seven- year amortization basis with a 42-month maturity. The revolving loan matures on August 13, 1999. As of September 30, 1998, the balance of the outstanding advances under the revolving loan that had been converted to term notes totaled $1,853,862. Interest accrues on the outstanding principal balances of these term notes at rates ranging from 6.32% to 7.72%, and monthly principal and interest payments totaling $29,713 are required. (Continued) NOTES TO FINANCIAL STATEMENTS, CONTINUED NOTE 5 - SECURITIES PURCHASE AGREEMENT On March 4, 1997, the Company entered into an agreement to sell up to 75 units of debentures and warrants. The units consisted of an aggregate of $7,500,000 in 4-year, 7%, subordinated, convertible debentures and 750,000 non-redeemable warrants to purchase common stock at a price of $9.50 per share, exercisable for a period of three years. All of the debentures plus accrued interest were converted into common stock during 1997. As of September 30, 1998, 85,000 of the warrants had been exercised and 665,000 warrants were still outstanding. NOTE 6 - EARNINGS PER SHARE The following is a reconciliation of the net income (numerator) and number of shares (denominator) for the computations of basic and diluted earnings per share:
For the quarter ended Income Shares Per Share September 30, 1997 (Numerator) (Denominator) Amount - --------------------- ---------- ------------ --------- Basic earnings per share $ 566,536 4,972,832 $0.11 ===== Effect of dilutive stock options and debentures 5,450 375,355 ----------- ---------- Diluted earnings per share $ 571,986 5,348,187 $0.11 =========== ========== ===== For the quarter ended Income Shares Per Share September 30, 1998 (Numerator) (Denominator) Amount - --------------------- ---------- ------------ --------- Basic earnings per share $ 749,634 5,459,784 $0.14 ===== Effect of dilutive stock options and warrants 0 69,196 ----------- ---------- Diluted earnings per share $ 749,634 5,528,980 $0.14 =========== ========== ===== For the nine months ended Income Shares Per Share September 30, 1997 (Numerator) (Denominator) Amount - ------------------------- ---------- ------------ --------- Basic earnings per share $ 1,210,620 4,163,945 $0.29 ===== Effect of dilutive stock options and debentures 39,533 553,822 ----------- ---------- Diluted earnings per share $ 1,250,153 4,717,767 $0.26 =========== ========== ===== For the nine months ended Income Shares Per Share September 30, 1998 (Numerator) (Denominator) Amount - ------------------------- ---------- ------------ --------- Basic earnings per share $ 1,981,163 5,377,713 $0.37 ===== Effect of dilutive stock options and warrants 0 184,893 ----------- ---------- Diluted earnings per share $ 1,981,163 5,562,606 $0.36 =========== ========== =====
At September 30, 1998, the Company had 5,459,934 common shares outstanding. During the nine months ended September 30, 1998, the Company issued 208,646 shares. For purposes of computing earnings per share, the shares issued during the period were weighted for the period of time they were outstanding. (Continued) VARI-L COMPANY, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED NOTE 7 - STOCK COMPENSATION PLANS The Company has three stock-based compensations plans: a stock option plan, an employee stock purchase plan and a stock grant plan. STOCK OPTION PLAN The Company has reserved 3,000,000 shares of its common stock for issuance upon exercise of rights and options under the stock option plan. Typically, rights and options have been granted subject to a vesting schedule, vesting at the rate of 20 percent per year, becoming fully vested upon the change of control of the Company, and expiring 10 years from the date of issuance. Certain options granted to senior management are fully vested upon issuance. In the third quarter of 1998, the Company granted 4,500 options pursuant to the plan. No options were exercised during the quarter. EMPLOYEE STOCK PURCHASE PLAN Under the Company's employee stock purchase plan, eligible employees may contribute up to 10 percent of their earnings, through payroll deductions, to purchase shares of the Company's common stock. The purchase price is equal to 85 percent of the fair value of the stock on specified dates. A total of 800,000 shares were reserved under the plan and the maximum number of shares to be issued is 200,000 per year. For the plan year 1997, a total of 13,530 shares were issued in January 1998 at $6.91 per share. STOCK GRANT PLAN During 1996, the Company adopted a stock grant plan under which stock grants can be made to the Company's officers, directors, employees, consultants, and advisors. The Company reserved 100,000 shares of its common stock for issuance under the stock grant plan. The plan provides for automatic grants of 50 shares per month to nonmanagement members of the Compensation and Audit Committees of the Company's Board of Directors. During the third quarter of 1998, the nonmanagement members of the Compensation and Audit Committees received grants totaling 450 shares. Compensation cost was measured by the fair market value of the stock on the date of the grants and is being charged to operations over the period of service. NOTE 8 - RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES The reconciliation of net income to net cash provided by (used in) operating activities for the nine-month periods ended September 30, 1998 and September 30, 1997 is as follows: (Continued) VARI-L COMPANY, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED NOTE 8 - RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES, CONTINUED
Nine months Nine months Ended Ended 9/30/98 9/30/97 (Unaudited) (Unaudited) ---------- ---------- Net Income $ 1,981,163 $ 1,210,620 ----------- ----------- Adjustments to reconcile net income to net cash provided by (used in)operating activities: Depreciation and amortization 828,458 490,327 Amortization of covenant not to compete 24,894 24,894 Changes in assets and liabilities: (Increase) in accounts receivable (769,586) (1,445,085) (Increase) in inventories (931,255) (373,438) Decrease (increase) in prepaid expenses and other 5,233 (369,076) (Increase) decrease in patents and other assets (61,065) 135,866 Decrease in accounts payable (498,386) (234,301) Decrease in accrued expenses (318,740) (367,713) Decrease in amounts due to related parties 0 (53,222) Increase in income taxes payable 1,320,776 805,253 ---------- ---------- Total adjustments (399,671) (1,386,495) ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $1,581,492 $ (175,875) ========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company continued to achieve record financial results during the three- month period ended September 30, 1998. Net sales were up 6%, to $4.8 million, over the same quarter last year. Net income was up 32%, to $750,000, over the same quarter last year. Basic and diluted earnings per share were 14 cents per share versus 11 cents per share for the same quarter last year, notwithstanding a 10% and 3% increase in basic and diluted weighted average shares outstanding, respectively, from the prior year. Bookings of new customer orders were $10.7 million and $9.2 million, respectively, for the nine months ended September 30, 1998 and 1997. The Company received $4.6 million in firm customer orders during the third quarter of 1998, up 58%, from $2.9 million, in the third quarter of 1997. Commercial orders continue to drive growth, accounting for $4.1 million in the quarter, an increase of 109%, while military/aerospace orders totaled $500,000, a decrease of 51%. Domestic orders increased 95% in the quarter to $3.7 million and international orders were $900,000 in the three-month period, a decrease of 14%. As evidenced by the mix of new customer orders, unsettled economic conditions in the Pacific Rim have dampened short-term bookings from the international commercial market, although the domestic commercial market has provided offsetting increases. During the quarter, the Company continued to develop its new high-speed, automated assembly line on the second floor of its corporate headquarters facility for its new line of products being developed for the subscriber (pagers and handsets) marketplace. Further enhancements to this line will be installed in the fourth quarter. The subscriber products produced by this line are expected to carry a lower gross profit margin but have the potential for much higher volumes. During the quarter, small preproduction runs were built, utilizing the pick and place equipment in this facility, but final assembly, including testing and shipping, was performed in another facility. The Company hopes to have full utilization of the new production line by year end. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 TOTAL REVENUES Sales revenue increased approximately $274,000 (6%) in the three months ended September 30, 1998 as compared with the three months ended September 30, 1997, from $4,530,656 to $4,805,149. Sales revenue increased approximately $1,346,000 (11%) in the nine months ended September 30, 1998 as compared with the nine months ended September 30, 1997, from $11,835,551 to $13,181,436. The growth in sales revenue continues to reflect the Company's ongoing success in selling to the commercial marketplace with its narrow-band VCOs and PLLs. While the Company has been able to sustain, and in some cases, increase its share of the business in its traditional markets for military products over the past several years, the military's increasing utilization of lower-priced commercial products for military applications may result in a lower dollar volume of military sales in the future. The Company has six major product lines, including the new subscriber line, which is currently being introduced to the global market: 1. Discrete signal processing components for industrial, military and aerospace. 2. Hybrid signal source components, primarily wide-band VCOs, for industrial, military and aerospace. 3. Assemblies that combine Discrete signal processing and Hybrid signal source components. 4. Commercial signal source components including PLLs and narrow-band VCOs. 5. Optoelectronic components and subassemblies used in magnetic and fiberoptic products for CATV applications. 6. Subscriber products components used in hand-held telephone sets, pagers and other consumer-oriented products. While the Company still hopes that this line will commence full-scale production in the fourth quarter of 1998, it appears more likely that, as a result of the worldwide economic uncertainty in much of 1998, the Company's entry into this market will be delayed until sometime in 1999. In the first nine months of 1998, the composition of sales revenue was 12% Discrete, 21% wide-band VCOs, 1% "Combination" sales of wide-band VCO and Discrete products, 56% narrow-band VCOs, 5% PLL and 5% Optoelectronic products. In the first nine months of 1997, the composition of sales revenue was 12% Discrete, 30% wide-band VCOs, 0% "Combination" sales of wide-band VCO and Discrete products, 45% narrow-band VCOs, 6% PLLs and 7% Optoelectronic products. COST OF GOODS SOLD Cost of goods sold, as a percent of sales revenue, was 45% and 47% in the three months ended September 30, 1998 and 1997, respectively. Cost of goods sold, as a percent of sales revenue, was 45% in the nine months ended September 30, 1998 and 50% in the nine months ended September 30, 1997. The improvement in these ratios for the three and nine month periods ended September 30, 1998 resulted from the Company's continuing efforts to make additional efficiencies in its processes and install additional automated production facilities. SELLING AND ENGINEERING EXPENSE Selling expenses decreased approximately $66,000, or 12%, for the three months ended September 30, 1998 as compared to the three months ended September 30, 1997. Selling expenses decreased approximately $26,000, or 2%, for the nine months ended September 30, 1998 as compared to the nine months ended September 30, 1997. The decrease in selling expenses in the quarter and year-to-date periods is attributed primarily to decreased travel costs. Because the international, commercial market was successfully expanded in 1997, the required frequency of trips and number of personnel traveling internationally decreased in 1998. The Company continues to actively advertise and travel to promote its product lines. Engineering expenses increased approximately $36,000, or 15%, for the three months ended September 30, 1998 as compared to the three months ended September 30, 1997. Engineering expenses increased approximately $154,000, or 23%, for the nine months ended September 30, 1998 as compared to the nine months ended September 30, 1997. These increases reflect ongoing improvements to the engineering department, including increased engineering staff and related equipment costs and expenses, to support new product development and expansion of existing product lines. GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES General and administrative expenses increased approximately $6,000, or 1%, for the three months ended September 30, 1998 as compared to the three months ended September 30, 1997. General and administrative expenses increased approximately $199,000, or 16%, in the nine months ended September 30, 1998 as compared with the nine months ended September 30, 1997. Increases to G&A primarily reflect increased staffing costs in the personnel and accounting departments, which costs leveled off during the third quarter of 1998, as well as increasing shareholder and other expenses related to being a public company. Other expenses increased approximately $4,000 in the three months ended September 30, 1998 as compared to the three months ended September 30, 1997. Other expenses increased approximately $2,000 in the nine months ended September 30, 1998 as compared with the nine months ended September 30, 1997. INTEREST INCOME AND EXPENSE The Company manages its credit facility and mutual fund in tandem. Interest income is earned on the Company's short-term investments in a U.S. government securities mutual fund purchased with proceeds from the March 1997 convertible debenture and warrant offering. Interest income increased approximately $36,000, or 68%, to approximately $89,000, in the three months ended September 30, 1998 compared to the three months ended September 30, 1997. Interest income increased approximately $135,000, or 121%, to approximately $247,000, in the nine months ended September 30, 1998 compared to the nine months ended September 30, 1997. This increase reflects higher levels of these mutual fund investments during 1998. Interest expense increased approximately $63,000 (43%) for the three months ended September 30, 1998 as compared with the three months ended September 30, 1997. Interest expense decreased approximately $112,000 (21%) for the nine months ended September 30, 1998 as compared with the nine months ended September 30, 1997. The increase in the quarter is attributable to increased borrowings to support the equipment purchases in the new production facility in the Company's corporate headquarters. The decrease in the nine-month periods is primarily attributable to the elimination of interest expense on $5,000,000 in subordinated debentures that were converted to common stock during 1997, which amount was partially offset by increased borrowings for the new production facility. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased approximately $338,000 (69%) for the nine months ended September 30, 1998 as compared with the nine months ended September 30, 1997. The increase reflects depreciation on increased investments in property, equipment and leasehold improvements. Depreciation and amortization expense is expected to continue to increase as a result of these and future capital investments. FINANCIAL CONDITION LIQUIDITY At September 30, 1998, the Company's working capital was $17.7 million compared to $15.9 million at December 31, 1997. The Company's current ratio was 5.5 to 1 as of September 30, 1998 and 6.1 to 1 at December 31, 1997. The reduction in the Company's current ratio from December 31, 1997 to September 30, 1998 is primarily attributable to the current provision in the period for corporate income taxes. CAPITAL RESOURCES On August 13, 1997, the Company restructured its credit facilities, renewing its line of credit agreement, which is secured by accounts receivable, inventory and general intangibles, with its present banking institution and taking its existing term loan, plus increasing its credit facility, which is secured by all of the Company's fixed assets, to a second banking institution. In April 1998, the Company renegotiated its line of credit agreement increasing the available line and extending the maturity date. The line of credit provides for borrowings of up to $5 million and matures April 30, 2000. Interest is payable monthly, calculated at prime. At September 30, 1998, the outstanding balance of the line of credit was $4,606,909. On August 21, 1998, the Company extended its term loan for an additional year and converted the loan to a floating rate of Libor plus 1.5% and then obtained fixed rate protection by executing an interest rate swap which resulted in an all-in fixed rate of 7.75% through the maturity date of February 24, 2002. Monthly principal and interest payments of approximately $64,000 are required. The balance on the term loan at September 30, 1998 was $4,190,650. The Company renewed its revolving equipment term loan for one year and increased the borrowing provision to $4.0 million. Interest accrues on the outstanding principal balance of the revolving line at prime plus .25% when advances are made under the revolver. These borrowings can be converted to term notes at rates which adjust to the 3-year treasury note rate plus 1.95%. When converted, the term debt requires monthly principal and interest payments calculated on a seven-year amortization basis with a 42-month maturity. The revolving loan matures on August 13, 1999. As of September 30, 1998, the balance of the outstanding advances under the revolving loan that had been converted to term notes totaled $1,853,862. Interest accrues on the outstanding principal balances of these term notes at rates ranging from 6.32% to 7.72%, and monthly principal and interest payments totaling $29,713 are required. The Company finances certain of its annual insurance premiums through a financing company. The amounts due under these loans totaled $133,834 as of September 30, 1998 and are paid in monthly installments of $16,781 with interest rates of 6.86% and 8.41%. On March 4, 1997, the Company entered into an agreement to sell up to 75 units of debentures and warrants. The units consisted of an aggregate of $7.5 million in four year, 7% convertible debentures and 750,000 non- redeemable common stock purchase warrants exercisable at $9.50 per share for a period of three years. All of the debentures plus accrued interest were converted into common stock during 1997. During April 1998, 85,000 warrants were exercised. 665,000 warrants remained outstanding as of September 30, 1998. The Company believes that it has sufficient financial resources available to meet its short-term working capital needs through cash flows generated by operating activities and through the management of its sources of financing. The Company also believes that, as the result of the sales of the convertible debentures, it has adequate capital resources to continue its growth plans. BACKLOG Total backlog of unfilled firm customer orders ("backlog") at September 30, 1998 was $14.2 million compared with $11.8 million at September 30, 1997. Backlog at December 31, 1997 was $16.6 million. YEAR 2000 ISSUES The Company has given serious attention to the potential problems that could arise from the rollover of computer clocks with two-digit year fields when the year 2000 arrives. Assessment of the affect on both IT (information technology) and non-IT issues is progressing rapidly. IT assessment is approximately 85% complete. Non IT assessment is approximately 50% complete. The Company currently expects to have all assessment, remediation and testing completed by the end of August 1999. Fortunately, in the area of business and operations, the Company has completed most of its automation in recent years. Accordingly, the computers and software that have been acquired during those years incorporated Year 2000 compliant technology. This compliance is being continuously confirmed in the Company's various business applications as a byproduct of another technology project the Company initiated early this year, a licensing audit designed to ensure that all software utilized by Company personnel is properly licensed by the software provider. The same software used to verify the software installed on each PC also verifies Year 2000 readiness. The Company has also instituted a policy prohibiting the purchase of any new computers or other devices that have clocks without empirical proof that they can recognize the year 2000 without malfunctioning. In the non-IT area, which includes test equipment--a significant element of the Company's operations--, the Company's principal hardware vendor has provided certification and warranty as to Year 2000 compliance. In addition, as routine, scheduled maintenance and calibration is performed on this equipment, veracity of that certification is tested and confirmed. To address the other non-IT issues, such as elevators, heating systems, utilities, etc., an outside consultant will be brought in by the Company to run independent tests of these systems and the various vendors will be providing certification as to Year 2000 compliance. In addition, the Company will continue to investigate whether its customers and vendors are also becoming Year 2000 compliant. Like other businesses, the Company has been providing information to its customers, upon their request, concerning the Company's efforts in this matter. To date, the costs that the Company has incurred which are specific to the assessment and remediation of Year 2000 issues have not been material. No special expenditures have been required in the area of software or hardware. Some legal fees and educational expenses have been incurred to heighten awareness and to help organize business activities to incorporate assessment and remediation. For the most part, however, Year 2000 issues have been incorporated into other management routines, thereby minimizing extraordinary costs. It is presently anticipated that future, separately identifiable costs of assessment and remediation will also be nominal, and it is very likely that such costs will be less than $10,000 in any one reporting period. In order to minimize the impact of any unanticipated Year 2000 "non- readiness" problems, the Company plans to have manual backup systems in place to forestall any interruption of operations resulting from the failure of automated systems. In addition, the data generated and collected in those systems is continuously being archived as a part of the Company's existing business practices. The Company does not foresee any serious Year 2000 problems occurring with its vendors or customers. While it is not possible to predict what kinds of minor Year 2000 issues might arise that have not been addressed as a priority by the Company, or by some other company with which the Company does business, the Company believes that it has multiple sources for the vast majority of the raw materials and services that it presently procures from vendors or third-party contractors. Unless a major problem of a national or global scope occurs, the Company believes it will be able to maintain sufficient inventory levels to continue production while it seeks to rectify any smaller problems that may arise. Most of the Company's significant customers are very large, well-capitalized, multi-national companies with substantial resources. The Company believes that these customers are doing everything possible to protect themselves and, indirectly, the Company, from business losses resulting from Year 2000 issues. While there is no guarantee that the Company will reach Year 2000 compliance by the necessary deadline, the Company believes that it is applying the resources and effort sufficient to do so. FORWARD LOOKING STATEMENTS Some of the statements contained in this document are forward-looking statements. The accuracy of these statements cannot be guaranteed as they are subject to a variety of risks including, but not limited to the success of the products into which the Company's products are integrated, governmental action relating to wireless communications licensing and regulation, internal projections as to the demand for certain types of technological innovation, competitive products and pricing, the success of new product development efforts, the timely release for production and the delivery of products under existing contracts, future economic conditions generally, as well as other factors, including any events that result from the year 2000 computer clock rollover. VARI-L COMPANY, INC. PART II--OTHER INFORMATION Item 1 LEGAL PROCEEDINGS None Item 2 CHANGES IN SECURITIES None Item 3 DEFAULTS UPON SENIOR SECURITIES None Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 5 OTHER INFORMATION None Item 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Executive Employment Agreement with Joseph H. Kiser dated effective June 1, 1997. 10.2 Executive Employment Agreement with David G. Sherman dated effective June 1, 1997. 10.3 Amendment to Business Loan Agreement between the Company and Bank One, Colorado, N.A., dated effective August 21, 1998 (Term loan.) 10.4 Amendment to Business Loan Agreement between the Company and Bank One, Colorado, N.A., dated effective August 13, 1998 (Equipment revolver.) 10.5 Second Amendment to Lease Agreement dated July 14, 1995 between the Company and Joseph H. Kiser and Nora L. Kiser for the facility located at 15556 East 17th Avenue, Denver, Colorado, as amended September 1, 1995 and July 31, 1998. 10.6 Third Amendment to Lease Agreement dated January 1, 1987, between the Company and J.C. Enterprises for the facility located at 5165 Peoria Street, Denver, Colorado, as amended December 6, 1990, March 23, 1993, and October 30, 1998. 10.7 Tandem Stock Option and Appreciation Rights Plan, effective as of June 19, 1998. 10.8 Stock Grant Plan, effective as of June 19, 1998. 10.9 Employment Agreement with Daniel J. Wilmot dated January 1, 1997. 10.10 Employment Agreement with Derek L. Bailey dated January 1. 1997. 10.11 Employment Agreement with Jon L. Clark dated January 1, 1997. 27 Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VARI-L COMPANY, INC. Date: November 12, 1998 By:/s/ Jon L. Clark Jon L. Clark, V.P. Finance and Principal Financial Officer EXHIBIT INDEX Exhibit Description Method of Filing - ------- ----------- ---------------- 10.1 Executive Employment Agreement with Joseph H. Kiser dated effective June 1, 1997. Filed herewith electronically 10.2 Executive Employment Agreement with David G. Sherman dated effective June 1, 1997. Filed herewith electronically 10.3 Amendment to Business Loan Agreement between the Company and Bank One, Colorado, N.A., dated effective August 21, 1998 (Term loan.) Filed herewith electronically 10.4 Amendment to Business Loan Agreement between the Company and Bank One, Colorado, N.A., dated effective August 13, 1998 (Equipment revolver.) Filed herewith electronically 10.5 Second Amendment to Lease Agreement dated July 14, 1995 between the Company and Joseph H. Kiser and Nora L. Kiser for the facility located at 15556 East 17th Avenue, Denver, Colorado, as amended September 1, 1995 and July 31, 1998. Filed herewith electronically 10.6 Third Amendment to Lease Agreement dated January 1, 1987, between the Company and J.C. Enterprises for the facility located at 5165 Peoria Street, Denver, Colorado, as amended December 6, 1990, March 23, 1993, and October 30, 1998. Filed herewith electronically 10.7 Tandem Stock Option and Appreciation Rights Plan, effective as of June 19, 1998 Filed herewith electronically 10.8 Stock Grant Plan, effective as of June 19, 1998. Filed herewith electronically 10.9 Employment Agreement with Daniel J. Wilmot dated January 1, 1997 Filed herewith electronically 10.10 Employment Agreement with Derek L. Bailey dated January 1. 1997 Filed herewith electronically 10.11 Employment Agreement with Jon L. Clark dated January 1, 1997 Filed herewith electronically 27 Financial Data Schedule EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VARI-L'S UNAUDITED FINANCIAL STATEMEMTS PREPARED AS OF SEPTEMBER 30, 1998 AND FOR THE NINE-MONTH PERIOD THEN ENDED, INCLUDED WITH ITS 10-KSB FILING WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE QUARTER ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 SEP-30-1998 6,421 0 5,960 18 7,868 21,638 27,958 4,142 47,754 3,930 0 0 0 55 31,640 47,754 13,181 13,428 5,923 5,923 3,786 0 417 3,302 1,321 1,981 0 0 0 1,981 .37 .36
EX-10.1 3 EMPLOY. AGREE. - KISER VARI-L COMPANY, INC. EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT, effective June 1, 1997, is made and entered into by and between VARI-L COMPANY, INC. (the "Company") and JOSEPH H. KISER ("Employee"). WHEREAS, Employee's diligent efforts on behalf of the Company have greatly contributed to the tremendous growth of the Company, in terms of revenues, profitability, technological developments, customer base and shareholder value; and WHEREAS, the Compensation Committee of the Board of Directors, comprised solely of disinterested directors, has determined to provide Employee with this employment agreement, including the severance package and other benefits provided hereby, for the purpose of rewarding Employee for the success of the Company resulting from his efforts and as a method of encouraging Employee to remain with the Company for the foreseeable future and to continue to provide such diligent and efficacious services to the Company during that employment. NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows: I. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth. II. TERM. Subject to the provisions for termination as hereinafter provided, the term of this Agreement is for a period commencing June 1, 1997, and expiring June 1, 2001 (the "Initial Term"). On June 1 of each year, beginning in 1998, the term of this Agreement shall be automatically extended for an additional year without any further action on the part of the Company or Employee unless the Company or Employee gives written notice more than sixty (60) days before May 31 of any such year of its or his intention not to extend the term of this Agreement. III. DUTIES. Employee is engaged as Chairman of the Board, Chief Scientific Officer and Secretary of the Company, to have complete responsibility for the management of all technical, scientific and engineering operations of the Company, including, but not limited to, all research and development activities of the Company, and to have full authority and responsibility, subject only to the general direction and control of the Board of Directors, for formulating policies and administering the operations of the Company in all respects. His power shall include authority to hire and fire personnel of the Company and to retain consultants when he deems necessary to implement the Company's policies. If Employee is elected or appointed a director of the Company during the term of this Agreement, Employee shall serve in such capacity or capacities without further compensation; but nothing herein shall be construed as requiring the Company, or anyone else, to cause the election or appointment of Employee as a director. IV. EXTENT OF SERVICES. Employee shall faithfully, industriously, and to the best of his ability, experience, and talents, perform all of the duties that may be required of and from him pursuant to this Agreement. Nothing herein shall be construed as preventing Employee from (a) investing his assets in such form or manner as will not require any services on the part of Employee in the operations or the affairs of the companies in which such investments are made or (b) serving as a director, advisor, or consultant; provided, however, that such investments or services may not be in connection with a business which is in competition with the Company (excluding (i) indirect investments through mutual funds or other broad based investment vehicles, (ii) investments in debt instruments, and (iii) investments in less than 5% of the stock of any publicly held business). V. COMPENSATION AND EMPLOYEE BENEFITS. A. STOCK BONUS. Upon executing this Agreement, Employee shall receive a one time bonus of twenty-five thousand (25,000) shares of the Company's common stock ("STOCK BONUS") pursuant to the terms of the Company's Stock Grant Plan; provided, however, that such STOCK BONUS shall be subject to the following vesting schedule: 1. Twelve thousand five hundred (12,500) shares of the STOCK BONUS shall vest immediately upon execution of this Agreement as a signing bonus; 2. The remaining twelve thousand five hundred (12,500) shares shall vest according to the following schedule, in each case subject to the requirement that Employee achieves the performance goals established by the Compensation Committee for the preceding year: six thousand two hundred and fifty (6,250) shares shall vest on April 15, 1999; and the remaining six thousand two hundred fifty (6,250) shares shall vest on April 15, 2000. The STOCK BONUS and all unvested stock options and stock appreciation rights previously granted to Employee shall fully vest in the event of a CHANGE OF CONTROL or an INVOLUNTARY TERMINATION. In order to avoid Employee being forced to sell a portion of the shares received under the STOCK BONUS to pay the taxes thereon, all income and other taxes attributable to the STOCK BONUS, including the taxes on such taxes, shall be paid by the Company upon vesting thereof. 3. In the event that Employee violates any of his noncompetition or nonsolicitation obligations as set forth in Section VII, any unvested STOCK BONUS granted to Employee hereby shall be rescinded, and all or a portion of Employee's vested STOCK BONUS shall be forfeited by Employee and returned to the Company according to the following schedule: a. 100% of any vested STOCK BONUS shall be forfeited if such violation occurs prior to June 1, 1999; b. 75% of any vested STOCK BONUS shall be forfeited if such violation occurs prior to June 1, 2000; c. 50% of any vested STOCK BONUS shall be forfeited if such violation occurs prior to June 1, 2001; or d. 25% of any vested STOCK BONUS shall be forfeited if such violation occurs prior to June 1, 2002. 4. In the event of a forfeiture of a STOCK BONUS under the preceding paragraph, Employee may, at his option, repay the applicable portion of the STOCK BONUS in any of the following ways: a. by tendering an amount of cash equal to the FAIR MARKET VALUE (as defined in Section VIII.E.9 below) of the forfeited portion of the STOCK BONUS on the date(s) of its vesting; or b. by tendering an amount of cash equal to the FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the effective date of this Agreement; or c. by tendering an amount of cash equal to the FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the date of repayment; or d. by tendering a number of shares of the Company's common stock with a FAIR MARKET VALUE on the date of repayment equal to the FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the date of its vesting or on the effective date of this Agreement, whichever is lower; or e. by tendering a number of shares of the Company's Common Stock equal to the number of shares of the STOCK BONUS being forfeited. 5. Employee's STOCK BONUS shall be fully vested and not subject to forfeiture after June 1, 2002 6. The forfeiture of any portion of the STOCK BONUS by Employee pursuant to paragraph 3 above shall be in addition to, and not a substitute for, any other remedies to which the Company may be entitled under this Agreement or applicable law for Employee's breach of the noncompetition and nonsolicitation provisions of Section VII, including but not limited to an injunction against further violations or other equitable relief. B. ANNUAL BASE SALARY. For all services rendered by Employee under this Agreement, the Company shall pay Employee an annual base salary of at least $295,000, payable in equal bi-weekly installments. The amount of such base salary shall be determined at the beginning of each fiscal year by the Compensation Committee of the Company's Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress but in no event shall such base salary be less than the annual base salary indicated in this paragraph. C. BONUS COMPENSATION. Employee may receive such additional bonuses, payable in cash or shares of the Company's stock, as determined at the beginning of each fiscal year of the Company by the Compensation Committee of the Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress in the prior fiscal year. D. VACATION. Employee shall be entitled to eight weeks of paid vacation each year. E. EMPLOYEE BENEFITS. Employee shall be entitled to receive all of the rights, benefits, and privileges of an employee and an executive officer under any retirement, pension, profit-sharing, insurance, health and hospital, and other employee benefit plans which may be now in effect or hereafter adopted by the Company. F. WORKING FACILITIES. Employee shall be furnished with a private office, stenographic help, and such other facilities and services suitable to Employee's position and adequate for the performance of the duties required by this Agreement. G. EXPENSES. Employee is authorized to incur reasonable expenses in connection with his responsibilities in conducting the business of the Company, including expenses for entertainment, travel, and similar items. The Company will reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures. H. AUTOMOBILE. Employer shall provide Employee with an automobile, and shall reimburse Employee for expenses associated with such automobile, including gasoline, insurance, maintenance, repairs, and all costs incident thereto. The Company will reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures. The Company shall provide Employee with a new automobile every four years or, at Employee's option, a used automobile after two years, provided, however, that upon Employee's RETIREMENT, then the Company shall provide a new automobile at such time irrespective of the number of years since the previous new or used vehicle, which automobile Employee shall retain so long as Employee continues to abide by Sections VI and VII of this Agreement. VI. PROPRIETARY INTERESTS OF COMPANY. Employee and the Company recognize that the Company is in a highly competitive business in a highly technical industry. The parties acknowledge that the success or failure of the Company depends largely on the development and use of certain proprietary and confidential information and trade secrets, including without limitation, information concerning any of the Company's patented components, research and development projects and in patent process components, and personal relationships with present and potential customers, suppliers, contractors, and governmental agencies as well as technology, procedures, systems, and techniques relating to the products developed or distributed by the Company (hereinafter collectively referred to as "Confidential Information"). Confidential Information is a substantial asset of the Company. Confidential Information will be disclosed to Employee in the normal course of operation. Employee acknowledges that Confidential Information is extremely valuable to the Company and must be protected from unauthorized use by the Company's competitors or other persons. Therefore, Employee agrees not to disclose or use, whether for the benefit of Employee or any other person or entity, at any time during or after his employment, any Confidential Information to any person or entity other than the Company or persons authorized by the Company to receive such Confidential Information. Employee recognizes that, during the term of his employment with the Company, he may develop new products, technology, processes, devices, inventions, or methods of production, including but not limited to computer hardware, software or "firmware," and may enhance, improve or perfect existing products, technology, processes, devices, inventions or methods of production (hereinafter collectively referred to as "Inventions"). As partial consideration for the salary and other benefits provided by the Company to the Employee, Employee hereby agrees that his entire work product while in the employ of the Company, including any Inventions, is the exclusive property of the Company. Employee also agrees to cooperate fully with the Company and to do whatever acts are reasonably necessary in order to obtain United States or foreign letters patent or copyrights, or both, and to vest the entire right and title thereto in the Company. Employee further agrees that the Company shall have the royalty-free right to use in its business, and to make, use, and sell such Inventions whether or not patentable, regardless of whether they are conceived or made by the Employee during the hours which he is employed by the Company or with the use of or assistance of the Company's facilities, materials or personnel. Except as required in his duties to the Company, Employee will not, directly or indirectly, use, disseminate, disclose, lecture upon, or publish articles concerning any Confidential Information without the prior written consent of the Company. Upon termination of his employment with the Company, all documents, records, notebooks, and similar repositories of or containing Confidential Information, including copies thereof, then in Employee's possession, whether prepared by Employee or others, will be left with the Company, and no copies thereof will be retained by the Employee. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and monetary damages would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach of any covenant in this section that the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, an appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other available remedies for such breach, including the recovery of damages, costs, and attorney fees. VII. NONCOMPETE AND NONSOLICITATION. During the term of this Agreement and for a period of the greater of (a) one year after termination or expiration of this Agreement or (b) the period during which a SEVERANCE AMOUNT, consulting arrangement or retirement benefit is being paid to Employee by the Company (the "Noncompete Period"), the Employee will not, directly or indirectly, own, manage, operate, control, provide services to, be employed by, participate in, or be connected in any manner with the ownership, management, operation, or control of any business which is similar to the type of business conducted by the Company and which conducts such business or sells its products within and to the same market as the Company's market at the time of Employee's activity or, after the termination of this Agreement, at the time of such termination. Employee certifies that his employment with the Company will not breach a previous employment agreement. Employee agrees not to engage in the unauthorized use of the proprietary assets of others during the term of his employment by the Company. Employee agrees not to enter into any other employment agreement, oral or written, which will run concurrently, in whole or in part, with Employee's employment by the Company. Employee agrees not to solicit any other Company employee during the Noncompete Period to leave the employ of the Company or to provide services to another person or business in lieu of providing services to the Company, including but not limited to services to a competitor of the Company, except when such other employee's departure is determined by management of the Company to be in the Company's best interests. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and that monetary damages for such breach would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach of the covenants of this section the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, an appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other available remedies for such breach, including the recovery of damages, costs, and attorney fees. The foregoing agreement not to compete shall not be held invalid because of the scope of the territory or the actions restricted thereby; but any judgment by a court of competent jurisdiction may define the maximum territory and actions subject to, and restricted by, this paragraph. Notwithstanding the foregoing, in the event of a CHANGE OF CONTROL, as hereinafter defined, not recommended by a majority of the Board of Directors of the Company as constituted prior to the date of such CHANGE OF CONTROL, this noncompete agreement shall terminate upon the date of such CHANGE OF CONTROL. VIII. TERMINATION OF EMPLOYMENT. A. TERMINATION BY MUTUAL AGREEMENT. The Company and Employee may agree to terminate this Agreement on terms and conditions mutually acceptable to them as of the date of termination. B. DEATH. In the event of Employee's death, the Company shall pay to any beneficiary designated by Employee or, if no such beneficiary has been designated, to his estate, an amount equal to the then annual base salary for the greater of (a) one (1) year or (b) the remaining term of this Agreement without additional extensions, together with any bonuses which the Company's Board of Directors shall determine in its sole discretion to be due and payable to Employee. If Employee's beneficiary or estate receives any proceeds from any life insurance policies the premiums of which were being paid for by the Company at the time of Employee's death other than the Group Life Insurance referred to in Section IX.A hereof, then the payments of annual base salary and bonuses shall be reduced by the amount of such proceeds from such life insurance policies. In the event of Employee's death, the Company agrees to purchase, and the Employee agrees to sell, all shares of the Company's stock BENEFICIALLY OWNED, as hereinafter defined, by Employee or Employee's spouse at the time of his death and all shares obtainable through exercise of stock options owned by Employee, up to a maximum of 750,000 shares, as adjusted by any stock split, reverse stock split or similar recapitalization (the "EMPLOYEE'S SHARES"). The purchase price will be the FAIR MARKET VALUE of the shares BENEFICIALLY OWNED by Employee, and the FAIR MARKET VALUE per share, less the exercise price per share, for Employee's stock options. Notwithstanding the foregoing, the Company's obligation to purchase the Employee's Shares shall be limited to the number of shares which may be purchased with the amount of insurance proceeds received from the KEY MAN POLICIES, as defined below, after funding the annual base salary death benefit noted above. C. DISABILITY. If Employee becomes DISABLED during the term of employment or during the CONSULTING PERIOD, Employee's base salary and other benefits shall continue at the same rate and in the same manner as on the date of such DISABILITY. If Employee remains DISABLED for six consecutive months, the Company, at its option, may thereafter, upon written notice to Employee or Employee's personal representative, terminate the employment, subject, however, to Employee's right to receive disability benefits under the Company's general employee disability insurance policy and under the supplemental disability policy provided to Employee and the Company's obligation to pay to the Employee the SEVERANCE AMOUNT for an INVOLUNTARY TERMINATION not involving a CHANGE OF CONTROL. If Employee receives any disability payments from any insurance policies paid for by the Company, the annual base salary, the SEVERANCE AMOUNT, and bonuses due to Employee hereunder shall be reduced by the amount of any payments received by Employee from such disability insurance policies. D. VOLUNTARY or INVOLUNTARY TERMINATION. If prior notice is given of any VOLUNTARY or INVOLUNTARY TERMINATION as defined herein, Employee, if requested by the Company, shall continue to render his services and shall be paid the then annual base salary up to the date of such VOLUNTARY or INVOLUNTARY TERMINATION, any bonuses which the Company's Board of Directors shall determine in its sole discretion to be due and payable to Employee and the SEVERANCE AMOUNT as provided herein. In the event of an INVOLUNTARY TERMINATION, the STOCK BONUS and all unvested stock options and stock appreciation rights that have previously been granted to Employee will fully vest, and the Company agrees to purchase, at Employee's option, at FAIR MARKET VALUE, the number of shares of the Company's common stock necessary to provide Employee with sufficient cash, net of taxes, to fund Employee's remaining obligations, if any, pursuant to the December 31, 1991 Settlement Agreement between Carolyn Y. Kiser, the Company, David G. Sherman, Alwin E. Branson and Employee, as amended (the "SETTLEMENT AGREEMENT"). E. DEFINITIONS. All the terms defined in this Section shall have the meanings given below throughout this Agreement. 1. "CHANGE IN DUTIES, COMPENSATION, OR BENEFITS" shall mean any one or more of the following: a. a significant and detrimental change in the nature or scope of Employee's authority, responsibilities or duties from those currently applicable to him; b. a reduction in Employee's annual base salary from that currently provided to him; c. a diminution in Employee's eligibility to participate in bonus, stock option, incentive award or any other compensation plan which provides opportunities to receive compensation from those currently applicable to him, except for: (i) changes in the eligibility requirements for plans that are applicable to employees generally; (ii) changes in plans that are applicable to all executives and result in a diminution of Employee's benefits under such plan that is fair and proportional as compared to the diminution of benefits for all executives; and (iii) changes that are required by applicable law; d. a material diminution in employee benefits (including but not limited to medical, dental or life insurance and long- term disability plans) and perquisites currently applicable to Employee, except for: (i) changes in the eligibility requirements for benefits that are applicable to employees generally; (ii) changes in benefits and perquisites that are applicable to all executives and result in a diminution of Employee's benefits that is fair and proportional as compared to the diminution for all executives; and (iii) changes that are required by applicable law; e. a change in the location of Employee's principal place of employment by the Company (including its subsidiaries) by more than twenty-five (25) miles from the location where he was principally employed immediately prior to the date on which a CHANGE OF CONTROL occurs; or f. a reasonable determination by a majority of those persons comprising the Board of Directors of the Company prior to a CHANGE OF CONTROL (even if such determination is made after such CHANGE OF CONTROL) that, as a result of a CHANGE OF CONTROL and a change in circumstances thereafter significantly affecting his position, Employee is unable to exercise the functions or duties attached to his position immediately prior to the date on which a CHANGE OF CONTROL occurs. 2. "CHANGE OF CONTROL" shall be deemed to have occurred if: a. any "person," including a "group" as determined in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"), is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; b. as a result of, or in connection with, any tender offer or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "TRANSACTION"), the persons who were directors of the Company before the TRANSACTION shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company; c. the Company is merged or consolidated with another corporation or entity and, as a result of the merger or consolidation, less than 80% of the outstanding voting securities of the surviving corporation or entity is then owned in the aggregate by the former stockholders of the Company; d. a tender offer or exchange offer is made and consummated for the ownership of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding voting securities; or e. the Company transfers all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company. 3. "DISABLED" or "DISABILITY" shall mean mental or physical illness or condition rendering Employee incapable of performing any portion of Employee's normal duties with the Company, provided, however, that any determination that Employee is not DISABLED under the definition used in this Agreement shall have no effect on whether Employee is entitled to receive disability benefits under any disability insurance policy. 4. "INVOLUNTARY TERMINATION" shall mean any termination except: a. VOLUNTARY TERMINATION; b. termination by mutual agreement; c. termination as a result of death; or d. Employee's voluntary retirement from employment or mandatory retirement from employment pursuant to a retirement plan to which Employee was subject prior to any CHANGE OF CONTROL. ("RETIREMENT"). 5. "SEVERANCE AMOUNT" is equal to: a. in the case of an INVOLUNTARY TERMINATION, the greater of the Employee's annual base salary multiplied by the remaining term of this Agreement or 2.99 times the Employee's average annual compensation over the last five years payable on regular bi-weekly payroll dates over the three (3) year period following such INVOLUNTARY TERMINATION, provided, however, that if such INVOLUNTARY TERMINATION follows a CHANGE OF CONTROL, then the SEVERANCE AMOUNT shall be payable in a lump sum no later than ten (10) days following the date of termination. b. in the case of a VOLUNTARY TERMINATION or RETIREMENT, one-half of Employee's annual base salary payable on regular bi-weekly payroll dates over a six month period, provided, however, that if Employee provides post-termination consulting services to the Company pursuant to Section XII hereof after VOLUNTARY TERMINATION or RETIREMENT, the SEVERANCE AMOUNT shall be based upon the annual base salary at the time of termination of employment but shall not be payable to Employee until after termination of the consulting services. 6. "VOLUNTARY TERMINATION" shall mean any termination which results from a resignation by the Employee other than a resignation following a CHANGE IN DUTIES, COMPENSATION, OR BENEFITS as defined herein. 7. "VOTING SECURITIES" shall mean any securities which ordinarily possess the power to vote in the election of directors without the occurrence of any pre-condition or contingency other than the passage of time. 8. "BENEFICIALLY OWNED" shall mean beneficial ownership by the Employee, the Employee's spouse, or a trust or similar arrangement established by or for the benefit of the Employee, the Employee's spouse, or the Employee's minor children as well as the meaning of such term under Section 13 or Section 16 of the Securities Exchange Act. 9. "FAIR MARKET VALUE" shall mean (a) if there is an established market for the Company's common stock, the average of the mean of the highest and lowest quoted selling prices on each trading day for the ninety (90) day period preceding the day of the event triggering an obligation for the Company to purchase the shares of stock BENEFICIALLY OWNED by the Employee; or (b) if there is no established market for the Company's stock during such ninety (90) day period, then the average over that ninety (90) day period of the value determined in accordance with Treasury Reg. 10.2031-2 or successor regulations. F. SECTION 280G PAYMENT. In the event that the SEVERANCE AMOUNT payments under this Agreement are determined by an independent accounting firm retained by Employee (but paid for by the Company) to constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, (the "Code") and any regulations thereunder, the Company agrees to increase the SEVERANCE AMOUNT by the amount necessary to put the Employee in the position he would be in if Code 280G and 4999 or any successor provisions to the Code which are designed to limit or restrict such "excess parachute payments" did not exist. G. MEDICAL AND DENTAL BENEFITS. If Employee's employment by the Company or any subsidiary or successor of the Company is terminated because of DISABILITY, RETIREMENT, VOLUNTARY TERMINATION, or INVOLUNTARY TERMINATION, then to the extent that Employee or any of Employee's dependents may be covered under the terms of any medical and dental plans of the Company (or any subsidiary) immediately prior to the termination, the Company will provide Employee and those dependents with the same or equivalent coverages until the later of Employee's death or the death of Employee's spouse, if any, at the time of Employee's death. The Company may, at its election, procure such coverages apart from, and outside of the terms of, the plans applicable to other employees. The Company's obligation to provide such coverages will be limited by the requirement that Employee and Employee's dependents comply with all of the conditions of the medical or dental plans applicable to employees generally and the Company is under no obligation to obtain special coverages for Employee which would not be covered by the plans applicable to employees generally. In consideration for these benefits, Employee must make contributions equal to those required from time to time from other employees for equivalent coverages under the medical or dental plans. IX. LIFE INSURANCE. A. GROUP LIFE INSURANCE. The Company shall provide Employee with personal life insurance under the Company's group life insurance policy as in effect from time to time. B. KEY MAN LIFE INSURANCE. Employee hereby consents to the purchase by the Company of one or more "key man" life insurance policies on Employee's life naming the Company or its designee as beneficiary (the "KEY MAN POLICIES") and the Company agrees to use its best efforts to purchase and maintain such policies, as hereinafter set forth; provided, however, that the Company shall not be liable to Employee for a failure to purchase or maintain any KEY MAN POLICIES if such failure is due to Employee's health, medical condition, or other similar reasons. Employee agrees that he shall take any action which may be requested by the Company, and otherwise fully cooperate with the Company, in its efforts to purchase and maintain the KEY MAN POLICIES. While the KEY MAN POLICIES will be owned by the Company and the proceeds made payable to the Company or its designee, Employee may at any time by written notice to the Company effect the transfer of up to $1 million in life insurance death benefit to his estate or his designated beneficiary by agreeing to have subsequent premiums attributable to such death benefit deducted by the Company from his compensation, provided, however, that the cash value, if any, of the life insurance so transferred to Employee at the time of the transfer shall remain the property of the Company. The KEY MAN POLICIES shall be purchased by the Company for the following purposes and the Company shall make its best efforts to obtain KEY MAN POLICIES in amounts sufficient to accomplish such purposes: 1. To fund the Company's obligation to pay the annual base salary death benefit, as described in Section VIII.B of this Agreement; 2. To fund the Company obligation to purchase Employee's shares of the Company's common stock and stock options on Employee's death, as described in Section VIII.B of this Agreement; 3. To fund all remaining obligations, if any, of Employee to Carolyn Kiser under the SETTLEMENT AGREEMENT; 4. To fund any other obligation under this Agreement arising as a result of Employee's separation of service from the Company; 5. To provide funds necessary to obtain or compensate a replacement for Employee; 6. For any other reasonable business purpose as may determined by the Company. After an INVOLUNTARY TERMINATION or RETIREMENT or VOLUNTARY TERMINATION (including the post-termination CONSULTING PERIOD, if any), the Company's obligation to maintain the KEY MAN POLICIES shall terminate six (6) months thereafter, provided, however, that Employee may, by a written notice delivered to the Company no less than five (5) months after such termination of employment, assume responsibility for paying the premiums to continue some or all of the KEY MAN POLICIES. At such time, Employee may also elect, by such written notice, to purchase some or all of the KEY MAN POLICIES from the Company for their cash surrender value, if any, or may pledge the policies to the Company as security for Employee's agreement to pay such cash value to the Company, together with accrued interest based on the Wall Street Journal's prime rate as published on the date of such purchase, at the time of sale, redemption or receipt of the death benefit of such policies. In the event that the Company fails to pay the premiums required to maintain the KEY MAN POLICIES while it is still obligated to do so, Employee shall be entitled to assume responsibility for paying the premiums to continue some or all of the KEY MAN POLICIES, and Employee shall be entitled to reimbursement from the Company for any such payments made by Employee. If Employee elects to cause the transfer of some or all of the $1 million in death benefits from the KEY MAN POLICIES to his estate or designated beneficiary as permitted by this Section IX, Employee waives any claim against the Company for failing to maintain sufficient KEY MAN POLICIES to the extent of such transfer. The Company agrees to review on an annual basis the death benefits payable under such policies and to attempt to procure additional insurance as needed to meet its obligations to Employee hereunder. X. DEFERRED PAYMENTS. In the event that the Company is prohibited from deducting any payment made to Employee as a compensation expense (excluding the Company's purchase of common stock and stock options BENEFICIALLY OWNED by Employee and tax payments for the STOCK BONUS made pursuant to Section V.A hereof) as a result of Code 162(m) or any other provision of the Code and such payment would be deductible by the Company if made in a future tax year, then the Company may defer making the non-deductible portion of that payment until the first day of the tax year in which any portion of that payment becomes deductible, at which time the Company shall pay so much of the deferred payment as is deductible. In the event that any payment obligation of the Company is deferred as a result of this Article X, the Company shall pay interest to the Employee on the deferred portion of the payment at a rate of ten percent (10%) per annum. XI. DIRECTORS AND OFFICER INSURANCE. The Company shall procure directors and officers liability insurance coverage on all directors and officers in such an amount as the Company deems reasonable and necessary under the circumstances but in no event less than $1 million. XII. POST-TERMINATION CONSULTING. In the event of Employee's VOLUNTARY TERMINATION or RETIREMENT, the Company hereby agrees to engage Employee as a consultant to the Company for a period of up to five years (the "CONSULTING PERIOD"). While the CONSULTING PERIOD will only begin after termination of employment under this Agreement, Employee shall nevertheless continue to be an "employee" of the Company for purposes of tax withholding and employee benefits (including any special or additional benefits provided to Employee by this Agreement or otherwise) during the CONSULTING PERIOD although the scope of Employee's services and responsibilities shall be diminished in such manner and amounts as may be agreed upon by the Company and Employee. During the CONSULTING PERIOD, Employee will be paid a salary equal to 50% of his annual base salary on the date of Employee's termination of employment under this Agreement. For each year or part thereof that Employee provides consulting services to the Company, Employee shall receive a retirement benefit of 25% of Employee's annual base salary at the time of Employee's VOLUNTARY TERMINATION or RETIREMENT for the same amount of time, which retirement benefit shall then be paid to Employee in accordance with the Company's existing payroll policies beginning at the end of the CONSULTING PERIOD over a period of time equal to the number of years or parts thereof that Employee provides consulting services. Employee shall have the right to decline to provide any consulting services after a VOLUNTARY TERMINATION or RETIREMENT. If Employee does elect to provide consulting services, Employee may determine to cease providing such services to the Company at any time by giving at least thirty (30) days prior written notice of such determination to the Company. The Company agrees to engage Employee to provide the consulting services for a period of not less than one (1) year after a VOLUNTARY TERMINATION or RETIREMENT but the Company may terminate such engagement at any time thereafter for good cause. For purposes hereof, "good cause" shall mean misappropriation of Company funds or property, conviction of a crime involving dishonesty or moral turpitude, or willful disregard of any directive of the Company's Board of Directors. XIII. DEFERRED COMPENSATION. During the term of this Agreement, including the extension of such term pursuant to Section II hereof and the CONSULTING PERIOD, if any, pursuant to Section XII hereof, the Company shall deposit an amount equal to 10% of Employee's annual base salary into a deferred compensation trust (the "Rabbi Trust") for the benefit of Employee. The Company shall have no obligation to contribute to the Rabbi Trust during the time Employee is receiving only retirement benefits or disability benefits. Deposits to the Rabbi Trust shall be made and shall vest, subject only to the claims of the Company's creditors, on January 1 of each year that Employee serves the Company in a full-time capacity. The Rabbi Trust may distribute all or a portion of its balance to Employee on January 1 of the first calendar year in which Employee will receive no other benefit under this Agreement or in subsequent years but the entire balance must be distributed on or before the date of Employee's death. XIV. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail to Employee's residence in the case of Employee or to its principal office in the case of the Company. XV. WAIVER. The waiver of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement. No waiver shall be valid unless in writing and executed by the party to be charged therewith. XVI. SEVERABILITY/MODIFICATION. In the event that any clause or provision of this Agreement shall be determined to be invalid, illegal or unenforceable, such clause or provision may be severed or modified to the extent necessary, and, as severed and/or modified, this Agreement shall remain in full force and effect. XVII. ASSIGNMENT. Except for a transfer by will or by the laws of descent or distribution, Employee's right to receive payments or benefits under this Agreement shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise. In the event of any attempted assignment or transfer contrary to this paragraph, the Company shall have no liability to pay any amount so attempted to be assigned or transferred. Employee acknowledges that the services to be rendered under this Agreement are unique and personal. Accordingly, Employee may not assign such duties or obligations under this Agreement. XVIII. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns (including, without limitation, any company into or with which the Company may merge or consolidate). The Company agrees that it will not effect the sale or other disposition of all or substantially all of its assets unless either (i) the person or entity acquiring the assets or a substantial portion of the assets shall expressly assume by an instrument in writing all duties and obligations of the Company under this Agreement or (ii) the Company shall provide, through the establishment of a separate reserve or otherwise, for the payment in full of all amounts which are or may reasonably be expected to become payable to Employee under this Agreement. XIX. ENTIRE AGREEMENT. This instrument contains the entire agreement concerning the employment arrangement between the parties and shall, as of the effective date hereof, supersede all other such agreements between the parties including but not limited to the Executive Employment Agreement dated November 12, 1992, as amended March 10, 1995, provided, however, that nothing in this Agreement shall prevent the Company from granting additional or special compensation or benefits to Employee after the date of execution of this Agreement. This Agreement may not be amended except by an agreement in writing signed by both parties. Nothing in this paragraph shall be deemed to modify or amend the SETTLEMENT AGREEMENT nor any agreements or instruments entered into between the parties hereto as a result of that SETTLEMENT AGREEMENT. XX. GOVERNING LAW AND JURISDICTION. This Agreement shall be interpreted, construed, and enforced under the laws of the State of Colorado. The courts of the State of Colorado shall have sole jurisdiction and venue over all controversies which may arise with respect to this Agreement. XXI. TIME. In comparing any period of time prescribed or allowed by this Agreement, the day of the act, event or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included, unless it is a Sunday or legal holiday, in which event the period runs until the end of the next day which is not a Sunday or legal holiday. For purposes of this paragraph a legal holiday shall mean any day which banks are required to be closed in the State of Colorado. For purposes of calculating the duration of the covenant not to compete the time period of such covenant shall be extended by one day for each day that Employee competes with Company in violation of such covenant. IN WITNESS WHEREOF, the parties have executed this Agreement the date and year indicated below. THE COMPANY: VARI-L COMPANY, INC. By:/s/David G. Sherman David G. Sherman, President EMPLOYEE: /s/Joseph H. Kiser Joseph H. Kiser EX-10.2 4 EMPLOY. AGREE. - SHERMAN VARI-L COMPANY, INC. EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT, effective June 1, 1997, is made and entered into by and between VARI-L COMPANY, INC. (the "Company") and DAVID G. SHERMAN ("Employee"). WHEREAS, Employee's diligent efforts on behalf of the Company have greatly contributed to the tremendous growth of the Company, in terms of revenues, profitability, technological developments, customer base and shareholder value; and WHEREAS, the Compensation Committee of the Board of Directors, comprised solely of disinterested directors, has determined to provide Employee with this employment agreement, including the severance package and other benefits provided hereby, for the purpose of rewarding Employee for the success of the Company resulting from his efforts and as a method of encouraging Employee to remain with the Company for the foreseeable future and to continue to provide such diligent and efficacious services to the Company during that employment. NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows: I. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth. II. TERM. Subject to the provisions for termination as hereinafter provided, the term of this Agreement is for a period commencing June 1, 1997, and expiring June 1, 2001 (the "Initial Term"). On June 1 of each year, beginning in 1998, the term of this Agreement shall be automatically extended for an additional year without any further action on the part of the Company or Employee unless the Company or Employee gives written notice more than sixty (60) days before May 31 of any such year of its or his intention not to extend the term of this Agreement. III. DUTIES. Employee is engaged as President and Chief Executive Officer of the Company, to have complete responsibility for and authority over the management of the operations of the Company, including, but not limited to, overall management of the Company's Sales, Marketing, Finance, Administration, Manufacturing, Operations, Human Resources and Quality Assurance departments or functions and supervision of the Vice Presidents or other officers or managers assigned to those departments, areas or functions, and to have full authority and responsibility, subject only to the general direction and control of the Board of Directors, for administering those operations of the Company in all respects. His power shall include authority to hire and fire personnel of the Company and to retain consultants when he deems necessary to implement the Company's policies. If Employee is elected or appointed a director of the Company during the term of this Agreement, Employee shall serve in such capacity or capacities without further compensation; but nothing herein shall be construed as requiring the Company, or anyone else, to cause the election or appointment of Employee as a director. IV. EXTENT OF SERVICES. Employee shall faithfully, industriously, and to the best of his ability, experience, and talents, perform all of the duties that may be required of and from him pursuant to this Agreement. Nothing herein shall be construed as preventing Employee from (a) investing his assets in such form or manner as will not require any services on the part of Employee in the operations or the affairs of the companies in which such investments are made or (b) serving as a director, advisor, or consultant; provided, however, that such investments or services may not be in connection with a business which is in competition with the Company (excluding (i) indirect investments through mutual funds or other broad based investment vehicles, (ii) investments in debt instruments, and (iii) investments in less than 5% of the stock of any publicly held business). V. COMPENSATION AND EMPLOYEE BENEFITS. A. STOCK BONUS. Upon executing this Agreement, Employee shall receive a one time bonus of twenty-five thousand (25,000) shares of the Company's common stock ("STOCK BONUS") pursuant to the terms of the Company's Stock Grant Plan; provided, however, that such STOCK BONUS shall be subject to the following vesting schedule: 1. Twelve thousand five hundred (12,500) shares of the STOCK BONUS shall vest immediately upon execution of this Agreement as a signing bonus; 2. The remaining twelve thousand five hundred (12,500) shares shall vest according to the following schedule, in each case subject to the requirement that Employee achieves the performance goals established by the Compensation Committee for the preceding year: six thousand two hundred and fifty (6,250) shares shall vest on April 15, 1999; and the remaining six thousand two hundred fifty (6,250) shares shall vest on April 15, 2000. The STOCK BONUS and all unvested stock options and stock appreciation rights previously granted to Employee shall fully vest in the event of a CHANGE OF CONTROL or an INVOLUNTARY TERMINATION. In order to avoid Employee being forced to sell a portion of the shares received under the STOCK BONUS to pay the taxes thereon, all income and other taxes attributable to the STOCK BONUS, including the taxes on such taxes, shall be paid by the Company upon vesting thereof. 3. In the event that Employee violates any of his noncompetition or nonsolicitation obligations as set forth in Section VII, any unvested STOCK BONUS granted to Employee hereby shall be rescinded, and all or a portion of Employee's vested STOCK BONUS shall be forfeited by Employee and returned to the Company according to the following schedule: a. 100% of any vested STOCK BONUS shall be forfeited if such violation occurs prior to June 1, 1999; b. 75% of any vested STOCK BONUS shall be forfeited if such violation occurs prior to June 1, 2000; c. 50% of any vested STOCK BONUS shall be forfeited if such violation occurs prior to June 1, 2001; or d. 25% of any vested STOCK BONUS shall be forfeited if such violation occurs prior to June 1, 2002. 4. In the event of a forfeiture of a STOCK BONUS under the preceding paragraph, Employee may, at his option, repay the applicable portion of the STOCK BONUS in any of the following ways: a. by tendering an amount of cash equal to the FAIR MARKET VALUE (as defined in Section VIII.E.9 below) of the forfeited portion of the STOCK BONUS on the date(s) of its vesting; or b. by tendering an amount of cash equal to the FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the effective date of this Agreement; or c. by tendering an amount of cash equal to the FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the date of repayment; or d. by tendering a number of shares of the Company's common stock with a FAIR MARKET VALUE on the date of repayment equal to the FAIR MARKET VALUE of the forfeited portion of the STOCK BONUS on the date of its vesting or on the effective date of this Agreement, whichever is lower; or e. by tendering a number of shares of the Company's Common Stock equal to the number of shares of the STOCK BONUS being forfeited. 5. Employee's STOCK BONUS shall be fully vested and not subject to forfeiture after June 1, 2002 6. The forfeiture of any portion of the STOCK BONUS by Employee pursuant to paragraph 3 above shall be in addition to, and not a substitute for, any other remedies to which the Company may be entitled under this Agreement or applicable law for Employee's breach of the noncompetition and nonsolicitation provisions of Section VII, including but not limited to an injunction against further violations or other equitable relief. B. ANNUAL BASE SALARY. For all services rendered by Employee under this Agreement, the Company shall pay Employee an annual base salary of at least $195,000, payable in equal bi-weekly installments. The amount of such base salary shall be determined at the beginning of each fiscal year by the Compensation Committee of the Company's Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress but in no event shall such base salary be less than the annual base salary indicated in this paragraph. C. BONUS COMPENSATION. Employee may receive such additional bonuses, payable in cash or shares of the Company's stock, as determined at the beginning of each fiscal year of the Company by the Compensation Committee of the Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress in the prior fiscal year. D. VACATION. Employee shall be entitled to six (6) weeks of paid vacation each year. E. EMPLOYEE BENEFITS. Employee shall be entitled to receive all of the rights, benefits, and privileges of an employee and an executive officer under any retirement, pension, profit-sharing, insurance, health and hospital, and other employee benefit plans which may be now in effect or hereafter adopted by the Company. F. WORKING FACILITIES. Employee shall be furnished with a private office, stenographic help, and such other facilities and services suitable to Employee's position and adequate for the performance of the duties required by this Agreement. G. EXPENSES. Employee is authorized to incur reasonable expenses in connection with his responsibilities in conducting the business of the Company, including expenses for entertainment, travel, and similar items. The Company will reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures. H. AUTOMOBILE. Employer shall provide Employee with an automobile, and shall reimburse Employee for expenses associated with such automobile, including gasoline, insurance, maintenance, repairs, and all costs incident thereto. The Company will reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures. The Company shall provide Employee with a new automobile every four years or, at Employee's option, a used automobile after two years, provided, however, that upon Employee's RETIREMENT, then the Company shall provide a new automobile at such time irrespective of the number of years since the previous new or used vehicle, which automobile Employee shall retain so long as Employee continues to abide by Sections VI and VII of this Agreement. VI. PROPRIETARY INTERESTS OF COMPANY. Employee and the Company recognize that the Company is in a highly competitive business in a highly technical industry. The parties acknowledge that the success or failure of the Company depends largely on the development and use of certain proprietary and confidential information and trade secrets, including without limitation, information concerning any of the Company's patented components, research and development projects and in patent process components, and personal relationships with present and potential customers, suppliers, contractors, and governmental agencies as well as technology, procedures, systems, and techniques relating to the products developed or distributed by the Company (hereinafter collectively referred to as "Confidential Information"). Confidential Information is a substantial asset of the Company. Confidential Information will be disclosed to Employee in the normal course of operation. Employee acknowledges that Confidential Information is extremely valuable to the Company and must be protected from unauthorized use by the Company's competitors or other persons. Therefore, Employee agrees not to disclose or use, whether for the benefit of Employee or any other person or entity, at any time during or after his employment, any Confidential Information to any person or entity other than the Company or persons authorized by the Company to receive such Confidential Information. Employee recognizes that, during the term of his employment with the Company, he may develop new products, technology, processes, devices, inventions, or methods of production, including but not limited to computer hardware, software or "firmware," and may enhance, improve or perfect existing products, technology, processes, devices, inventions or methods of production (hereinafter collectively referred to as "Inventions"). As partial consideration for the salary and other benefits provided by the Company to the Employee, Employee hereby agrees that his entire work product while in the employ of the Company, including any Inventions, is the exclusive property of the Company. Employee also agrees to cooperate fully with the Company and to do whatever acts are reasonably necessary in order to obtain United States or foreign letters patent or copyrights, or both, and to vest the entire right and title thereto in the Company. Employee further agrees that the Company shall have the royalty-free right to use in its business, and to make, use, and sell such Inventions whether or not patentable, regardless of whether they are conceived or made by the Employee during the hours which he is employed by the Company or with the use of or assistance of the Company's facilities, materials or personnel. Except as required in his duties to the Company, Employee will not, directly or indirectly, use, disseminate, disclose, lecture upon, or publish articles concerning any Confidential Information without the prior written consent of the Company. Upon termination of his employment with the Company, all documents, records, notebooks, and similar repositories of or containing Confidential Information, including copies thereof, then in Employee's possession, whether prepared by Employee or others, will be left with the Company, and no copies thereof will be retained by the Employee. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and monetary damages would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach of any covenant in this section that the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, an appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other available remedies for such breach, including the recovery of damages, costs, and attorney fees. VII. NONCOMPETE AND NONSOLICITATION. During the term of this Agreement and for a period of the greater of (a) one year after termination or expiration of this Agreement or (b) the period during which a SEVERANCE AMOUNT, consulting arrangement or retirement benefit is being paid to Employee by the Company (the "Noncompete Period"), the Employee will not, directly or indirectly, own, manage, operate, control, provide services to, be employed by, participate in, or be connected in any manner with the ownership, management, operation, or control of any business which is similar to the type of business conducted by the Company and which conducts such business or sells its products within and to the same market as the Company's market at the time of Employee's activity or, after the termination of this Agreement, at the time of such termination. Employee certifies that his employment with the Company will not breach a previous employment agreement. Employee agrees not to engage in the unauthorized use of the proprietary assets of others during the term of his employment by the Company. Employee agrees not to enter into any other employment agreement, oral or written, which will run concurrently, in whole or in part, with Employee's employment by the Company. Employee agrees not to solicit any other Company employee during the Noncompete Period to leave the employ of the Company or to provide services to another person or business in lieu of providing services to the Company, including but not limited to services to a competitor of the Company, except when such other employee's departure is determined by management of the Company to be in the Company's best interests. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and that monetary damages for such breach would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach of the covenants of this section the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, an appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other available remedies for such breach, including the recovery of damages, costs, and attorney fees. The foregoing agreement not to compete shall not be held invalid because of the scope of the territory or the actions restricted thereby; but any judgment by a court of competent jurisdiction may define the maximum territory and actions subject to, and restricted by, this paragraph. Notwithstanding the foregoing, in the event of a CHANGE OF CONTROL, as hereinafter defined, not recommended by a majority of the Board of Directors of the Company as constituted prior to the date of such CHANGE OF CONTROL, this noncompete agreement shall terminate upon the date of such CHANGE OF CONTROL. VIII. TERMINATION OF EMPLOYMENT. A. TERMINATION BY MUTUAL AGREEMENT. The Company and Employee may agree to terminate this Agreement on terms and conditions mutually acceptable to them as of the date of termination. B. DEATH. In the event of Employee's death, the Company shall pay to any beneficiary designated by Employee or, if no such beneficiary has been designated, to his estate, an amount equal to the then annual base salary for the greater of (a) one (1) year or (b) the remaining term of this Agreement without additional extensions, together with any bonuses which the Company's Board of Directors shall determine in its sole discretion to be due and payable to Employee. If Employee's beneficiary or estate receives any proceeds from any life insurance policies the premiums of which were being paid for by the Company at the time of Employee's death other than the Group Life Insurance referred to in Section IX.A hereof, then the payments of annual base salary and bonuses shall be reduced by the amount of such proceeds from such life insurance policies. In the event of Employee's death, the Company agrees to purchase, and the Employee agrees to sell, all shares of the Company's stock BENEFICIALLY OWNED, as hereinafter defined, by Employee or Employee's spouse at the time of his death and all shares obtainable through exercise of stock options owned by Employee, up to a maximum of 750,000 shares, as adjusted by any stock split, reverse stock split or similar recapitalization (the "EMPLOYEE'S SHARES"). The purchase price will be the FAIR MARKET VALUE of the shares BENEFICIALLY OWNED by Employee, and the FAIR MARKET VALUE per share, less the exercise price per share, for Employee's stock options. Notwithstanding the foregoing, the Company's obligation to purchase the EMPLOYEE'S SHARES shall be limited to the number of shares which may be purchased with the amount of insurance proceeds received from the KEY MAN POLICIES, as defined below, after funding the annual base salary death benefit noted above. C. DISABILITY. If Employee becomes DISABLED during the term of employment or during the CONSULTING PERIOD, Employee's base salary and other benefits shall continue at the same rate and in the same manner as on the date of such DISABILITY. If Employee remains DISABLED for six consecutive months, the Company, at its option, may thereafter, upon written notice to Employee or Employee's personal representative, terminate the employment, subject, however, to Employee's right to receive disability benefits under the Company's general employee disability insurance policy and under the supplemental disability policy provided to Employee and the Company's obligation to pay to the Employee the SEVERANCE AMOUNT for an INVOLUNTARY TERMINATION not involving a CHANGE OF CONTROL. If Employee receives any disability payments from any insurance policies paid for by the Company, the annual base salary, the SEVERANCE AMOUNT, and bonuses due to Employee hereunder shall be reduced by the amount of any payments received by Employee from such disability insurance policies. D. VOLUNTARY or INVOLUNTARY TERMINATION. If prior notice is given of any VOLUNTARY or INVOLUNTARY TERMINATION as defined herein, Employee, if requested by the Company, shall continue to render his services and shall be paid the then annual base salary up to the date of such VOLUNTARY or INVOLUNTARY TERMINATION, any bonuses which the Company's Board of Directors shall determine in its sole discretion to be due and payable to Employee and the SEVERANCE AMOUNT as provided herein. In the event of an INVOLUNTARY TERMINATION, the STOCK BONUS and all unvested stock options and stock appreciation rights that have previously been granted to Employee will fully vest, and the Company agrees to purchase, at Employee's option, at FAIR MARKET VALUE, the number of shares of the Company's common stock necessary to provide Employee with sufficient cash, net of taxes, to fund Employee's remaining obligations, if any, pursuant to the December 31, 1991 Settlement Agreement between Carolyn Y. Kiser, the Company, Joseph H. Kiser, Alwin E. Branson and Employee, as amended (the "SETTLEMENT AGREEMENT"). E. DEFINITIONS. All the terms defined in this Section shall have the meanings given below throughout this Agreement. 1. "CHANGE IN DUTIES, COMPENSATION, OR BENEFITS" shall mean any one or more of the following: a. a significant and detrimental change in the nature or scope of Employee's authority, responsibilities or duties from those currently applicable to him; b. a reduction in Employee's annual base salary from that currently provided to him; c. a diminution in Employee's eligibility to participate in bonus, stock option, incentive award or any other compensation plan which provides opportunities to receive compensation from those currently applicable to him, except for: (i) changes in the eligibility requirements for plans that are applicable to employees generally; (ii) changes in plans that are applicable to all executives and result in a diminution of Employee's benefits under such plan that is fair and proportional as compared to the diminution of benefits for all executives; and (iii) changes that are required by applicable law; d. a material diminution in employee benefits (including but not limited to medical, dental or life insurance and long- term disability plans) and perquisites currently applicable to Employee, except for: (i) changes in the eligibility requirements for benefits that are applicable to employees generally; (ii) changes in benefits and perquisites that are applicable to all executives and result in a diminution of Employee's benefits that is fair and proportional as compared to the diminution for all executives; and (iii) changes that are required by applicable law; e. a change in the location of Employee's principal place of employment by the Company (including its subsidiaries) by more than twenty-five (25) miles from the location where he was principally employed immediately prior to the date on which a CHANGE OF CONTROL occurs; or f. a reasonable determination by a majority of those persons comprising the Board of Directors of the Company prior to a CHANGE OF CONTROL (even if such determination is made after such CHANGE OF CONTROL) that, as a result of a CHANGE OF CONTROL and a change in circumstances thereafter significantly affecting his position, Employee is unable to exercise the functions or duties attached to his position immediately prior to the date on which a CHANGE OF CONTROL occurs. 2. "CHANGE OF CONTROL" shall be deemed to have occurred if: a. any "person," including a "group" as determined in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"), is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; b. as a result of, or in connection with, any tender offer or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "TRANSACTION"), the persons who were directors of the Company before the TRANSACTION shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company; c. the Company is merged or consolidated with another corporation or entity and, as a result of the merger or consolidation, less than 80% of the outstanding voting securities of the surviving corporation or entity is then owned in the aggregate by the former stockholders of the Company; d. a tender offer or exchange offer is made and consummated for the ownership of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding voting securities; or e. the Company transfers all or substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company. 3. "DISABLED" or "DISABILITY" shall mean mental or physical illness or condition rendering Employee incapable of performing any portion of Employee's normal duties with the Company, provided, however, that any determination that Employee is not DISABLED under the definition used in this Agreement shall have no effect on whether Employee is entitled to receive disability benefits under any disability insurance policy. 4. "INVOLUNTARY TERMINATION" shall mean any termination except: a. VOLUNTARY TERMINATION; b. termination by mutual agreement; c. termination as a result of death; or d. Employee's voluntary retirement from employment or mandatory retirement from employment pursuant to a retirement plan to which Employee was subject prior to any CHANGE OF CONTROL. ("RETIREMENT"). 5. "SEVERANCE AMOUNT" is equal to: a. in the case of an INVOLUNTARY TERMINATION, the greater of the Employee's annual base salary multiplied by the remaining term of this Agreement or 2.99 times the Employee's average annual compensation over the last five years payable on regular bi-weekly payroll dates over the three (3) year period following such INVOLUNTARY TERMINATION, provided, however, that if such INVOLUNTARY TERMINATION follows a CHANGE OF CONTROL, then the SEVERANCE AMOUNT shall be payable in a lump sum no later than ten (10) days following the date of termination. b. in the case of a VOLUNTARY TERMINATION or RETIREMENT, one-half of Employee's annual base salary payable on regular bi-weekly payroll dates over a six month period, provided, however, that if Employee provides post-termination consulting services to the Company pursuant to Section XII hereof after VOLUNTARY TERMINATION or RETIREMENT, the SEVERANCE AMOUNT shall be based upon the annual base salary at the time of termination of employment but shall not be payable to Employee until after termination of the consulting services. 6. "VOLUNTARY TERMINATION" shall mean any termination which results from a resignation by the Employee other than a resignation following a CHANGE IN DUTIES, COMPENSATION, OR BENEFITS as defined herein. 7. "VOTING SECURITIES" shall mean any securities which ordinarily possess the power to vote in the election of directors without the occurrence of any pre-condition or contingency other than the passage of time. 8. "BENEFICIALLY OWNED" shall mean beneficial ownership by the Employee, the Employee's spouse, or a trust or similar arrangement established by or for the benefit of the Employee, the Employee's spouse, or the Employee's minor children as well as the meaning of such term under Section 13 or Section 16 of the Securities Exchange Act. 9. "FAIR MARKET VALUE" shall mean (a) if there is an established market for the Company's common stock, the average of the mean of the highest and lowest quoted selling prices on each trading day for the ninety (90) day period preceding the day of the event triggering an obligation for the Company to purchase the shares of stock BENEFICIALLY OWNED by the Employee; or (b) if there is no established market for the Company's stock during such ninety (90) day period, then the average over that ninety (90) day period of the value determined in accordance with Treasury Reg. 10.2031-2 or successor regulations. F. SECTION 280G PAYMENT. In the event that the SEVERANCE AMOUNT payments under this Agreement are determined by an independent accounting firm retained by Employee (but paid for by the Company) to constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, (the "Code") and any regulations thereunder, the Company agrees to increase the SEVERANCE AMOUNT by the amount necessary to put the Employee in the position he would be in if Code 280G and 4999 or any successor provisions to the Code which are designed to limit or restrict such "excess parachute payments" did not exist. G. MEDICAL AND DENTAL BENEFITS. If Employee's employment by the Company or any subsidiary or successor of the Company is terminated because of DISABILITY, RETIREMENT, VOLUNTARY TERMINATION, or INVOLUNTARY TERMINATION, then to the extent that Employee or any of Employee's dependents may be covered under the terms of any medical and dental plans of the Company (or any subsidiary) immediately prior to the termination, the Company will provide Employee and those dependents with the same or equivalent coverages until the later of Employee's death or the death of Employee's spouse, if any, at the time of Employee's death. The Company may, at its election, procure such coverages apart from, and outside of the terms of, the plans applicable to other employees. The Company's obligation to provide such coverages will be limited by the requirement that Employee and Employee's dependents comply with all of the conditions of the medical or dental plans applicable to employees generally and the Company is under no obligation to obtain special coverages for Employee which would not be covered by the plans applicable to employees generally. In consideration for these benefits, Employee must make contributions equal to those required from time to time from other employees for equivalent coverages under the medical or dental plans. IX. LIFE INSURANCE. A. GROUP LIFE INSURANCE. The Company shall provide Employee with personal life insurance under the Company's group life insurance policy as in effect from time to time. B. KEY MAN LIFE INSURANCE. Employee hereby consents to the purchase by the Company of one or more "key man" life insurance policies on Employee's life naming the Company or its designee as beneficiary (the "KEY MAN POLICIES") and the Company agrees to use its best efforts to purchase and maintain such policies, as hereinafter set forth; provided, however, that the Company shall not be liable to Employee for a failure to purchase or maintain any KEY MAN POLICIES if such failure is due to Employee's health, medical condition, or other similar reasons. Employee agrees that he shall take any action which may be requested by the Company, and otherwise fully cooperate with the Company, in its efforts to purchase and maintain the KEY MAN POLICIES. While the KEY MAN POLICIES will be owned by the Company and the proceeds made payable to the Company or its designee, Employee may at any time by written notice to the Company effect the transfer of up to $1 million in life insurance death benefit to his estate or his designated beneficiary by agreeing to have subsequent premiums attributable to such death benefit deducted by the Company from his compensation, provided, however, that the cash value, if any, of the life insurance so transferred to Employee at the time of the transfer shall remain the property of the Company. The KEY MAN POLICIES shall be purchased by the Company for the following purposes and the Company shall make its best efforts to obtain KEY MAN POLICIES in amounts sufficient to accomplish such purposes: 1. To fund the Company's obligation to pay the annual base salary death benefit, as described in Section VIII.B of this Agreement; 2. To fund the Company obligation to purchase EMPLOYEE'S SHARES of the Company's common stock and stock options on Employee's death, as described in Section VIII.B of this Agreement; 3. To fund all remaining obligations, if any, of Employee to Carolyn Kiser under the SETTLEMENT AGREEMENT; 4. To fund any other obligation under this Agreement arising as a result of Employee's separation of service from the Company; 5. To provide funds necessary to obtain or compensate a replacement for Employee; 6. For any other reasonable business purpose as may determined by the Company. After an INVOLUNTARY TERMINATION or RETIREMENT or VOLUNTARY TERMINATION (including the post-termination CONSULTING PERIOD, if any), the Company's obligation to maintain the KEY MAN POLICIES shall terminate six (6) months thereafter, provided, however, that Employee may, by a written notice delivered to the Company no less than five (5) months after such termination of employment, assume responsibility for paying the premiums to continue some or all of the KEY MAN POLICIES. At such time, Employee may also elect, by such written notice, to purchase some or all of the KEY MAN POLICIES from the Company for their cash surrender value, if any, or may pledge the policies to the Company as security for Employee's agreement to pay such cash value to the Company, together with accrued interest based on the Wall Street Journal's prime rate as published on the date of such purchase, at the time of sale, redemption or receipt of the death benefit of such policies. In the event that the Company fails to pay the premiums required to maintain the KEY MAN POLICIES while it is still obligated to do so, Employee shall be entitled to assume responsibility for paying the premiums to continue some or all of the KEY MAN POLICIES, and Employee shall be entitled to reimbursement from the Company for any such payments made by Employee. If Employee elects to cause the transfer of some or all of the $1 million in death benefits from the KEY MAN POLICIES to his estate or designated beneficiary as permitted by this Section IX, Employee waives any claim against the Company for failing to maintain sufficient KEY MAN POLICIES to the extent of such transfer. The Company agrees to review on an annual basis the death benefits payable under such policies and to attempt to procure additional insurance as needed to meet its obligations to Employee hereunder. X. DEFERRED PAYMENTS. In the event that the Company is prohibited from deducting any payment made to Employee as a compensation expense (excluding the Company's purchase of common stock and stock options BENEFICIALLY OWNED by Employee and tax payments for the STOCK BONUS made pursuant to Section V.A hereof) as a result of Code 162(m) or any other provision of the Code and such payment would be deductible by the Company if made in a future tax year, then the Company may defer making the non-deductible portion of that payment until the first day of the tax year in which any portion of that payment becomes deductible, at which time the Company shall pay so much of the deferred payment as is deductible. In the event that any payment obligation of the Company is deferred as a result of this Article X, the Company shall pay interest to the Employee on the deferred portion of the payment at a rate of ten percent (10%) per annum. XI. DIRECTORS AND OFFICER INSURANCE. The Company shall procure directors and officers liability insurance coverage on all directors and officers in such an amount as the Company deems reasonable and necessary under the circumstances but in no event less than $1 million. XII. POST-TERMINATION CONSULTING. In the event of Employee's VOLUNTARY TERMINATION or RETIREMENT, the Company hereby agrees to engage Employee as a consultant to the Company for a period of up to five years (the "CONSULTING PERIOD"). While the CONSULTING PERIOD will only begin after termination of employment under this Agreement, Employee shall nevertheless continue to be an "employee" of the Company for purposes of tax withholding and employee benefits (including any special or additional benefits provided to Employee by this Agreement or otherwise) during the CONSULTING PERIOD although the scope of Employee's services and responsibilities shall be diminished in such manner and amounts as may be agreed upon by the Company and Employee. During the CONSULTING PERIOD, Employee will be paid a salary equal to 50% of his annual base salary on the date of Employee's termination of employment under this Agreement. For each year or part thereof that Employee provides consulting services to the Company, Employee shall receive a retirement benefit of 25% of Employee's annual base salary at the time of Employee's VOLUNTARY TERMINATION or RETIREMENT for the same amount of time, which retirement benefit shall then be paid to Employee in accordance with the Company's existing payroll policies beginning at the end of the CONSULTING PERIOD over a period of time equal to the number of years or parts thereof that Employee provides consulting services. Employee shall have the right to decline to provide any consulting services after a VOLUNTARY TERMINATION or RETIREMENT. If Employee does elect to provide consulting services, Employee may determine to cease providing such services to the Company at any time by giving at least thirty (30) days prior written notice of such determination to the Company. The Company agrees to engage Employee to provide the consulting services for a period of not less than one (1) year after a VOLUNTARY TERMINATION or RETIREMENT but the Company may terminate such engagement at any time thereafter for good cause. For purposes hereof, "good cause" shall mean misappropriation of Company funds or property, conviction of a crime involving dishonesty or moral turpitude, or willful disregard of any directive of the Company's Board of Directors. XIII. DEFERRED COMPENSATION. During the term of this Agreement, including the extension of such term pursuant to Section II hereof and the CONSULTING PERIOD, if any, pursuant to Section XII hereof, the Company shall deposit an amount equal to 10% of Employee's annual base salary into a deferred compensation trust (the "Rabbi Trust") for the benefit of Employee. The Company shall have no obligation to contribute to the Rabbi Trust during the time Employee is receiving only retirement benefits or disability benefits. Deposits to the Rabbi Trust shall be made and shall vest, subject only to the claims of the Company's creditors, on January 1 of each year that Employee serves the Company in a full-time capacity. The Rabbi Trust may distribute all or a portion of its balance to Employee on January 1 of the first calendar year in which Employee will receive no other benefit under this Agreement or in subsequent years but the entire balance must be distributed on or before the date of Employee's death. XIV. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail to Employee's residence in the case of Employee or to its principal office in the case of the Company. XV. WAIVER. The waiver of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement. No waiver shall be valid unless in writing and executed by the party to be charged therewith. XVI. SEVERABILITY/MODIFICATION. In the event that any clause or provision of this Agreement shall be determined to be invalid, illegal or unenforceable, such clause or provision may be severed or modified to the extent necessary, and, as severed and/or modified, this Agreement shall remain in full force and effect. XVII. ASSIGNMENT. Except for a transfer by will or by the laws of descent or distribution, Employee's right to receive payments or benefits under this Agreement shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise. In the event of any attempted assignment or transfer contrary to this paragraph, the Company shall have no liability to pay any amount so attempted to be assigned or transferred. Employee acknowledges that the services to be rendered under this Agreement are unique and personal. Accordingly, Employee may not assign such duties or obligations under this Agreement. XVIII. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns (including, without limitation, any company into or with which the Company may merge or consolidate). The Company agrees that it will not effect the sale or other disposition of all or substantially all of its assets unless either (i) the person or entity acquiring the assets or a substantial portion of the assets shall expressly assume by an instrument in writing all duties and obligations of the Company under this Agreement or (ii) the Company shall provide, through the establishment of a separate reserve or otherwise, for the payment in full of all amounts which are or may reasonably be expected to become payable to Employee under this Agreement. XIX. ENTIRE AGREEMENT. This instrument contains the entire agreement concerning the employment arrangement between the parties and shall, as of the effective date hereof, supersede all other such agreements between the parties including but not limited to the Executive Employment Agreement dated November 12, 1992, as amended March 10, 1995, provided, however, that nothing in this Agreement shall prevent the Company from granting additional or special compensation or benefits to Employee after the date of execution of this Agreement. This Agreement may not be amended except by an agreement in writing signed by both parties. Nothing in this paragraph shall be deemed to modify or amend the SETTLEMENT AGREEMENT nor any agreements or instruments entered into between the parties hereto as a result of that SETTLEMENT AGREEMENT. XX. GOVERNING LAW AND JURISDICTION. This Agreement shall be interpreted, construed, and enforced under the laws of the State of Colorado. The courts of the State of Colorado shall have sole jurisdiction and venue over all controversies which may arise with respect to this Agreement. XXI. TIME. In comparing any period of time prescribed or allowed by this Agreement, the day of the act, event or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included, unless it is a Sunday or legal holiday, in which event the period runs until the end of the next day which is not a Sunday or legal holiday. For purposes of this paragraph a legal holiday shall mean any day which banks are required to be closed in the State of Colorado. For purposes of calculating the duration of the covenant not to compete the time period of such covenant shall be extended by one day for each day that Employee competes with Company in violation of such covenant. IN WITNESS WHEREOF, the parties have executed this Agreement the date and year indicated below. THE COMPANY: VARI-L COMPANY, INC. By: /s/ Joseph H. Kiser Joseph H. Kiser, Chairman of the Board and Chief Scientific Officer EMPLOYEE: /s/ David G. Sherman David G. Sherman EX-10.3 5 TERM LOAN BANK1ONE August 19, 1998 Mr. Jon Clark VARI-L Company, Inc. 4895 Peoria Street Denver, Colorado 80239 Dear Mr. Clark: This confirmation sets out the terms and conditions of the Interest Rate Swap entered into between us on the Trade Date specified below. This constitutes a Confirmation as referred to in the ISDA Master Agreement dated as of August 1, 1998, ("the "Agreement") between, VARI-L Company, Inc., ("VARI-L Company") and Bank One, Colorado, N.A. ("Bank One"). THIS FACSIMILE TRANSMISSION WILL BE THE ONLY WRITTEN COMMUNICATION REGARDING THIS SWAP TRANSACTION EXCHANGED BETWEEN US AND WILL BE DEEMED FOR ALL PURPOSES AN ORIGINAL DOCUMENT, UNLESS YOU REQUEST THAT WE SIGN HARD COPY VERSIONS OF THIS CONFIRMATION. PLEASE CONTACT THE INDIVIDUAL INDICATED IN THE LAST PARAGRAPH OF THIS LETTER TO RECEIVE SUCH COPIES. 1. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swap Dealers Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. This Confirmation shall supplement, form part of, and be subject to the Agreement. Each party hereto represents and warrants to the other party hereto that, in connection with the Transaction, (i) it has and will continue to consult with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent it deems necessary, and it has and will continue to make its own investment, hedging and trading decisions (including without limitations decisions regarding the appropriateness and/or suitability of the Transaction) based upon its own judgment and upon any advice from such advisors as it deems necessary, and not in reliance upon the other party hereto or any of its branches, subsidiaries or affiliates or any of their respective officers, directors or employees, or any view expressed by any of them, (ii) it has evaluated and it fully understands all the terms, conditions and risks of the Transaction, and it is willing to assume (financially and otherwise) all such risks, (iii) it has and will continue to act as principal, and not agent of any person, and the other party hereto and its branches, subsidiaries and affiliates have not and will not be acting as a fiduciary or financial, investment, commodity trading or other advisor to it and (iv) it is entering into the Transaction for purposes of hedging its assets or liabilities or in connection with a line of business, and not for the purpose of speculation. 2. The terms of this particular transaction to which this Confirmation relates are as follows: Notional Amount: USD 4,228,723 (See Exhibit "A") Trade Date: August 19, 1998 Effective Date: August 24, 1998 Termination Date: January 24, 2002, subject to adjustment in accordance with the Modified Following Business Day Convention.* Fixed Amounts: Fixed Rate Payer: VARI-L Company Fixed Rate Payer Payment Dates: The 24th day of each month of each year, commencing on September 24, 1998, up to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention.* Fixed Rate: 7.75% Fixed Rate Day Count Fraction: Actual/360 Fixed Rate Period End Dates: The 24th day of each month of each year, commencing on September 24, 1998, up to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention.* Floating Amounts Floating Rate Payer: Bank One Floating Rate Payer Payment Dates: The 24th day of each month of each year, commencing on September 24, 1998, up to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention.* Floating Rate Option: USD-LIBOR-BBA Floating Rate Designated Maturity: One Month Floating Rate Spread: Plus 150 Basis Points Floating Rate Reset Dates: The first day of each Calculation Period. Floating Rate Day Count Fraction: Actual/360 Floating Rate Period End Dates: The 24th day of each month of each year, commencing on September 24, 1998, up to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention.* Floating Initial Rate: To Be Determined Method of Averaging: Not Applicable Compounding: Not Applicable Business Days: New York and London Calculation Agent: Bank One Governing Law: Laws of New York 3. Account Details: Payments to VARI-L Company: Norwest Bank Colorado, N.A. Account #: ---------- ABA #: -------- Payments to Bank One: Wire Transfer to: Bank One, N.A. ABA#: ------------ Account #: --------- Atten: Swap Operations 5. Offices: (a) The Office of Bank One, Colorado, N.A,, for this transaction is 150 E. Gay Street, 17th Floor, Columbus, Ohio 43271-0103. (b) The Office of VARI-L Company, Inc. for this transaction is 4895 Peoria Street, Denver, Colorado 80239. Please confirm that the foregoing correctly sets out the terms and conditions of our agreement by responding within one (1) business day by returning via facsimile an executed copy of this Confirmation on (614) 248- 1241, Attention: Felicia Cupoli, telephone: (614) 248-6519. Failure to respond within such period shall not affect the validity or enforceability of this transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Banc One Corporation signing on For on behalf of behalf of Bank One, Colorado, N.A. VARI-L Company, Inc. /s/ James J. Lukas /s/David G. Sherman James J. Lukas Name: David G. Sherman Vice President Title: President Date: August 19, 1998 Date: August 19, 1998 Banc One Corporation signing on behalf of Bank One, [Insert Affiliate], N.A. /s/ Robert C. Peterson - ------------------------ Robert C. Peterson Vice President Date: August 19,1998 *Modified Following is specified, that date will be the first following day that is a Business Day unless that day falls in the next calendar month, in which case that date will be the first preceding day that is a Business Day. PROMISSORY NOTE SHADED AREA BEGINS Principal Loan Date Maturity Loan No. $4,228,723.63 08-21-1998 Call Collateral Account Officer Initials 092989 327 0933159571 00152 SHADED AREA ENDS References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: VARI-L COMPANY, INC., A Lender: Bank One, Colorado, NA COLORADO CORPORATION Denver Banking Center 4895 Peoria Street 1125 17th Street Denver, CO 80239 Denver, CO 80217 ========================================================================== Principal Amount: $4,228,723.63 Date of Note: August 21, 1998 PROMISE TO PAY. For value received, VARI-L COMPANY, INC., A COLORADO CORPORATION ("Borrower") promises to pay to Bank One, Colorado, NA ("Lender"), or order, in lawful money of the United States of America, the principal amount of Four Million Two Hundred Twenty Eight Thousand Seven Hundred Twenty Three & 63/100 Dollars ($4,228,723.63), together with interest on the unpaid principal balance from the data advanced until paid in full. PAYMENT. Borrower will pay this loan In accordance with the following payment schedule: Borrower shall make monthly payments as follows: commencing on September 24, 1998, and continuing on the same day of each calendar month thereafter until the maturity date, Borrower shall pay to Lender monthly installments each in the sum of: (A) the amount of principal set forth opposite the respective due date in Exhibit "A" attached hereto, plus (B) accrued interest. A final payment shall be due and payable on February 24, 2002 in the amount of the outstanding principal balance of this Note, plus all accrued but unpaid interest and any other unpaid amounts due under this Note. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at the address designated by Lender from time to time in writing. If any payment of principal of or interest on this Note shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day. As used herein, the term "Business Day" shall mean any day other than a Saturday, Sunday or any other day on which national banking associations are authorized to be closed. Unless otherwise agreed to, in writing, or otherwise required by applicable law, payments will be applied first to accrued, unpaid interest, then to principal, and any remaining amount to any unpaid collection costs, late charges and other charges, provided, however, upon delinquency or other default, Lender reserves the right to apply payments among principal, interest, late charges, collection costs and other charges at its discretion. The books and records of Lender shall be prima facie evidence of all outstanding principal of and accrued but unpaid interest on this Note. This Note may be executed in connection with a loan agreement. Any such loan agreement may contain additional rights, obligations and terms. VARIABLE INTEREST RATE. The interest rate on this Note is subject to fluctuation based upon the LIBOR Rate of interest in effect from time to time (the "Index"). "LIBOR Rate" shall mean with respect to each Interest Period, the offered rate for U.S. Dollar deposits of not less than $1,000,000.00 as of 11:00 A.M. City of London, England time two London Business Days prior to the first date of each Interest Period of this Note as shown on the display designated as "British Bankers Assoc. Interest Settlement Rates" on the Telerate System ("Telerate"), Page 3750 or Page 3740, or such other page or pages as may replace such pages on Telerate for the purpose of displaying such rate. Provided, however, that if such rate is not available on Telerate then such offered rate shall be otherwise independently determined by Lender from an alternate, substantially similar independent source available to Lender or shall be calculated by Lender by a substantially similar methodology as that theretofore used to determine such offered rate in Telerate. "London Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions are generally authorized or obligated by law or executive order to close in the City of London, England. Each change in the rate to be charged on this Note will become effective without notice on the commencement of each Interest Period based upon the Index then in effect. "Interest Period" means each consecutive one month period (the first of which shall commence on the date of this Note) effective as of the first day of each Interest Period and ending on the last day of each Interest Period, provided that if any Interest Period is scheduled to end on a date for which there is no numerical equivalent to the date on which the Interest Period commenced, then it shall end instead of the last day of such calendar month. "Borrower" may prepay all or any portion of the principal amount of this Note bearing interest at a LIBOR Rate, provided that if Borrower makes any such prepayment other than on the last day of an Interest Period, Borrower shall pay all accrued interest on the principal amount prepaid with such prepayment and, on demand, shall reimburse Lender and hold Lender harmless from all losses and expenses incurred by Lender as a result of such prepayment, including, without limitation, any losses and expenses arising from the liquidation or reemployment of deposits acquired to fund or maintain the principal amount prepaid. Such reimbursement shall be calculated as though Lender funded the principal amount prepaid through the purchase of U.S. Dollar deposits in the London, England interbank market having a maturity corresponding to such Interest Period and bearing an interest rate equal to the LIBOR Rate for such Interest Period, whether in fact that is the case or not. Lender's determination of the amount of such reimbursement shall be conclusive in the absence of manifest error.. Except as otherwise provided herein, the unpaid principal balance of this Note will accrue interest at a rate per annum which will from time to time be equal to the sum of the Index, plus 1.500%. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. Whenever increases occur in the interest rate, Lender, at its option, may do one or more of the following: (a) increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date, (b) increase Borrower's payments to cover accruing interest, (c) increase the number of Borrower's payments, and (d) continue Borrower's payments at the same amount and increase Borrower's final payment. PREPAYMENT. Borrower may pay without fee all or a portion of the principal amount owed hereunder earlier than it is due. All prepayments shall be applied to the indebtedness owing hereunder in such order and manner as Lender may from time to time determine in its sole discretion. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $25.00, whichever is greater, up to the maximum amount of $250.00 per late charge. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower falls to make any payment of principal or interest when due under this Note or any other indebtedness owing now or hereafter by Borrower to Lender; (b) failure of Borrower or any other party to comply with or perform any term, obligation, covenant or condition contained in this Note or in any other promissory note, credit agreement, loan agreement, guaranty, security agreement, mortgage, deed of trust or any other instrument, agreement or document, whether now or hereafter existing, executed in connection with this Note (the Note and all such other instruments, agreements, and documents shall be collectively known herein as the "Related Documents"); (c) Any representation or statement made or furnished to Lender herein, in any of the Related Documents or in connection with any of the foregoing is false or misleading in any material respect; (d) Borrower or any other party liable for the payment of this Note, whether as maker, endorser, guarantor, surety or otherwise, becomes insolvent or bankrupt, has a receiver or trustee appointed for any part of its property, makes an assignment for the benefit of its creditors, or any proceeding is commenced either by any such party or against it under any bankruptcy or insolvency laws; (e) the occurrence of any event of default specified in any of the other Related Documents or in any other agreement now or hereafter arising between Borrower and Lender; (f) the occurrence of any event which permits the acceleration of the maturity of any indebtedness owing now or hereafter by Borrower to any third party; or (g) the liquidation, termination, dissolution, death or legal incapacity of Borrower or any other party liable for the payment of this Note, whether as maker, endorser, guarantor, surety, or otherwise. LENDER'S RIGHTS. Upon default, Lender may at its option, without further notice or demand (i) declare the entire unpaid principal balance on this Note, all accrued unpaid interest and all other costs and expenses for which Borrower is responsible for under this Note and any other Related Document immediately due, (ii) refuse to advance any additional amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue any other rights, remedies and recourses available to the Lender, including without limitation, any such rights, remedies or recourses under the Related Documents, at law or in equity, or (v) pursue any combination of the foregoing. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, do one or both of the following: (a) increase the variable interest rate on this Note to 4.500 percentage points over the Index, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate will not exceed the maximum rate permitted by applicable law. Lender may hire an attorney to help collect this Note if Borrower does not pay and Borrower will pay Lender's reasonable attorneys' fees and all other costs of collection, unless prohibited by applicable law. This Note has been delivered to Lender and accepted by Lender in the State of Colorado. Subject to the provisions on arbitration, this Note shall be governed by and construed in accordance with the laws of the State of Colorado without regard to any conflict of laws or provisions thereof. PURPOSE. Borrower agrees that no advances under this Note shall be used for personal, family, or household purposes and that all advances hereunder shall be used solely for business, commercial, agricultural or other similar purposes. JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE OTHER RELATED DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a nontaxable account taxable, Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or any other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future. Borrower authorizes Lender, to the extent permitted by applicable law, and to the extent an event of default as defined under the Business Loan Agreement shall have occurred, to charge or setoff all sums owing on this Note against any and all such accounts. ARBITRATION. Lender and Borrower agree that upon the written demand of either party, whether made before or after the institution of any legal proceedings, but prior to the rendering of any judgment in that proceeding, all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from this Note, any Related Document or otherwise, including without limitation contract disputes and tort claims, shall be arbitrated pursuant to the Commercial Rules of the American Arbitration Association. Any arbitration proceeding held pursuant to this arbitration provision shall be conducted in the city nearest the Borrower's address having an AAA regional office, or at any other place selected by mutual agreement of the parties. No act to take or dispose of any collateral shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This arbitration provision shall not limit the right of either party during any dispute, claim or controversy to seek, use, and employ ancillary, provisional or preliminary rights and/or remedies, judicial or otherwise, for the purposes of realizing upon, preserving, protecting, foreclosing upon or proceeding under forcible entry and detainer for possession of, any real or personal property, and any such action shall not be deemed an election of remedies. This includes, without limitation, obtaining injunctive relief or a temporary restraining order, invoking a power of sale under any deed of trust or mortgage, obtaining a writ of attachment or imposition of a receivership, or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right or remedy, concerning any collateral, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral, shall also be arbitrated; provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of either party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this arbitration provision shall preclude either party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of any action for these purpose. The Federal Arbitration Act (Title 9 of the United States Code) shall apply to the construction, interpretation, and enforcement of this arbitration provision. RENEWAL AND EXTENSION. This Note is given in replacement, renewal and/or extension of, but not extinguishing the indebtedness evidenced by, that promissory note dated August 13, 1997 executed by Borrower in the original principal amount of $4,700,000.00, and is not a novation thereof. All interest evidenced by the note being replaced, renewed, and/or extended by this instrument shall continue to be due and payable until paid. ADDITIONAL PROVISION REGARDING LATE CHARGES. The "Late Charge" provision set forth above in this Note is hereby deleted and the following provision shall apply to this Note: Borrower agrees that if a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or Twenty Five Dollars ($25.00), whichever is greater, up to the maximum amount of One Thousand Five Hundred Dollars ($1,500.00). GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this Note, or release any party or guarantor or collateral; or unjustifiably impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this Note without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: VARI-L COMPANY, INC., A COLORADO CORPORATION VARI-L COMPANY, INC., A COLORADO CORPORATION By: /s/ David G. Sherman David G. Sherman, President/Chief Executive Officer EX-10.4 6 EQUIPMENT REVOLVER FIRST AMENDMENT TO CREDIT AGREEMENT This Amendment ("Amendment") is made as of the 13th day of August, 1998, by and between Vari-L Company, Inc, a Colorado Corporation, (the "Borrower") and Bank One, Colorado, NA (the "Bank"). WHEREAS, the Borrower and the Bank entered into a Business Loan Agreement/Credit Agreement/ dated August 13, 1997, as amended (if applicable) (the "Credit Agreement"); and WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth below: NOW, THEREFORE, the parties hereto agree as follows: 1. Capitalized terms not defined herein shall have the meaning ascribed in the Credit Agreement. 2. Section "AFFIRMATIVE COVENANTS" /The Section bearing the heading "Loan Fees and Charges" of the Credit Agreement is hereby amended and restated to read as follows: In addition to all other agreed upon fees and charges, pay the following: A fee of .25% of the unused commitment payable quarterly in arrears, subject to a cap of $1,000.00 per quarter. 3. The Borrower represents and warrants that (a) the representations and warranties contained in the Credit Agreement are true and correct in all material respects as of the date of this Amendment, (b) no condition, act or event which could constitute an Event of Default under the Credit Agreement exists, and (c) no condition, event, act or omission has occurred, which, with the giving of notice or passage of time, would constitute an Event of Default under the Credit Agreement. 4. The Borrower agrees to pay all fees and out-of-pocket disbursements incurred by the Bank in connection with this Amendment, including legal fees incurred by the Bank in the preparation, consummation, administration and enforcement of this Amendment. 5. This Amendment shall become effective only after it is fully executed by the Borrower and the Bank and the Bank shall have received from the Borrower the following documents: Except as amended by this Amendment, the Credit Agreement shall remain in full force and effect in accordance with its terms. 6. This Amendment is a modification only and not a novation. Except for the above-quoted modification(s), the Credit Agreement, any agreement or security document, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This Amendment is to be considered attached to the Credit Agreement and made a part thereof. This Amendment shall not release or affect the liability of any guarantor, surety or endorser of the Credit Agreement or release any owner of collateral securing the Credit Agreement. The validity, priority and enforceability of the Credit Agreement shall not be impaired hereby. To the extent that any provision of this Amendment conflicts with any term or condition set forth in the Credit Agreement, or any agreement or security document executed in conjunction therewith, the provisions of this Amendment shall supersede and control. Borrower acknowledges that as of the date of this Amendment it has no offsets with respect to all amounts owed by Borrower to Bank and Borrower waives and releases all claims which it may have against Bank arising under the Credit Agreement on or prior to the date of this Amendment. 7. The Borrower acknowledges and agrees that this Amendment is limited to the terms outlined above, and shall not be construed as an amendment of any other terms or provisions of the Credit Agreement. The Borrower hereby specifically ratifies and affirms the terms and provisions of the Credit Agreement. Borrower releases Bank from any and all claims which may have arisen, known or unknown, in connection with the Credit Agreement on or prior to the date hereof. This Amendment shall not establish a course of dealing or be construed as evidence of any willingness on the Bank's part to grant other or future amendments, should any be requested. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the day and year first above written. BANK ONE, COLORADO, NA VARI-L COMPANY, INC. A COLORADO CORPORATION By:/s/T.J. Kern BY:/s/David G. Sherman DAVID G. SHERMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER BANK1ONE PROMISSORY NOTE SHADED AREA BEGINS Principal Loan Date Maturity Loan No. $4,000,000.00 08-13-1998 08-13-1999 SHADED AREA ENDS Call Collateral Account Officer Initials 092975 327 0933159571 00152 References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: VARI-L COMPANY, INC., Lender: Bank One, Colorado, NA A COLORADO CORPORATION Denver Banking Center 4895 Peoria Street 1125 17th Street Denver, CO 80239 Denver, CO 80217 ========================================================================= PRINCIPAL AMOUNT: $4,000,000.00 DATE OF NOTE: AUGUST 13, 1998 PROMISE TO PAY. FOR VALUE RECEIVED, VARI-L COMPANY, INC., A COLORADO CORPORATION ("BORROWER") PROMISES TO PAY TO BANK ONE, COLORADO, NA ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF FOUR MILLION & 00/100 DOLLARS ($4,000,000.00) ("TOTAL PRINCIPAL AMOUNT") OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE FROM THE DATE ADVANCED UNTIL PAID IN FULL. PAYMENT. THIS NOTE SHALL BE PAYABLE AS FOLLOWS: INTEREST SHALL BE DUE AND PAYABLE MONTHLY AS IT ACCRUES, COMMENCING ON SEPTEMBER 13, 1998 AND CONTINUING ON THE SAME DAY OF EACH MONTH THEREAFTER DURING THE TERM OF THIS NOTE, AND THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE, TOGETHER WITH ALL ACCRUED BUT UNPAID INTEREST, SHALL BE DUE AND PAYABLE ON AUGUST 13, 1999. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at the address designated by Lender from time to time in writing. If any payment of principal of or interest on this Note shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day. As used herein, the term "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any other day on which national banking associations are authorized to be closed. Unless otherwise agreed to, in writing, or otherwise required by applicable law, payments will be applied first to accrued, unpaid interest, then to principal, and any remaining amount to any unpaid collection costs, late charges and other charges, provided, however, upon delinquency or other default, Lender reserves the right to apply payments among principal, interest, late charges, collection costs and other charges at its discretion. The books and records of Lender shall be prima facie evidence of all outstanding principal of and accrued but unpaid interest on this Note. This Note may be executed in connection with a loan agreement. Any such loan agreement may contain additional rights, obligations and terms. VARIABLE INTEREST RATE. THE INTEREST RATE ON THIS NOTE IS SUBJECT TO FLUCTUATION BASED UPON THE PRIME RATE OF INTEREST IN EFFECT FROM TIME TO TIME (THE "INDEX") (WHICH RATE MAY NOT BE THE LOWEST, BEST OR MOST FAVORABLE RATE OF INTEREST WHICH LENDER MAY CHARGE ON LOANS TO ITS CUSTOMERS). "PRIME RATE" SHALL MEAN THE RATE ANNOUNCED FROM TIME TO TIME BY LENDER AS ITS PRIME RATE. EACH CHANGE IN THE RATE TO BE CHARGED ON THIS NOTE WILL BECOME EFFECTIVE WITHOUT NOTICE ON THE SAME DAY AS THE INDEX CHANGES. EXCEPT AS OTHERWISE PROVIDED HEREIN, THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL ACCRUE INTEREST AT A RATE PER ANNUM WHICH WILL FROM TIME TO TIME BE EQUAL TO THE SUM OF THE INDEX, PLUS 0.250%. NOTICE: UNDER NO CIRCUMSTANCES WILL THE INTEREST RATE ON THIS NOTE BE MORE THAN THE MAXIMUM RATE ALLOWED BY APPLICABLE LAW. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without fee all or a portion of the principal amount owed hereunder earlier than it is due. All prepayments shall be applied to the indebtedness owing hereunder in such order and manner as Lender may from time to time determine in its sole discretion. LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged 5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $25.00, WHICHEVER IS GREATER, UP TO THE MAXIMUM AMOUNT OF $250.00 PER LATE CHARGE. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment of principal or interest when due under this Note or any other indebtedness owing now or hereafter by Borrower to Lender; (b) failure of Borrower or any other party to comply with or perform any term, obligation, covenant or condition contained in this Note or in any other promissory note, credit agreement, loan agreement, guaranty, security agreement, mortgage, deed of trust or any other instrument, agreement or document, whether now or hereafter existing, executed in connection with this Note (the Note and all such other instruments, agreements, and documents shall be collectively known herein as the "RELATED DOCUMENTS"); (c) Any representation or statement made or furnished to Lender herein, in any of the Related Documents or in connection with any of the foregoing is false or misleading in any material respect; (d) Borrower or any other party liable for the payment of this Note, whether as maker, endorser, guarantor, surety or otherwise, becomes insolvent or bankrupt, has a receiver or trustee appointed for any part of its property, makes an assignment for the benefit of its creditors, or any proceeding is commenced either by any such party or against it under any bankruptcy or insolvency laws; (e) the occurrence of any event of default specified in any of the other Related Documents or in any other agreement now or hereafter arising between Borrower and Lender; (f) the occurrence of any event which permits the acceleration of the maturity of any indebtedness owing now or hereafter by Borrower to any third party; or (g) the liquidation, termination, dissolution, death or legal incapacity of Borrower or any other party liable for the payment of this Note, whether as maker, endorser, guarantor, surety, or otherwise. LENDER'S RIGHTS. Upon default, Lender may at its option, without further notice or demand (i) declare the entire unpaid principal balance on this Note, all accrued unpaid interest and all other costs and expenses for which Borrower is responsible for under this Note and any other Related Document immediately due, (ii) refuse to advance any additional amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue any other rights, remedies and recourses available to the Lender, including without limitation, any such rights, remedies or recourses under the Related Documents, at law or in equity, or (v) pursue any combination of the foregoing. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, do one or both of the following: (a) increase the variable interest rate on this Note to 3.250 percentage points over the Index, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate will not exceed the maximum rate permitted by applicable law. Lender may hire an attorney to help collect this Note if Borrower does not pay and Borrower will pay Lender's reasonable attorneys' fees and all other costs of collection, unless prohibited by applicable law. This Note has been delivered to Lender and accepted by Lender in the State of Colorado. Subject to the provisions on arbitration, this Note shall be governed by and construed in accordance with the laws of the State of Colorado without regard to any conflict of laws or provisions thereof. PURPOSE. Borrower agrees that no advances under this Note shall be used for personal, family, or household purposes and that all advances hereunder shall be used solely for business, commercial, agricultural or other similar purposes. JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE OTHER RELATED DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a nontaxable account taxable, Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or any other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future. Borrower authorizes Lender, to the extent permitted by applicable law, and to the extent an event of default shall have occurred, as defined under the Business Loan Agreement, to charge or setoff all sums owing on this Note against any and all such accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Borrower may request advances and make payments hereunder from time to time, provided that it is understood and agreed that the aggregate principal amount outstanding from time to time hereunder shall not at any time exceed the Total Principal Amount. The unpaid principal balance of this Note shall increase and decrease with each new advance or payment hereunder, as the case may be. Subject to the terms hereof, Borrower may borrow, repay and reborrow hereunder. Advances under this Note, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. ARBITRATION. Lender and Borrower agree that upon the written demand of either party, whether made before or after the institution of any legal proceedings, but prior to the rendering of any judgment in that proceeding, all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from this Note, any Related Document or otherwise, including without limitation contract disputes and tort claims, shall be arbitrated pursuant to the Commercial Rules of the American Arbitration Association. Any arbitration proceeding held pursuant to this arbitration provision shall be conducted in the city nearest the Borrower's address having an AAA regional office, or at any other place selected by mutual agreement of the parties. No act to take or dispose of any collateral shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This arbitration provision shall not limit the right of either party during any dispute, claim or controversy to seek, use, and employ ancillary, provisional or preliminary rights and/or remedies, judicial or otherwise, for the purposes of realizing upon, preserving, protecting, foreclosing upon or proceeding under forcible entry and detainer for possession of, any real or personal property, and any such action shall not be deemed an election of remedies. This includes, without limitation, obtaining injunctive relief or a temporary restraining order, invoking a power of sale under any deed of trust or mortgage, obtaining a writ of attachment or imposition of a receivership, or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right or remedy, concerning any collateral, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral, shall also be arbitrated; provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of either party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this arbitration provision shall preclude either party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of any action for these purpose. The Federal Arbitration Act (Title 9 of the United States Code) shall apply to the construction, interpretation, and enforcement of this arbitration provision. RENEWAL AND EXTENSION. This Note is given in replacement, renewal and/or extension of, but not extinguishing the indebtedness evidenced by, that promissory note dated August 13, 1997 executed by Borrower in the original principal amount of $2,500,000.00, and is not a novation thereof. All interest evidenced by the note being replaced, renewed, and/or extended by this instrument shall continue to be due and payable until paid. ADDITIONAL PROVISION REGARDING LATE CHARGES. The "Late Charge" provision set forth above in this Note is hereby deleted and the following provision shall apply to this Note: Borrower agrees that if a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or Twenty Five Dollars ($25.00), whichever is greater, up to the maximum amount of One Thousand Five Hundred Dollars ($1,500.00). GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this Note, or release any party or guarantor or collateral; or unjustifiably impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this Note without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: VARI-L COMPANY, INC., A COLORADO CORPORATION VARI-L COMPANY, INC., A COLORADO CORPORATION By:/s/David G. Sherman David G. Sherman, President/Chief Executive Officer EX-10.5 7 2ND AMEND LEASE LAW\13085\301036.01 SECOND AMENDMENT TO LEASE AGREEMENT THIS SECOND AMENDMENT TO LEASE AGREEMENT ("Second Amendment") is made and entered into by and between JOSEPH H. AND NORA KISER ("Landlord") and VARI-L COMPANY, INC., a Colorado corporation ("Tenant"). RECITALS A. Landlord and Tenant have heretofore executed a certain Lease Agreement dated and effective as of July 14, 1995, as amended by Amendment to Lease Agreement dated and effective as of September 1, 1995 (the "Lease Agreement"), with respect to certain leased premises (the "Premises") at 15556 East Seventeenth Avenue, Aurora, Colorado, which Premises contain approximately 8,836 square feet of space, as more particularly described in the Lease Agreement, reference to which is hereby made for all purposes. B. Landlord and Tenant desire to amend certain provisions of the Lease Agreement as more particularly provided for herein. NOW THEREFORE, for and in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, Landlord and Tenant do hereby agree as follows: 1. Except as otherwise expressly defined herein, capitalized terms used in this Second Amendment shall have the meanings ascribed to them in the Lease Agreement 2. Landlord and Tenant have agreed to extend the term of the Lease Agreement. In order to facilitate these changes, Landlord and Tenant have agreed to the modifications of the Lease Agreement set forth in this Second Amendment. 3. Paragraph 2 of the Lease Agreement is hereby deleted in its entirety and replaced with the following: The term of this Lease shall commence at 12:00 noon on August 1, 1996 and shall end on August 1, 2004. 4. Except as amended hereby, all terms of the Lease Agreement shall remain unchanged and in full force and effect, and as amended hereby, the Lease Agreement is ratified and confirmed by the parties. IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment effective as of the 31st day of July, 1998. TENANT: VARI-L COMPANY, INC., a Colorado corporation By:/s/David G. Sherman David G. Sherman, President LANDLORD: JOSEPH H. AND NORA KISER By:/s/Joseph H. Kiser Joseph H. Kiser EX-10.6 8 THIRD AMEND LEASE LAW\13085\301037.01 THIRD AMENDMENT TO LEASE AGREEMENT THIS THIRD AMENDMENT TO LEASE AGREEMENT ("Third Amendment") is made and entered into by and between J.C. ENTERPRISES, a Colorado general partnership ("Landlord") and VARI-L COMPANY, INC., a Colorado corporation ("Tenant"). RECITALS A. Landlord and Tenant have heretofore executed a certain Lease Agreement dated and effective as of January 1, 1987, as amended by Amendment to Lease Agreement dated and effective as of December 6, 1990 ("First Amendment") and Second Amendment to Lease Agreement dated and effective as of March 23, 1993 ("Second Amendment) (collectively, the "Lease Agreement"), with respect to certain leased premises (the "Premises") at 5165 Peoria Street, Denver, Colorado, which Premises are more particularly described in the Lease Agreement, reference to which is hereby made for all purposes. B. Landlord and Tenant desire to amend certain provisions of the Lease Agreement as more particularly provided for herein. NOW THEREFORE, for and in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, Landlord and Tenant do hereby agree as follows: 1. Except as otherwise expressly defined herein, capitalized terms used in this Third Amendment shall have the meanings ascribed to them in the Lease Agreement. 2. Landlord and Tenant have agreed to extend the term and change the base rental of the Lease Agreement. In order to facilitate these changes, Landlord and Tenant have agreed to the modifications of the Lease Agreement set forth in this Third Amendment. 3. Notwithstanding anything to the contrary contained in the Lease Agreement, as amended by the First Amendment and Second Amendment, the term of the Lease Agreement is hereby extended for an additional five (5) years and seven (7) days, so that the term of the Lease Agreement, which would have expired on October 24, 2000, is extended to and shall expire on October 31, 2005. Additionally, provided no default exists under the Lease Agreement, Tenant shall have one (1) option to extend the term of the Lease Agreement for an additional five (5) years (the "Option Term"). To exercise such Option Term, Tenant shall provide written notice to Landlord of its intent to exercise the Option Term no later than October 1, 2005. All provisions of the Lease Agreement shall remain in full force and effect during the Option Term. 4. Paragraph 3A. of the Lease Agreement, as amended by the First Amendment and Second Amendment, is hereby deleted in its entirety and replaced with the following: The base rental hereunder shall be Six Thousand Six Hundred Thirty Four and 00/100 Dollars ($6,634.00) per month for the period commencing on April 1, 1993 and ending on October 31, 1998. The base rental hereunder shall be Ten Thousand Eight Hundred One and 00/100 Dollars ($10,801.00) for the period commencing on November 1, 1998 through the end of the term of the Lease Agreement. 5. Except as amended hereby, all terms of the Lease Agreement shall remain unchanged and in full force and effect, and as amended hereby, the Lease Agreement is ratified and confirmed by the parties. IN WITNESS WHEREOF, Landlord and Tenant have executed this Third Amendment effective as of the 30th day of October, 1998. TENANT: VARI-L COMPANY, INC., a Colorado corporation By:/s/David G. Sherman David G. Sherman, President LANDLORD: J.C. ENTERPRISES, a Colorado general partnership By:/s/Joseph H. Kiser Joseph H. Kiser, general partner By:/s/ Carolyn Y. Kiser Carolyn Y. Kiser, general partner EX-10.7 9 TANDEM PLAN TANDEM STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN As Amended and Restated February 23, 1996, January 24, 1997 and June 19, 1998 1. PURPOSE. Vari-L Company, Inc. (the "Company") hereby establishes the Tandem Stock Option and Stock Appreciation Rights Plan (the "Plan"). The purpose of the Plan is to advance the interests of the Company and its stockholders by providing a means by which the Company shall be able to attract and retain competent officers, directors, key employees, advisors and consultants by providing them with an opportunity to participate in the increased value of the Company which their effort, initiative, and skill have helped produce. 2. GENERAL PROVISIONS. (a) The Plan will be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee shall be comprised of two or more independent outside directors designated by the Board of Directors. The Committee shall have full power to construe and interpret the Plan and to establish and amend rules and regulations for its administration. Notwithstanding the foregoing, if it would be consistent with all applicable law, including, without limitation, Rule 16b-3 promulgated under the Securities Exchange Act of 1934 as amended ("Rule 16b-3") and the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder (including, without limitation, the regulations relating to Section 162(m) of the Code), then the Plan may be administered by the Board of Directors, and if so administered all subsequent references to the Committee shall be read as referring to the Board of Directors. Any action of the Committee with respect to the Plan shall be taken by majority vote or by the unanimous written consent of the Committee members. (b) The Committee shall determine, in its sole discretion, which participants under the Plan shall be granted stock options or stock appreciation rights, the time or times at which options and rights are granted, as well as the number of shares and the duration of the options or rights which are granted to participants, provided, however, that no participant may be granted more than 300,000 options during any three year period under the Plan. (c) The Committee shall also determine any other terms and conditions relating to options and rights granted under the Plan as the Committee may prescribe, in its sole discretion. (d) The Committee may, in its discretion, delegate its administrative duties with respect to the Plan to an officer or employees, or to a committee composed of officers or employees, of the Company. (e) The Committee shall make all other determinations and take all other actions which it deems necessary or advisable for the administration of the Plan. (f) All decisions, determinations and interpretations made by the Committee shall be binding and conclusive on all participants in the Plan and on their legal representatives, heirs and beneficiaries. (g) Notwithstanding anything to the contrary herein, the Committee shall have no authority to determine the amount, price or timing of grants hereunder to members of the Committee, unless, and only to the extent that, its exercise of such authority is consistent with all applicable laws, including, without limitation, Rule 16b-3. 3. ELIGIBILITY. Officers, directors and employees of the Company and advisors and consultants to the Company shall be eligible to participate in the Plan and to receive options and rights hereunder, provided, however, that: (a) Incentive Stock Options may only be granted to employees (including officers and directors who are employees) of the Company or its subsidiaries; and (b) advisors and consultants shall be eligible for grants only if they provide bona fide services that are not rendered in connection with the offer or sale of securities or in a capital-raising transaction. 4. NUMBER OF SHARES SUBJECT TO PLAN. The aggregate number of shares of the Company's $.01 par value Common Stock which may be granted to participants shall be 3,000,000 shares, subject to adjustment only as provided in Sections 5(h) and 7 hereof. These shares may consist of shares of the Company's authorized but unissued Common Stock or shares of the Company's authorized and issued Common Stock reacquired by the Company and held in its treasury or any combination thereof. If an option granted under this Plan is surrendered, or for any other reason ceases to be exercisable in whole or in part, the shares as to which the option ceases to be exercisable shall be available for options to be granted to the same or other participants under the Plan, except to the extent that an option is deemed surrendered by the exercise of a tandem stock appreciation right and that right is paid by the Company in stock, in which event the shares issued in satisfaction of the right shall not be available for new options or rights under the Plan. 5. STOCK OPTION. (a) TYPE OF OPTIONS. Options granted on or after January 28, 1994 may be either Nonqualified Stock Options or Incentive Stock Options as determined by the Committee in its sole discretion and as reflected in the Notice of Grant issued by the Committee. All Options granted under the Plan prior to January 28, 1994 were nonqualified stock options. "Incentive Stock Option" means an option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. "Nonqualified Stock Option" means an option not intended to qualify as an Incentive Stock Option or an Incentive Stock Option which is converted to a Nonqualified Stock Option under Section 5(f) hereof. (b) OPTION PRICE. The price at which options may be granted under the Plan shall be determined as follows: (i) For Incentive Stock Options the option price shall be equal to 100% of the Fair Market Value of the stock on the date the option is granted provided, however, that Incentive Stock Options granted to any person who, at the time such option is granted owns (as defined in Section 422 of the Code) shares possessing more than 10% of the total combined voting power of all classes of shares of the Company or its parent or subsidiary corporation, the Option Price shall be 110% of the Fair Market Value. (ii) For Nonqualified Stock Options the option price may be less than the Fair Market Value of the stock on the date of grant, but in no event shall the option price be less than fifty percent 50% of the Fair Market Value of the stock on the date the option is granted. (iii) For purposes of this Plan, and except as otherwise set forth herein, "Fair Market Value" shall mean (a) if there is an established market for the Company's Common Stock on a stock exchange, in an over-the-counter market or otherwise, the mean of the highest and lowest quoted selling prices on the valuation date, or (b) if there were no such sales on the valuation date, then in accordance with Treas. Reg. Sec. 20.2031-2 or successor regulations. Unless otherwise specified by the Committee at the time of grant, or in the Plan (as in the case of automatic grants to Committee members), the valuation date for purposes of determining Fair Market Value shall be the date of grant. The Committee may, however, specify in any grant of an Option or Stock Appreciation Right that, instead of the date of the grant, the valuation date shall be a valuation period of up to ninety (90) days preceding the date of grant, and Fair Market Value for purposes of such grant shall be the average over the valuation period of the mean on the highest and lowest quoted selling prices on each date on which sales were made in the valuation period, provided, however, that if the Committee fails to specify a valuation period and there were no sales on the date of grant then Fair Market Value shall be determined as if the Committee had specified a thirty (30) day period for such determination, unless there is no established market for the Company's Common Stock in which case the determination of Fair Market Value shall be in accordance with clause (b) above. (c) EXERCISE OF OPTION. The right to purchase shares covered by any option or options under this Plan shall be exercisable only in accordance with the terms and conditions of the grant to the participant. Such terms and conditions may include a time period or schedule whereby some of the options granted may become exercisable, or "vested", over time and certain conditions, such as continuous service or specified performance criteria or goals, must be satisfied for such vesting. The determination as to whether to impose any such vesting schedule or requirements, and the terms of such schedule or requirements, shall be within the sole discretion of the Committee. These terms and conditions may be different for different participants so long as all options satisfy the requirements of the Plan. Options shall be paid for in cash or in shares of the Company's Common Stock, which shares shall be valued at the Fair Market Value of the shares on the date of exercise, or any combination thereof. The Committee may, in its discretion and subject to ratification by the entire Board of Directors, loan one or more participants all or a portion of the exercise price, together with the amount of any tax liability incurred by the participant as a result of the exercise of the option, for up to three (3) years with interest payable at the prime rate quoted in the Wall Street Journal on the date of exercise. Members of the Committee may receive such loans for the exercise of their options without Committee approval or Board ratification. The Committee may also permit a participant to effect a net exercise of an option without tendering any shares of the Company's stock as payment for the option. In such an event, the participant will be deemed to have paid for the exercise of the option with shares of the Company's stock and shall receive from the Company a number of shares equal to the difference between the shares that would have been tendered and the number of options exercised. The Committee may also cause the Company to enter into arrangements with one or more licensed stock brokerage firms whereby participants may exercise options without payment therefor but with irrevocable orders to such brokerage firm to immediately sell the number of shares necessary to pay the exercise price for the option and the withholding taxes, if any, and then to transmit the proceeds from such sales directly to the Company in satisfaction of such obligations. (d) DURATION OF OPTIONS. Unless otherwise prescribed by the Committee or this Plan, options granted hereunder shall expire ten (10) years from the date of grant, subject to early termination as provided in Section 5(f) hereof. (D) INCENTIVE STOCK OPTIONS LIMITATIONS. In no event shall an Incentive Stock Option be granted to any person who, at the time such option is granted, owns (as defined in Section 422 of the Code) shares possessing more than 10% of the total combined voting power of all classes of shares of the Company or of its parent or subsidiary corporation, unless the option price is at least 110% of the Fair Market Value of the stock subject to the Option, and such Option is by its terms not exercisable after the expiration of five (5) years from the date such Option is granted. Moreover, the aggregate Fair Market Value (determined as of the time that option is granted) of the shares with respect to which Incentive Stock Options are exercisable for the first time by any individual employee during any single calendar year under the Plan shall not exceed $100,000. In addition, in order to receive the full tax benefits of an Incentive Stock Option, the employee must not resell or otherwise dispose of the stock acquired upon exercise of the Incentive Stock Option until two (2) years after the date the option was granted and one (1) year after it was exercised. (f) EARLY TERMINATION OF OPTIONS. In the event a participant's employment with or service to the Company shall terminate as the result of total disability or the result of retirement at 65 years of age or later, then any options granted to such participant shall terminate and may no longer be exercised three (3) months after the time such participant is no longer an employee, officer or director of, or advisor or consultant to, the Company. If the participant dies while employed or engaged by the Company, to the extent that the option was exercisable at the time of the participant's death, such option may, within one year after the participant's death, be exercised by the person or persons to whom the participant's rights under the option shall pass by will or by the applicable laws of descent and distribution; provided, however, that an option may not be exercised to any extent after the expiration of the option as originally granted. In the event a participant's employment or engagement by the Company shall terminate as the result of any circumstances other than those referred to above, whether terminated by the participant or the Company, with or without cause, then all options granted to such participant under this Plan shall terminate and no longer be exercisable as of the date of such termination, provided, however, that if an employee with an Incentive Stock Option terminates employment prior to its exercise, but after such termination becomes or remains a non- employee officer, director, advisor or consultant eligible for Nonqualified Stock Options hereunder, then the Incentive Stock Option shall be converted to a Nonqualified Stock Option on the date the Incentive Stock Option would otherwise have terminated. An employee who is absent from work with the Company because of total disability, as defined below, shall not by virtue of such absence alone be deemed to have terminated such participant's employment with the Company. All rights which such participant would have had to exercise options granted hereunder will be suspended during the period of such absence and may be exercised cumulatively by such participant upon his return to the Company so long as such rights are exercised prior to the expiration of the option as originally granted. For purposes of this Plan, "total disability" shall mean disability, as a result of sickness or injury, to the extent that the participant is prevented from engaging in any substantial gainful activity and is eligible for and receives a disability benefit under Title II of the Federal Social Security Act. (g) AUTOMATIC GRANTS TO COMMITTEE MEMBERS. Except as provided in Section 2(g) hereof, no action may be taken by the Committee to grant any options to members of the Committee. Notwithstanding the foregoing and irrespective of any action by the Committee, on the date of each meeting of the Board of Directors or a committee thereof, each member of the Committee and of the Audit Committee (other than members who are officers or employees of the Company) that attends such meeting in person shall receive a grant of a ten year, fully vested, Nonqualified Stock Option to purchase 500 shares of the Company's Common Stock at an exercise price equal to the Fair Market Value calculated in accordance with Section 5(b) with a valuation period of thirty (30) days. (h) RELOAD BY PAYMENT IN SHARES. To the extent that a participant pays for the exercise of an option with shares of the Company's stock rather than cash, the tendered shares shall be deemed to be added back to the Plan, increasing the total number of shares subject to and reserved for the Plan by that amount. 6. STOCK APPRECIATION RIGHTS. (a) GRANT. Stock appreciation rights may be granted by the Committee under this Plan upon such terms and conditions as it may prescribe. A stock appreciation right may be granted only in connection with an option previously granted to or to be granted under this Plan. Each stock appreciation right shall become nonexercisable and be forfeited if the related option is exercised. "Stock appreciation right" as used in this Plan means a right to receive the excess of Fair Market Value, on the date of exercise, of a share of the Company's Common Stock on which an appreciation right is exercised over the option price provided for in the related option and is issued in consideration of services performed for the Company or for its benefit by the participant. Such excess is hereafter called "the differential." (b) EXERCISE OF STOCK APPRECIATION RIGHTS. Stock appreciation rights shall be exercisable and be payable in the following manner: (i) A stock appreciation right shall be exercisable by the participant at the same time or times that the option to which it relates could be exercised. A participant wishing to exercise a stock appreciation right shall give written notice of such exercise to the Company. Upon receipt of such notice, the Company shall determine, in its sole discretion, whether the participant's stock appreciation rights shall be paid in cash or in shares of the Company's Common Stock or any combination of cash and shares and thereupon shall, without deducting any transfer or issue tax, deliver to the person exercising such right an amount of cash or shares of the Company's Common Stock or a combination thereof with a value equal to the differential. The date the Company receives the written notice of exercise hereunder is the exercise date. The shares issued upon the exercise of a stock appreciation right may consist of shares of the Company's authorized but unissued Common Stock or of its authorized and issued Common Stock reacquired by the Company and held in its treasury or any combination thereof. No fractional share of Common Stock shall be issued; rather, the Committee shall determine whether cash shall be given in lieu of such fractional share or whether such fractional share shall be eliminated. (ii) The exercise of a stock appreciation right shall automatically result in the surrender of the related stock option by the participant on a share for share basis. Likewise, the exercise of a stock option shall automatically result in the surrender of the related stock appreciation right. Shares covered by surrendered options shall be available for granting further options under this Plan except to the extent and in the amount that such rights are paid by the Company with shares of stock, as more fully discussed in Section 4 hereof. (iii) The Committee may impose any other terms and conditions it prescribes upon the exercise of a stock appreciation right, which conditions may include a condition that the stock appreciation right may only be exercised in accordance with rules and regulations adopted by the Committee from time to time. (d) LIMITATION ON PAYMENTS. Notwithstanding any other provision of this Plan, the Committee may from time to time determine, including at the time of exercise, the maximum amount of cash or stock which may be given upon exercise of any stock appreciation right in any year, provided, however, that all such amounts shall be paid in full no later than the end of the year immediately following the year in which the participant exercised such stock appreciation rights. Any determination under this paragraph may be changed by the Committee from time to time provided that no such change shall require the participant to return to the Company any amount theretofore received or to extend the period within which the Company is required to make full payment of the amount due as the result of the exercise of the participant's stock appreciation rights. (e) EXPIRATION OR TERMINATION OF STOCK APPRECIATION RIGHTS. (i) Each stock appreciation right and all rights and obligations thereunder shall expire on the date on which the related option expires or terminates. (ii) A stock appreciation right shall terminate and may no longer be exercised upon the expiration or termination of the related option. 7. CAPITAL ADJUSTMENTS. The aggregate number of shares of the Company's Common Stock subject to this Plan, the maximum number of shares as to which options may be granted to any one participant hereunder, and the number of shares and the price per share subject to outstanding options, shall be appropriately adjusted by the Committee for any increase or decrease in the number of shares of Common Stock which the Company has issued resulting from any stock split, reverse stock split, stock dividend, combination of shares or any other change, or any exchange for other securities or any reclassification, merger, reorganization, consolidation, redesignation, recapitalization, or otherwise. Similar adjustments shall be made to the terms of stock appreciation rights. 8. NONTRANSFERABILITY. During a participant's lifetime, an option may be exercisable only by the participant and options granted under the Plan and the rights and privileges conferred thereby shall not be subject to execution, attachment or similar process and may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will or by the applicable laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by applicable law and Rule 16b-3, the Committee may (i) permit a recipient of a Nonqualified Stock Option to designate in writing during the participant's lifetime a beneficiary to receive and exercise the participant's Nonqualified Stock Options in the event of such participant's death (as provided in Section 5(f)), (ii) grant Nonqualified Stock Options that are transferable to the immediate family or a family trust of the recipient, and (iii) modify existing Nonqualified Stock Options to be transferable to the immediate family or a family trust of the recipient. Any other attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any option under the Plan or of any right or privilege conferred thereby, contrary to the provisions of the Plan shall be null and void. 9. AMENDMENT, SUSPENSION, OR TERMINATION OF PLAN. The Board of Directors or the Committee may at any time suspend or terminate the Plan and may amend it from time to time in such respects as the Board of Directors or the Committee may deem advisable in order that options and rights granted hereunder shall conform to any change in the law, or in any other respect which the Board of Directors or the Committee may deem to be in the best interests of the Company; provided, however, that no such amendment shall, without the participant's consent, alter or impair any of the rights or obligations under any option or stock appreciation rights theretofore granted to him under the plan; and provided further that no such amendment shall, without shareholder approval: (a) increase the total number of shares available for grants of options or rights under the Plan (except as provided by Section 7 hereof); or (b) effect any change to the Plan which is required to be approved by shareholder by law, including, without limitation, the regulations promulgated under Section 422 and Section 162(m) of the Code. In addition, the provisions of Section 5(g) relating to the amount, price and timing of grants to members of the Committee shall not be amended more than once every six (6) months other than to comport with applicable changes to the Code, the Employee Retirement Income Security Act or rules thereunder. 10. EFFECTIVE DATE. The effective date of the Plan shall be December 31, 1987, provided, however, that the effective date of the Plan as it relates to Incentive Stock Options shall be January 28, 1994 and no Incentive Stock Option may be granted hereunder before January 28, 1994. If the January 28, 1994 amendment to and restatement of the Plan is not approved by the affirmative vote of a majority of the Company's shareholders on or before January 28, 1995, then the Plan shall remain in effect as it was last amended on June 14, 1990. The failure of the shareholders to approve such amendment and restatement of the Plan shall not, however, affect the validity, duration or any other terms and conditions of options or rights granted prior to January 28, 1994, and shall affect the terms and conditions of options or rights granted after that date only to the extent required by law. 11. TERMINATION DATE. Unless this Plan shall have been previously terminated by the Committee, this Plan shall terminate on January 28, 2004, except as to options and rights theretofore granted and outstanding under the Plan at that date, and no stock option or stock appreciation rights shall be granted after that date. 12. RESALE OF SHARES PURCHASED. All shares of stock purchased under this Plan may be freely resold, subject to applicable state and federal securities laws restricting their transfer. As a condition to exercise of an option, the Company may impose various conditions, including a requirement that the person exercising such option represent and warrant that, at the time of such exercise, the shares of Common Stock being purchased are being purchased for investment and not with a view to resale or distribution thereof. The resale of shares purchased upon the exercise of Incentive Stock Options may, however, cause the employee to lose certain tax benefits if the employee fails to comply with the holding period requirements described in Section 5(e) hereof. 13. ACCELERATION OF OPTIONS. If the Company or its shareholders enter into an agreement to dispose of all or substantially all of the assets or stock of the Company by means of a sale, merger or other reorganization, liquidation, or otherwise, any option granted pursuant to the Plan shall become immediately exercisable with respect to the full number of shares subject to that option during the period commencing as of the date of the agreement to dispose of all or substantially all of the assets or stock of the Company and ending when the disposition of assets or stock contemplated by that agreement is consummated or the option is otherwise terminated in accordance with its provisions or the provisions of the Plan, whichever occurs first; provided that no option shall be immediately exercisable under this Section on account of any agreement of merger or other reorganization where the shareholders of the Company immediately before the consummation of the transaction will own 50% or more of the total combined voting power of all classes of stock entitled to vote of the surviving entity (whether the Company or some other entity) immediately after the consummation of the transaction. In the event the transaction contemplated by the agreement referred to in this section is not consummated, but rather is terminated, canceled or expires, the options granted pursuant to the Plan shall thereafter be treated as if that agreement had never been entered into. 14. WRITTEN NOTICE REQUIRED; TAX WITHHOLDING. Any option or right granted pursuant to the Plan shall be exercised when written notice of that exercise by the participant has been received by the Company at its principal office and, with respect to options, when such notice is received and full payment for the shares with respect to which the option is exercised has been received by the Company. Participant agrees that, to the extent required by law, the Company shall withhold or require the payment by participant of any state, federal or local taxes resulting from the exercise of an option or right, provided however that to the extent permitted by law, the Committee may in its discretion, permit some or all of such withholding obligation to be satisfied by the delivery by the participant of, or the retention by the Company of, shares of its Common Stock. 15. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be issued with respect to any option or right granted under the Plan unless the exercise of that option and the issuance and delivery of the shares pursuant thereto shall comply with all relevant provisions of state and federal law, including without limitation the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed or traded, and shall be further subject to the approval of counsel for the Company with respect to such compliance. Further, each participant must consent to the imposition of a legend on the certificate representing the shares of Common Stock issued upon the exercise of the option or right restricting their transferability as may be required by law, the option, or the Plan. 16. WAIVER OF VESTING RESTRICTIONS BY COMMITTEE. Notwithstanding any provision of the Plan, in the event a participant dies, becomes disabled, retires as an employee, officer or director of, or as an advisor or consultant to, the Company, the Committee shall have the discretion to waive any vesting restrictions on the retiree's options, or the early termination of any Nonqualified Stock Options held by the retiree. 17. REPORTS TO PARTICIPANTS. The Company shall furnish to each participant a copy of the annual report sent to the Company's shareholders. Upon written request, the Company shall furnish to each participant a copy of its most recent annual report and each quarterly report to shareholders issued since the end of the Company's most recent fiscal year. 18. NO EMPLOYEE CONTRACT. The grant of an option or right under the Plan shall not confer upon any participant any right with respect to continuation of employment by, or the rendition of advisory or consulting services to, the Company, nor shall it interfere in any way with the Company's right to terminate the participant's employment or services at any time. Adopted by the Board of Directors of the Company on January 29, 1994 and approved by the Company's Shareholders on June 20, 1994. Adopted as amended and restated by the Compensation Committee on February 23, 1996 and approved by the Company's Shareholders on June 26, 1996. Adopted as amended and restated by the Compensation Committee on January 24, 1997 and approved by the Company's Shareholders on June 20, 1997. Amended by the Board of Directors on June 19, 1998. DAVID G. SHERMAN, JOSEPH H. KISER, President Chairman of the Board and Secretary EX-10.8 10 STOCK GRANT PLAN VARI-L COMPANY, INC. STOCK GRANT PLAN Adopted June 16, 1995 Amended January 24, 1997 and June 19, 1998 Section 1. PURPOSE. The purpose of the Stock Grant Plan (the "Plan") is to provide incentives for selected persons to promote the financial success and progress of Vari-L Company, Inc. (the "Company") through the award of shares of the Company's $.01 par value Common Stock ("Awards"). Section 2. GENERAL PROVISIONS OF THE PLAN. a. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee shall be comprised of two or more independent outside directors designated by the Board of Directors. Notwithstanding the foregoing, if it would be consistent with all applicable laws, including, without limitation, Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), then the Plan may be administered by the Board of Directors, and if so administered all subsequent references to the Committee shall be read as referring to the Board of Directors. Any action of the Committee with respect to the Plan shall be taken by majority vote or by the unanimous written consent of the Committee members. b. The Committee shall have full power to construe, interpret and administer the Plan and to establish, amend and rescind rules and regulations for its administration, and to make all other determinations and take all other actions which it deems necessary or advisable for the administration of the plan. c. The Committee shall determine, in its sole discretion, which participants under the Plan shall be granted Awards, the time or times at which Awards are granted, and the number of shares in each Award. d. The Committee shall also determine any other terms and conditions relating to Awards granted under the Plan as the Committee may prescribe, in its sole discretion. e. The Committee may, in its discretion, delegate its administrative duties with respect to the Plan to an officer of employees, or to a committee composed of officers or employees, of the Company. f. All decisions, determinations and interpretations made by the Committee shall be binding and conclusive on all participants in the Plan and on their legal representative, heirs and beneficiaries. g. Notwithstanding anything to the contrary herein, the Committee shall have no authority to determine the amount, price or timing of Awards hereunder to members of the Committee, unless, and only to the extent that, its exercise of such authority is consistent with all applicable laws, including, without limitation, Rule 16b-3. Section 3. ELIGIBILITY. Subject to the terms of the Plan, Awards may be granted only to such officers, directors, employees, consultants, advisors, and independent contractors providing bona fide services to the Company, as the Committee shall select from time to time in its sole discretion provided that, with respect to consultants, advisors and independent contractors such services may not be in connection with the offer or sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Plan. Section 4. NUMBER OF SHARES SUBJECT TO PLAN. The maximum aggregate number of shares of the Company's Common Stock which may be granted to participants shall be 100,000, subject to adjustment as provided in this Plan. These shares may consist of shares of the Company's authorized but unissued Common Stock or shares of the Company's authorized and issued Common Stock reacquired by the Company and held in its treasury, or any combination thereof. Section 5. GRANTS OF AWARDS. The Committee may impose such conditions on Awards granted under the Plan as it may, in its discretion, determine. The terms and conditions of Awards granted under the Plan may differ from one another as the Committee shall in its discretion determine so long as all Awards granted under the Plan satisfy the requirements of the Plan. No grant will be made if, in the judgment of the Committee, such a grant would constitute a public distribution within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), or the rules and relations promulgated thereunder, or corresponding state securities laws. Section 6. AUTOMATIC GRANTS TO COMMITTEE MEMBERS. Except as provided in Section 2(g) hereof, no action may be taken by the Committee to grant any Awards to members of the Committee. Notwithstanding the foregoing and irrespective of any action by the Committee, each member of the Committee and of the Audit Committee (other than members who are officers or employees of the Company) shall receive an automatic grant of 50 shares per month on the first day of each month, beginning with the first full month after original approval of the Plan by the Company's Shareholders. Section 7. TAX WITHHOLDING. The grant of any Award is subject to the condition that if at any time the Company shall determine, in its discretion, that the satisfaction of withholding tax or other withholding liabilities under any state or federal law is necessary or desirable as a condition of, or in connection with, such grant, exercise or the delivery or purchase of shares pursuant thereto, then in such event, the grant of the Award shall not be effective unless such withholding shall have been effected or obtained in a manner acceptable to the Company. Section 8. DELIVERY OF AWARD STOCK. As promptly as practicable after the Committee has authorized the grant of an Award, and the recipient of the Award has satisfied the conditions, if any, specified by the grant of the Award, a certificate or certificates registered in that person's name, representing the number and shares of Common Stock that were granted shall be issued and delivered. Shares shall not be issued with respect to any Award granted under the Plan unless the grant of that Award and the issuance and delivery of the shares pursuant thereto shall comply with all relevant provisions of state and federal law, including without limitation the Securities Act, the rules and regulations promulgated thereunder and the requirements of any stock exchange or quotation system upon which the shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance. Further, each recipient of an Award shall consent to the imposition of a legend on the certificate representing the shares of Common Stock issued upon the grant of the Award restricting their transferability as required by law, the Award, or by the Plan. Section 9. EMPLOYMENT OF RECIPIENT. Nothing in the Plan or in any Award granted hereunder shall confer upon any recipient of an Award any right to continued employment or retainer by the Company, or limit in any way the right of the Company at any time to terminate or alter the terms of any employment or consulting arrangement. Section 10. RIGHTS UPON TERMINATION OF EMPLOYMENT, CONSULTANT, ADVISOR OR INDEPENDENT CONTRACTOR STATUS. If the recipient of an Award ceases to be employed by the Company or ceases to serve as a consultant, advisor or independent contractor of the Company, or otherwise ceases to provide bona fide services as specified in the eligibility requirements set forth in Section 3, any portion of his Award for which the conditions specified in the grant of the Award have not been satisfied shall immediately terminate. Section 11. PRIVILEGES OF STOCK OWNERSHIP. Notwithstanding the authorization of an Award granted pursuant to the terms of the Plan, no person shall have any of the rights or privileges of a shareholder of the Company in respect of any shares of stock issuable upon the grant of an Award until certificates representing the shares have been issued and delivered. No shares shall be required to be issued and delivered upon the authorization of any Award until there has been full compliance with all of the conditions of the Award, the requirements of law and of all regulatory agencies having jurisdiction over the issuance and delivery of the securities. Section 12. CAPITAL ADJUSTMENTS. If the outstanding shares of Common Stock are increased, decreased, changed into or exchanged for a different number or kind of shares or securities through merger, consolidation, combination, exchange of shares, other reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares as to which Awards may be granted under the Plan. Section 13. AMENDMENT, SUSPENSION, OR TERMINATION OF PLAN. The Board of Directors or the Committee may at any time suspend or terminate the Plan and may amend it from time to time in such respects as the Board of Directors or the Committee may deem advisable in order that the rights granted hereunder shall conform to any change in the law, or in any other respect which the Board of Directors or the Committee may deem to be in the best interests of the Company; provided, however, that no such amendment shall, without the participant's consent, alter or impair any of the rights or obligations under any Award rights theretofore granted to him under the plan; and provided further that no such amendment shall, without shareholder approval: increase the total number of shares available for Awards under the Plan (except as provided by Section 12 hereof); effect any change to the Plan which is required to be approved by the Company's Shareholders by law, including, without limitation, the Internal Revenue Code of 1986, as amended. Section 14. WAIVER OF CONDITIONS. Notwithstanding any provision of the Plan, in the event a participant dies, becomes disabled, retires as an employee, officer or director of, or as an advisor, consultant or independent contractor to, the Company, the Committee shall have the discretion to waive any conditions in the retiree's Award. Section 15. EFFECTIVE DATE. The effective date of the Plan is June 16, 1995 (the "Effective Date"). Section 16. TERMINATION DATE. Unless the Plan shall have been previously terminated by the Committee, it shall terminate on June 15, 2005, except as to any Awards that are outstanding under the Plan at that time and no Awards shall be granted after that time. DAVID G. SHERMAN, JOSEPH H. KISER, President Chairman of the Board and Secretary EX-10.9 11 EMPLOY. AGREE. - WILMOT VARI-L COMPANY, INC. EMPLOYMENT AGREEMENT THIS AGREEMENT, effective January 1, 1997, is made and entered into by and between VARI-L COMPANY, INC. (the "Company") and Daniel J. Wilmot ("Employee"). WHEREAS, Employee is currently an employee of the Company and the Company and Employee wish to enter into this Agreement to set forth the terms and conditions of employment. NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, and for other good and valuable consideration, the parties hereto agree as follows: I. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth. II. TERM. Subject to the provisions for termination as hereinafter provided, the term of this Agreement is for a period commencing January 1, 1997, and expiring December 31, 1999. III. DUTIES. Employee is engaged as Vice President of Engineering to have full authority and complete responsibility for management of the engineering, research and development and similar activities of the Company, subject only to the direction of the Chief Scientific Officer and the Board of Directors. If Employee is elected or appointed a director of the Company during the term of this Agreement, Employee shall serve in such capacity or capacities without further compensation; but nothing herein shall be construed as requiring the Company, or anybody else, to cause the election or appointment of Employee as a director. IV. EXTENT OF SERVICES. Employee shall faithfully, industriously, and to the best of his ability, experience, and talents, perform all of the duties that may be required of and from him pursuant to this Agreement for a minimum of forty (40) hours per week. Employee shall not engage in any other employment during the term of this Agreement. Nothing herein shall be construed as preventing Employee from (a) investing his assets in such form or manner as will not require any services on the part of Employee in the operation of the affairs of the companies in which such investments are made or (b) serving as a director, advisor, or consultant; provided, however, that such investments or services may not be in connection with a business which is in competition with the Company. V. COMPENSATION AND EMPLOYEE BENEFITS. A. ANNUAL BASE SALARY. For all services rendered by Employee under this Agreement, the Company shall pay Employee an initial annual base salary of at least $90,000, payable in equal biweekly installments. The amount of such base salary shall be determined at the beginning of each fiscal year by the Executive Committee of the Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress but in no event shall such base salary be less than the initial annual base salary indicated above, unless there is an extraordinary, across-the-board reduction in the Company's officers' salaries, in which case Employee's salary shall be reduced by a percentage equal to the lowest percentage reduction taken by any other officer. B. BONUS COMPENSATION. Employee may receive year-end bonuses as determined at the beginning of each fiscal year of the Company by the Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress. C. VACATION. Employee shall be entitled to four weeks of paid vacation each year but may, upon request, obtain payment in lieu of accrued but unused vacation. D. EMPLOYEE BENEFITS. Employee shall be entitled to receive all of the rights, benefits, and privileges of the Company's employees under any retirement, pension, profit-sharing, insurance, health and hospital, and other employee benefit plans which may be now in effect or hereafter adopted by the Company. E. WORKING FACILITIES. Employee shall be furnished with a private office and such other facilities and services suitable to Employee's position and adequate for the performance of the duties required by this Agreement. F. EXPENSES. Subject to limits which may be imposed by the President or the Executive Committee of the Board of Directors, Employee is authorized to incur reasonable expenses in connection with his responsibilities in conducting the business of the Company, including expenses for entertainment, travel, and similar items. The Company will reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures. G. AUTOMOBILE. Employee shall provide Employee with an automobile and shall reimburse Employee for insurance, maintenance, fuel and repairs associated with such automobile. The Company will reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures or Employee may pay such expenses with a Company credit card. VI. PROPRIETARY INTERESTS OF COMPANY Employee and the Company recognize that the Company is in a highly competitive business in a highly technical industry. The parties acknowledge that the success or failure of the Company depends largely on the development and use of certain proprietary and confidential information and trade secrets, including without limitation, information concerning any of the Company's patented components, research and development projects and in patent process components, and personal relationships with present and potential customers, suppliers, contractors, and governmental agencies; as well as technology, procedures, systems, and techniques relating to the products developed or distributed by the Company (hereinafter collectively referred to as "Confidential Information"). Confidential Information is a substantial asset of the Company. Confidential Information will be disclosed to Employee in the normal course of the Company's operations. Employee acknowledges that Confidential Information is extremely valuable to the Company and must be protected from unauthorized use by the Company's competitors or other persons. Therefore, Employee agrees not to disclose or use, whether for the benefit of Employee or any other person, at any time during or after his employment, any Confidential Information. Employee recognizes that, during the term of his employment with the Company, he may develop new products, technology, processes, devices, inventions, or methods of production, including but not limited to computer hardware, software or "firmware," and may enhance, improve or perfect existing products, technology, processes, devices, inventions or methods of production (hereinafter collectively referred to as "Inventions"). As partial consideration for the salary, and other benefits provided by the Company to the Employee, Employee hereby agrees that his entire work product while in the employ of the Company, including any Inventions, is the exclusive property of the Company. Employee also agrees to cooperate fully with the Company and to do whatever acts are reasonably necessary in order to obtain United States or foreign letters patent or copyrights, or both, and to vest the entire right and title thereto in the Company. Employee further agrees that the Company shall have the royalty- free right to use in its business, and to make, use, and sell such Inventions whether or not patentable, regardless of whether they are conceived or made by the Employee during the hours which he is employed by the Company or with the use of or assistance of the Company's facilities, materials or personnel. Except as required in his duties to the Company, Employee will never, directly or indirectly, use, disseminate, disclose, lecture upon, or publish articles concerning any Confidential Information without the prior written consent of the Company. Upon termination of his employment with the Company, all documents, records, notebooks, and similar repositories of or containing Confidential Information, including copies thereof, then in Employee's possession, whether prepared by Employee or others, will be left with the Company, and no copies thereof will be retained by the Employee. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and monetary damages would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach or threatened breach of any covenant in this section that the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, and appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall affect the right of the Company to seek and obtain monetary damages in addition to or substitution for such equitable relief. VII. NONCOMPETE. During the term of this Agreement and for a period of one year after termination, the Employee will not, directly or indirectly, own, manage, operate, control, be employed by, participate in, or be connected in any manner with the ownership, management, operation, or control of any business which is similar to the type of business conducted by the Company and which conducts such business or sells its products within and to the same market as the Company's market at the time of the termination or expiration of this Agreement. Employee certifies that his employment with the Company will not breach a previous employment agreement. Employee agrees not to engage in the unauthorized use of the proprietary assets of others during the term of his employment by the Company. Employee agrees not to enter into any other employment agreement, oral or written, which will run concurrently, in whole or in part, with Employee's employment by the Company. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and monetary damages would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach or threatened breach of any covenant in this section that the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, an appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other available remedies for such breach or threatened breach, including the recovery of damages, costs, and attorney fees. The foregoing agreement not to compete shall not be held invalid because of the scope of the territory or the actions restricted thereby, or the period of time within which such agreement is operative; but any judgment by a court of competent jurisdiction may define the maximum territory and action subject to, and restricted by, this paragraph and the period of time during which such agreement is enforceable. Notwithstanding the foregoing, in the event of a CHANGE OF CONTROL, as hereinafter defined, not recommended by a majority of the Board of the Company as constituted prior to the CHANGE OF CONTROL Date, this noncompete agreement shall terminate upon the CHANGE OF CONTROL date. VIII.TERMINATION OF EMPLOYMENT. A. TERMINATION BY MUTUAL AGREEMENT. The Company and Employee may agree to terminate this Agreement on terms and conditions mutually acceptable to them as of the date of termination. B. DEATH. In the event of Employee's death, the Company shall pay to any beneficiary designated by Employee or, if no such beneficiary has been designated, to his estate, an amount equal to the then annual base salary for one (1) year, together with any bonuses which the Company's board of directors shall determine in its sole discretion to be due and payable to Employee. If Employee's beneficiary or estate receives any proceeds from any life insurance policies paid for by the Company, the payments of annual base salary and bonuses which be reduced by the amount of such proceeds from such life insurance policies. C. DISABILITY. If Employee becomes disabled during the term of employment, the Company, at its option, may thereafter, upon written notice to Employee or Employee's personal representative, terminate the employment. Employee shall thereafter be eligible to receive disability benefits under the Company's standard employee disability insurance policy like any other employee. D. INVOLUNTARY TERMINATION. If prior notice is given of any Involuntary Termination as defined herein, Employee, if requested by the Company, shall continue to render his services and shall be paid the then annual base salary up to the date of such Involuntary Termination, any bonuses which the Company's Board of Directors shall determine in its sole discretion to be due and payable to Employee, and the Severance Amount as provided herein. E. DEFINITIONS. All the terms defined in this Section shall have the meanings given below throughout this Agreement. 1. "CHANGE OF CONTROL" shall be deemed to have occurred if: a. any "person," including a "group" as determined in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"), becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; b. as a result of, or in connection with, any tender offer or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company; c. the Company is merged or consolidated with another corporation and, as a result of the merger or consolidation, less than 80% of the outstanding voting securities of the surviving or resulting corporation is then owned in the aggregate by the former stockholders of the Company; d. a tender offer or exchange offer is made and consummated for the ownership of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding voting securities; or e. the Company transfers substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company. 2. "DISABILITY" shall mean mental or physical illness or condition rendering Employee incapable of performing Employee's normal duties with the Company. 3. "INVOLUNTARY TERMINATION" shall mean any termination except: a. VOLUNTARY TERMINATION; b. termination by mutual agreement; or c. any termination as a result of death, DISABILITY, or normal retirement pursuant to a retirement plan to which Employee was subject prior to any CHANGE OF CONTROL. 4. "SEVERANCE AMOUNT" is equal to: a. in the case of an INVOLUNTARY TERMINATION which occurs after a CHANGE OF CONTROL, an amount equal to Employee's Annual Base Salary for one year, payable immediately upon termination; and b. in the case of an INVOLUNTARY TERMINATION which does not occur after a CHANGE OF CONTROL, an amount equal to Employee's Annual Base Salary for one year, payable on regular bi- weekly payroll dates, for a one-year period; 5. "VOLUNTARY TERMINATION" shall mean any termination which results from a resignation or an early retirement by the Employee. 6. "VOTING SECURITIES" shall mean any securities which ordinarily possess the power to vote in the election of directors without the occurrence of any pre-condition or contingency other than the passage of time. F. SECTION 280G PAYMENT REDUCTION. It is the intention of the parties that the SEVERANCE AMOUNT payments under this Agreement shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations thereunder. If the independent accountants acting as auditors for the Company prior to the date of a CHANGE OF CONTROL (or another accounting firm designated by them) determine that the SEVERANCE AMOUNT payments under this Agreement may constitute "excess parachute payments," the payments may be reduced to the maximum amount which may be paid without the payments being "excess parachute payments." The determination shall take into account (i) whether the payments are "parachute payments" under Section 280G and, if so, (ii) the amount of payments under this Agreement that constitutes reasonable compensation under Section 280G. Nothing contained in this Agreement shall prevent the Company after a CHANGE OF CONTROL from agreeing to pay Employee compensation or benefits in excess of those provided in this Agreement. G. MEDICAL AND DENTAL BENEFITS AFTER TERMINATION. If Employee's employment by the Company or any subsidiary or successor of the Company is terminated because of DISABILITY, VOLUNTARY TERMINATION, or INVOLUNTARY TERMINATION, then to the extent that Employee or any of Employee's dependents may be covered under the terms of any medical and dental plans of the Company (or any subsidiary) for active Employees immediately prior to the termination, Employee may, at his option, continue coverage under such medical and dental plans, or equivalent plans offered by the Company, for himself and those dependents until the later of Employee's death or the death of Employee's spouse, if any, at the time of Employee's death. The coverages may be procured directly by the Company (or any subsidiary, if appropriate) apart from, and outside of the terms of, the plans themselves; provided that Employee and Employee's dependents comply with all of the conditions of the medical or dental plans. In consideration for the Company's efforts in procuring these benefits, Employee shall pay the entire cost of such coverage, including what is typically considered the employer's portion. IX. LIFE INSURANCE. A. STANDARD GROUP LIFE INSURANCE. The Company shall provide Employee with personal life insurance in accordance with the Company's Group Life Insurance Policy, which currently provides life insurance benefits for each employee in the amount of twice their annual salary up to the maximum amount provided in the policy. In addition, the Company will procure, or reimburse Employee for the cost of $200,000 in term life insurance on Employee's life payable to a beneficiary chosen by Employee. B. KEY MAN LIFE INSURANCE. Employee hereby consents to the purchase by the Company, at the Company's option, of one or more Key Man life insurance policies on Employee's life naming the Company or its designee as beneficiary (the "Key Man Policies"); provided, however, that the Company shall not be required to obtain such insurance. Employee agrees that he shall take any reasonable actions which may be requested by the Company, and otherwise fully cooperate with the Company, in its efforts to purchase and maintain the Key Man Policies. The Key Man Policies will be owned by the Company and the proceeds made payable to the Company or its designee. If purchased by the Company, the Key Man Policies shall be for the purpose of providing funds necessary to obtain a replacement for Employee and for any other reasonable business purpose as may determined by the Company in amounts sufficient to accomplish their intended purpose. X. DIRECTORS AND OFFICERS INSURANCE. The Company shall procure Directors and Officers liability insurance coverage on all directors and officers in such an amount as the Company deems reasonable and necessary under the circumstances. XI. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail to Employee's residence in the case of Employee or to its principal office in the case of the Company. XII. WAIVER. The waiver of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement. No waiver shall be valid unless in writing and executed by the party to be charged therewith. XIII.SEVERABILITY/MODIFICATION. In the event that any clause or provision of this Agreement shall be determined to be invalid, illegal or unenforceable, such clause or provision may be severed or modified to the extent necessary, and, as severed and/or modified, this Agreement shall remain in full force and effect. XIV. ASSIGNMENT. Except for a transfer by will or by the laws of descent or distribution, Employee's right to receive payments or benefits under this Agreement shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise. In the event of any attempted assignment or transfer contrary to this paragraph, the Company shall have no liability to pay any amount so attempted to be assigned or transferred. Employee acknowledges that the services to be rendered under this Agreement are unique and personal. Accordingly, Employee may not assign such duties or obligations under this Agreement. XV. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns (including, without limitation, any company into or with which the Company may merge or consolidate). The Company agrees that it will not effect the sale or other disposition of all or substantially all of its assets unless either (i) the person or entity acquiring the assets or a substantial portion of the assets shall expressly assume by an instrument in writing all duties and obligations of the Company under this Agreement or (ii) the Company shall provide, through the establishment of a separate reserve for the payment in full or all amounts which are or may reasonably be expected to become payable to Employee under this Agreement. XVI. ENTIRE AGREEMENT. This instrument contains the entire agreement concerning the employment arrangement between the parties and shall, as of the effective date hereof, supersede all other such agreements between the parties provided however, that, nothing in this Agreement shall prevent the Company from granting additional or special compensation or benefits to Employee after the date of execution of this Agreement. This Agreement may not be amended except by an agreement in writing signed by both parties. XVII.GOVERNING LAW AND JURISDICTION. This Agreement shall be interpreted, construed, and enforced under the laws of the State of Colorado. The courts and authorities of the State of Colorado shall have sole jurisdiction and venue over all controversies which may arise with respect to this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year indicated above. THE COMPANY: VARI-L COMPANY, INC. By:/s/David G. Sherman David G. Sherman, President EMPLOYEE: /s/Daniel J. Wilmot Daniel J. Wilmot EX-10.10 12 EMPLOY. AGREE. - BAILEY VARI-L COMPANY, INC. EMPLOYMENT AGREEMENT THIS AGREEMENT, effective January 1, 1997, is made and entered into by and between VARI-L COMPANY, INC. (the "Company") and DEREK L. BAILEY ("Employee"). WHEREAS, Employee is currently an employee of the Company and the Company and Employee wish to enter into this Agreement to set forth the terms and conditions of employment. NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, and for other good and valuable consideration, the parties hereto agree as follows: I. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth. II. TERM. Subject to the provisions for termination as hereinafter provided, the term of this Agreement is for a period commencing January 1, 1997, and expiring December 31, 1999. III. DUTIES. Employee is engaged as Vice President of Sales to have full authority and complete responsibility for management and direction of all sales and marketing activities of the Company, including the commercial, military, aerospace and other markets served by the Company, subject only to the direction of the President and the Board of Directors, for administering those operations of the Company in all respects. If Employee is elected or appointed a director of the Company during the term of this Agreement, Employee shall serve in such capacity or capacities without further compensation; but nothing herein shall be construed as requiring the Company, or anybody else, to cause the election or appointment of Employee as a director. IV. EXTENT OF SERVICES. Employee shall faithfully, industriously, and to the best of his ability, experience, and talents, perform all of the duties that may be required of and from him pursuant to this Agreement for a minimum of forty (40) hours per week. Employee shall not engage in any other employment during the term of this Agreement. Nothing herein shall be construed as preventing Employee from (a) investing his assets in such form or manner as will not require any services on the part of Employee in the operation of the affairs of the companies in which such investments are made or (b) serving as a director, advisor, or consultant; provided, however, that such investments or services may not be in connection with a business which is in competition with the Company. V. COMPENSATION AND EMPLOYEE BENEFITS. A. Annual Base Salary. For all services rendered by Employee under this Agreement, the Company shall pay Employee an initial annual base salary of at least $90,000, payable in equal biweekly installments. The amount of such base salary shall be determined at the beginning of each fiscal year by the Executive Committee of the Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress but in no event shall such base salary be less than the initial annual base salary indicated above, unless there is an extraordinary, across-the-board reduction in the Company's officers' salaries, in which case Employee's salary shall be reduced by a percentage equal to the lowest percentage reduction taken by any other officer. B. Bonus Compensation. Employee may receive year-end bonuses as determined at the beginning of each fiscal year of the Company by the Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress. C. Vacation. Employee shall be entitled to four weeks of paid vacation each year but may, upon request, obtain payment in lieu of accrued but unused vacation. D. Employee Benefits. Employee shall be entitled to receive all of the rights, benefits, and privileges of the Company's employees under any retirement, pension, profit-sharing, insurance, health and hospital, and other employee benefit plans which may be now in effect or hereafter adopted by the Company. E. Working Facilities. Employee shall be furnished with a private office and such other facilities and services suitable to Employee's position and adequate for the performance of the duties required by this Agreement. F. Expenses. Subject to limits which may be imposed by the President or the Executive Committee of the Board of Directors, Employee is authorized to incur reasonable expenses in connection with his responsibilities in conducting the business of the Company, including expenses for entertainment, travel, and similar items. The Company will reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures. G. Automobile. Employer shall provide Employee with an automobile and shall reimburse Employee for insurance, maintenance, fuel and repairs associated with such automobile. The Company will reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures or Employee may pay such expenses with a Company credit card. VI. PROPRIETARY INTERESTS OF COMPANY. Employee and the Company recognize that the Company is in a highly competitive business in a highly technical industry. The parties acknowledge that the success or failure of the Company depends largely on the development and use of certain proprietary and confidential information and trade secrets, including without limitation, information concerning any of the Company's patented components, research and development projects and in patent process components, and personal relationships with present and potential customers, suppliers, contractors, and governmental agencies; as well as technology, procedures, systems, and techniques relating to the products developed or distributed by the Company (hereinafter collectively referred to as "Confidential Information"). Confidential Information is a substantial asset of the Company. Confidential Information will be disclosed to Employee in the normal course of the Company's operations. Employee acknowledges that Confidential Information is extremely valuable to the Company and must be protected from unauthorized use by the Company's competitors or other persons. Therefore, Employee agrees not to disclose or use, whether for the benefit of Employee or any other person, at any time during or after his employment, any Confidential Information. Employee recognizes that, during the term of his employment with the Company, he may develop new products, technology, processes, devices, inventions, or methods of production, including but not limited to computer hardware, software or "firmware," and may enhance, improve or perfect existing products, technology, processes, devices, inventions or methods of production (hereinafter collectively referred to as "Inventions"). As partial consideration for the salary, and other benefits provided by the Company to the Employee, Employee hereby agrees that his entire work product while in the employ of the Company, including any Inventions, is the exclusive property of the Company. Employee also agrees to cooperate fully with the Company and to do whatever acts are reasonably necessary in order to obtain United States or foreign letters patent or copyrights, or both, and to vest the entire right and title thereto in the Company. Employee further agrees that the Company shall have the royalty- free right to use in its business, and to make, use, and sell such Inventions whether or not patentable, regardless of whether they are conceived or made by the Employee during the hours which he is employed by the Company or with the use of or assistance of the Company's facilities, materials or personnel. Except as required in his duties to the Company, Employee will never, directly or indirectly, use, disseminate, disclose, lecture upon, or publish articles concerning any Confidential Information without the prior written consent of the Company. Upon termination of his employment with the Company, all documents, records, notebooks, and similar repositories of or containing Confidential Information, including copies thereof, then in Employee's possession, whether prepared by Employee or others, will be left with the Company, and no copies thereof will be retained by the Employee. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and monetary damages would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach or threatened breach of any covenant in this section that the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, and appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall affect the right of the Company to seek and obtain monetary damages in addition to or substitution for such equitable relief. VII. NONCOMPETE. During the term of this Agreement and for a period of one year after termination, the Employee will not, directly or indirectly, own, manage, operate, control, be employed by, participate in, or be connected in any manner with the ownership, management, operation, or control of any business which is similar to the type of business conducted by the Company and which conducts such business or sells its products within and to the same market as the Company's market at the time of the termination or expiration of this Agreement. Employee certifies that his employment with the Company will not breach a previous employment agreement. Employee agrees not to engage in the unauthorized use of the proprietary assets of others during the term of his employment by the Company. Employee agrees not to enter into any other employment agreement, oral or written, which will run concurrently, in whole or in part, with Employee's employment by the Company. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and monetary damages would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach or threatened breach of any covenant in this section that the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, an appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other available remedies for such breach or threatened breach, including the recovery of damages, costs, and attorney fees. The foregoing agreement not to compete shall not be held invalid because of the scope of the territory or the actions restricted thereby, or the period of time within which such agreement is operative; but any judgment by a court of competent jurisdiction may define the maximum territory and action subject to, and restricted by, this paragraph and the period of time during which such agreement is enforceable. Notwithstanding the foregoing, in the event of a CHANGE OF CONTROL, as hereinafter defined, not recommended by a majority of the Board of the Company as constituted prior to the CHANGE OF CONTROL Date, this noncompete agreement shall terminate upon the CHANGE OF CONTROL date. VIII. TERMINATION OF EMPLOYMENT. A. TERMINATION BY MUTUAL AGREEMENT. The Company and Employee may agree to terminate this Agreement on terms and conditions mutually acceptable to them as of the date of termination. B. DEATH. In the event of Employee's death, the Company shall pay to any beneficiary designated by Employee or, if no such beneficiary has been designated, to his estate, an amount equal to the then annual base salary for one (1) year, together with any bonuses which the Company's board of directors shall determine in its sole discretion to be due and payable to Employee. If Employee's beneficiary or estate receives any proceeds from any life insurance policies paid for by the Company, the payments of annual base salary and bonuses which be reduced by the amount of such proceeds from such life insurance policies. C. DISABILITY. If Employee becomes disabled during the term of employment, the Company, at its option, may thereafter, upon written notice to Employee or Employee's personal representative, terminate the employment. Employee shall thereafter be eligible to receive disability benefits under the Company's standard employee disability insurance policy like any other employee. D. INVOLUNTARY TERMINATION. If prior notice is given of any INVOLUNTARY TERMINATION as defined herein, Employee, if requested by the Company to render his services, and shall be paid the then annual base salary up to the date of such INVOLUNTARY TERMINATION, any bonuses which the Company's Board of Directors shall determine in its sole discretion to be due and payable to Employee, and the SEVERANCE AMOUNT as provided herein. E. DEFINITIONS. All the terms defined in this Section shall have the meanings given below throughout this Agreement. 1. "CHANGE OF CONTROL" shall be deemed to have occurred if: a. any "person," including a "group" as determined in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"), becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; b. as a result of, or in connection with, any tender offer or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company; c. the Company is merged or consolidated with another corporation and, as a result of the merger or consolidation, less than 80% of the outstanding voting securities of the surviving or resulting corporation is then owned in the aggregate by the former stockholders of the Company; d. a tender offer or exchange offer is made and consummated for the ownership of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding voting securities; or e. the Company transfers substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company. 2. "DISABILITY" shall mean mental or physical illness or condition rendering Employee incapable of performing Employee's normal duties with the Company. 3. "INVOLUNTARY TERMINATION" shall mean any termination except: a. VOLUNTARY TERMINATION; b. termination by mutual agreement; or c. any termination as a result of death, DISABILITY, or normal retirement pursuant to a retirement plan to which Employee was subject prior to any Change of Control. 4. "SEVERANCE AMOUNT" is equal to: a. in the case of an INVOLUNTARY TERMINATION which occurs after a CHANGE OF CONTROL, an amount equal to Employee's Annual Base Salary for one year, payable immediately upon termination; and b. in the case of an INVOLUNTARY TERMINATION which does not occur after a CHANGE OF CONTROL, an amount equal to Employee's Annual Base Salary for one year, payable on regular bi-weekly payroll dates, for a one-year period; 5. "VOLUNTARY TERMINATION" shall mean any termination which results from a resignation or an early retirement by the Employee. 6. "VOTING SECURITIES" shall mean any securities which ordinarily possess the power to vote in the election of directors without the occurrence of any pre-condition or contingency other than the passage of time. F. Section 280G Payment Reduction. It is the intention of the parties that the SEVERANCE AMOUNT payments under this Agreement shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations thereunder. If the independent accountants acting as auditors for the Company prior to the date of a CHANGE OF CONTROL (or another accounting firm designated by them) determine that the SEVERANCE AMOUNT payments under this Agreement may constitute "excess parachute payments," the payments may be reduced to the maximum amount which may be paid without the payments being "excess parachute payments." The determination shall take into account (i) whether the payments are "parachute payments" under Section 280G and, if so, (ii) the amount of payments under this Agreement that constitutes reasonable compensation under Section 280G. Nothing contained in this Agreement shall prevent the Company after a CHANGE OF CONTROL from agreeing to pay Employee compensation or benefits in excess of those provided in this Agreement. G. MEDICAL AND DENTAL BENEFITS AFTER TERMINATION. If Employee's employment by the Company or any subsidiary or successor of the Company is terminated because of DISABILITY, VOLUNTARY TERMINATION, or INVOLUNTARY TERMINATION, then to the extent that Employee or any of Employee's dependents may be covered under the terms of any medical and dental plans of the Company (or any subsidiary) for active Employees immediately prior to the termination, Employee may, at his option, continue coverage under such medical and dental plans, or equivalent plans offered by the Company, for himself and those dependents until the later of Employee's death or the death of Employee's spouse, if any, at the time of Employee's death. The coverages may be procured directly by the Company (or any subsidiary, if appropriate) apart from, and outside of the terms of, the plans themselves; provided that Employee and Employee's dependents comply with all of the conditions of the medical or dental plans. In consideration for the Company's efforts in procuring these benefits, Employee shall pay the entire cost of such coverage, including what is typically considered the employer's portion. IX. LIFE INSURANCE. A. STANDARD GROUP LIFE INSURANCE. The Company shall provide Employee with personal life insurance in accordance with the Company's Group Life Insurance Policy, which currently provides life insurance benefits for each employee in the amount of twice their annual salary up to the maximum amount provided in the policy. In addition, the Company will procure, or reimburse Employee for the cost of $200,000 in term life insurance on Employee's life payable to a beneficiary chosen by Employee. B. KEY MAN LIFE INSURANCE. Employee hereby consents to the purchase by the Company, at the Company's option, of one or more Key Man life insurance policies on Employee's life naming the Company or its designee as beneficiary (the "Key Man Policies"); provided, however, that the Company shall not be required to obtain such insurance. Employee agrees that he shall take any reasonable actions which may be requested by the Company, and otherwise fully cooperate with the Company, in its efforts to purchase and maintain the Key Man Policies. The Key Man Policies will be owned by the Company and the proceeds made payable to the Company or its designee. If purchased by the Company, the Key Man Policies shall be for the purpose of providing funds necessary to obtain a replacement for Employee and for any other reasonable business purpose as may determined by the Company in amounts sufficient to accomplish their intended purpose. X. DIRECTORS AND OFFICERS INSURANCE. The Company shall procure Directors and Officers liability insurance coverage on all directors and officers in such an amount as the Company deems reasonable and necessary under the circumstances. XI. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail to Employee's residence in the case of Employee or to its principal office in the case of the Company. XII. WAIVER. The waiver of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement. No waiver shall be valid unless in writing and executed by the party to be charged therewith. XIII. SEVERABILITY/MODIFICATION. In the event that any clause or provision of this Agreement shall be determined to be invalid, illegal or unenforceable, such clause or provision may be severed or modified to the extent necessary, and, as severed and/or modified, this Agreement shall remain in full force and effect. XIV. ASSIGNMENT. Except for a transfer by will or by the laws of descent or distribution, Employee's right to receive payments or benefits under this Agreement shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise. In the event of any attempted assignment or transfer contrary to this paragraph, the Company shall have no liability to pay any amount so attempted to be assigned or transferred. Employee acknowledges that the services to be rendered under this Agreement are unique and personal. Accordingly, Employee may not assign such duties or obligations under this Agreement. XV. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns (including, without limitation, any company into or with which the Company may merge or consolidate). The Company agrees that it will not effect the sale or other disposition of all or substantially all of its assets unless either (i) the person or entity acquiring the assets or a substantial portion of the assets shall expressly assume by an instrument in writing all duties and obligations of the Company under this Agreement or (ii) the Company shall provide, through the establishment of a separate reserve for the payment in full or all amounts which are or may reasonably be expected to become payable to Employee under this Agreement. XVI. ENTIRE AGREEMENT. This instrument contains the entire agreement concerning the employment arrangement between the parties and shall, as of the effective date hereof, supersede all other such agreements between the parties provided however, that, nothing in this Agreement shall prevent the Company from granting additional or special compensation or benefits to Employee after the date of execution of this Agreement. This Agreement may not be amended except by an agreement in writing signed by both parties. XVII. GOVERNING LAW AND JURISDICTION. This Agreement shall be interpreted, construed, and enforced under the laws of the State of Colorado. The courts and authorities of the State of Colorado shall have sole jurisdiction and venue over all controversies which may arise with respect to this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year indicated above. THE COMPANY: VARI-L COMPANY, INC. By:/s/David G. Sherman David G. Sherman, President EMPLOYEE: /s/Derek L. Bailey Derek L. Bailey EX-10.11 13 EMPLOY. AGREE. - CLARK VARI-L COMPANY, INC. EMPLOYMENT AGREEMENT THIS AGREEMENT, effective January 1, 1997, is made and entered into by and between VARI-L COMPANY, INC. (the "Company") and Jon L. Clark ("Employee"). WHEREAS, Employee is currently an employee of the Company and the Company and Employee wish to enter into this Agreement to set forth the terms and conditions of employment. NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, and for other good and valuable consideration, the parties hereto agree as follows: I. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth. II. TERM. Subject to the provisions for termination as hereinafter provided, the term of this Agreement is for a period commencing January 1, 1997, and expiring December 31, 1999. III. DUTIES. Employee is engaged as Vice President of Finance and Chief Accounting Officer with responsibility for management of all financial, accounting and cash management activities of the Company, subject only to the direction of the President and the Board of Directors. If Employee is elected or appointed a director of the Company during the term of this Agreement, Employee shall serve in such capacity or capacities without further compensation; but nothing herein shall be construed as requiring the Company, or anybody else, to cause the election or appointment of Employee as a director. IV. EXTENT OF SERVICES. Employee shall faithfully, industriously, and to the best of his ability, experience, and talents, perform all of the duties that may be required of and from him pursuant to this Agreement for a minimum of forty (40) hours per week. Employee shall not engage in any other employment during the term of this Agreement. Nothing herein shall be construed as preventing Employee from (a) investing his assets in such form or manner as will not require any services on the part of Employee in the operation of the affairs of the companies in which such investments are made or (b) serving as a director, advisor, or consultant; provided, however, that such investments or services may not be in connection with a business which is in competition with the Company. V. COMPENSATION AND EMPLOYEE BENEFITS. A. ANNUAL BASE SALARY. For all services rendered by Employee under this Agreement, the Company shall pay Employee an initial annual base salary of at least $75,000, payable in equal biweekly installments. The amount of such base salary shall be determined at the beginning of each fiscal year by the Executive Committee of the Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress but in no event shall such base salary be less than the initial annual base salary indicated above, unless there is an extraordinary, across-the-board reduction in the Company's officers' salaries, in which case Employee's salary shall be reduced by a percentage equal to the lowest percentage reduction taken by any other officer. B. BONUS COMPENSATION. Employee may receive year-end bonuses as determined at the beginning of each fiscal year of the Company by the Board of Directors in its sole discretion on the basis of merit and the Company's financial success and progress. C. VACATION. Employee shall be entitled to four weeks of paid vacation each year, but may, upon request, obtain payment in lieu of accrued but unused vacation. D. EMPLOYEE BENEFITS. Employee shall be entitled to receive all of the rights, benefits, and privileges of the Company's employees under any retirement, pension, profit-sharing, insurance, health and hospital, and other employee benefit plans which may be now in effect or hereafter adopted by the Company. E. WORKING FACILITIES. Employee shall be furnished with a private office and such other facilities and services suitable to Employee's position and adequate for the performance of the duties required by this Agreement. F. EXPENSES. Subject to limits which may be imposed by the President or the Executive Committee of the board of directors, Employee is authorized to incur reasonable expenses in connection with his responsibilities in conducting the business of the Company, including expenses for entertainment, travel, and similar items. The Company will reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures. VI. PROPRIETARY INTERESTS OF COMPANY Employee and the Company recognize that the Company is in a highly competitive business in a highly technical industry. The parties acknowledge that the success or failure of the Company depends largely on the development and use of certain proprietary and confidential information and trade secrets, including without limitation, information concerning any of the Company's patented components, research and development projects and in patent process components, and personal relationships with present and potential customers, suppliers, contractors, and governmental agencies; as well as technology, procedures, systems, and techniques relating to the products developed or distributed by the Company (hereinafter collectively referred to as "Confidential Information"). Confidential Information is a substantial asset of the Company. Confidential Information will be disclosed to Employee in the normal course of the Company's operations. Employee acknowledges that Confidential Information is extremely valuable to the Company and must be protected from unauthorized use by the Company's competitors or other persons. Therefore, Employee agrees not to disclose or use, whether for the benefit of Employee or any other person, at any time during or after his employment, any Confidential Information. Employee recognizes that, during the term of his employment with the Company, he may develop new products, technology, processes, devices, inventions, or methods of production, including but not limited to computer hardware, software or "firmware," and may enhance, improve or perfect existing products, technology, processes, devices, inventions or methods of production (hereinafter collectively referred to as "Inventions"). As partial consideration for the salary, and other benefits provided by the Company to the Employee, Employee hereby agrees that his entire work product while in the employ of the Company, including any Inventions, is the exclusive property of the Company. Employee also agrees to cooperate fully with the Company and to do whatever acts are reasonably necessary in order to obtain United States or foreign letters patent or copyrights, or both, and to vest the entire right and title thereto in the Company. Employee further agrees that the Company shall have the royalty- free right to use in its business, and to make, use, and sell such Inventions whether or not patentable, regardless of whether they are conceived or made by the Employee during the hours which he is employed by the Company or with the use of or assistance of the Company's facilities, materials or personnel. Except as required in his duties to the Company, Employee will never, directly or indirectly, use, disseminate, disclose, lecture upon, or publish articles concerning any Confidential Information without the prior written consent of the Company. Upon termination of his employment with the Company, all documents, records, notebooks, and similar repositories of or containing Confidential Information, including copies thereof, then in Employee's possession, whether prepared by Employee or others, will be left with the Company, and no copies thereof will be retained by the Employee. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and monetary damages would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach or threatened breach of any covenant in this section that the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, an appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall affect the right of the Company to seek and obtain monetary damages in addition to or substitution for such equitable relief. VII. NONCOMPETE. During the term of this Agreement and for a period of one year after termination, the Employee will not, directly or indirectly, own, manage, operate, control, be employed by, participate in, or be connected in any manner with the ownership, management, operation, or control of any business which is similar to the type of business conducted by the Company and which conducts such business or sells its products within and to the same market as the Company's market at the time of the termination or expiration of this Agreement. Employee certifies that his employment with the Company will not breach a previous employment agreement. Employee agrees not to engage in the unauthorized use of the proprietary assets of others during the term of his employment by the Company. Employee agrees not to enter into any other employment agreement, oral or written, which will run concurrently, in whole or in part, with Employee's employment by the Company. It is agreed that any breach of this section of the Agreement will cause immediate irreparable harm to the Company and monetary damages would be difficult if not impossible to ascertain. Therefore, the parties agree that upon any breach or threatened breach of any covenant in this section that the Company may obtain from the district court for the City and County of Denver, Colorado, or any other court of competent jurisdiction, an appropriate restraining order, preliminary injunction or other form of equitable relief with respect thereto. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other available remedies for such breach or threatened breach, including the recovery of damages, costs, and attorney fees. The foregoing agreement not to compete shall not be held invalid because of the scope of the territory or the actions restricted thereby, or the period of time within which such agreement is operative; but any judgment by a court of competent jurisdiction may define the maximum territory and action subject to, and restricted by, this paragraph and the period of time during which such agreement is enforceable. Notwithstanding the foregoing, in the event of a Change of Control, as hereinafter defined, not recommended by a majority of the Board of the Company as constituted prior to the Change of Control Date, this noncompete agreement shall terminate upon the Change of Control Date. VIII. TERMINATION OF EMPLOYMENT. A. TERMINATION BY MUTUAL AGREEMENT. The Company and Employee may agree to terminate this Agreement on terms and conditions mutually acceptable to them as of the date of termination. B. DEATH. In the event of Employee's death, the Company shall pay to any beneficiary designated by Employee or, if no such beneficiary has been designated, to his estate, an amount equal to the then annual base salary for one (1) year, together with any bonuses which the Company's board of directors shall determine in its sole discretion to be due and payable to Employee. If Employee's beneficiary or estate receives any proceeds from any life insurance policies paid for by the Company, the payments of annual base salary and bonuses shall be reduced by the amount of such proceeds from such life insurance policies. C. DISABILITY. If Employee becomes disabled during the term of employment, the Company, at its option, may thereafter, upon written notice to Employee or Employee's personal representative, terminate the employment. Employee shall thereafter be eligible to receive disability benefits under the Company's standard employee disability insurance policy like any other employee. D. INVOLUNTARY TERMINATION. If prior notice is given of any INVOLUNTARY TERMINATION as defined herein, Employee, if requested by the Company, shall continue to render his services and shall be paid the then annual base salary up to the date of such INVOLUNTARY TERMINATION, any bonuses which the Company's Board of Directors shall determine in its sole discretion to be due and payable to Employee, and the SEVERANCE AMOUNT as provided herein. E. DEFINITIONS. All the terms defined in this Section shall have the meanings given below throughout this Agreement. 1. "CHANGE OF CONTROL" shall be deemed to have occurred if: a. any "person," including a "group" as determined in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"), becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; b. as a result of, or in connection with, any tender offer or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company; c. the Company is merged or consolidated with another corporation and, as a result of the merger or consolidation, less than 80% of the outstanding voting securities of the surviving or resulting corporation is then owned in the aggregate by the former stockholders of the Company; d. a tender offer or exchange offer is made and consummated for the ownership of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding voting securities; or e. the Company transfers substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company. 2. "DISABILITY" shall mean mental or physical illness or condition rendering Employee incapable of performing Employee's normal duties with the Company. 3. "INVOLUNTARY TERMINATION" shall mean any termination except: a. VOLUNTARY TERMINATION; b. termination by mutual agreement; or c. any termination as a result of death, disability, or normal retirement pursuant to a retirement plan to which Employee was subject prior to any CHANGE OF CONTROL. 4. "SEVERANCE AMOUNT" is equal to: a. in the case of an INVOLUNTARY TERMINATION which occurs after a CHANGE OF CONTROL, an amount equal to Employee's Annual Base Salary for six months, payable immediately upon termination; and b. in the case of an INVOLUNTARY TERMINATION which does not occur after a Change of Control, an amount equal to Employee's Annual Base Salary for six months, payable ratably on regular bi-weekly payroll dates, over a six-month period; 5. "VOLUNTARY TERMINATION" shall mean any termination which results from a resignation or an early retirement by the Employee. 6. "VOTING SECURITIES" shall mean any securities which ordinarily possess the power to vote in the election of directors without the occurrence of any pre-condition or contingency other than the passage of time. F. SECTION 280G PAYMENT REDUCTION. It is the intention of the parties that the SEVERANCE AMOUNT payments under this Agreement shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations thereunder. If the independent accountants acting as auditors for the Company prior to the date of a CHANGE OF CONTROL (or another accounting firm designated by them) determine that the SEVERANCE AMOUNT payments under this Agreement may constitute "excess parachute payments," the payments may be reduced to the maximum amount which may be paid without the payments being "excess parachute payments." The determination shall take into account (i) whether the payments are "parachute payments" under Section 280G and, if so, (ii) the amount of payments under this Agreement that constitutes reasonable compensation under Section 280G. Nothing contained in this Agreement shall prevent the Company after a CHANGE OF CONTROL from agreeing to pay Employee compensation or benefits in excess of those provided in this Agreement. G. MEDICAL AND DENTAL BENEFITS AFTER TERMINATION. If Employee's employment by the Company or any subsidiary or successor of the Company is terminated because of DISABILITY, VOLUNTARY TERMINATION, or INVOLUNTARY TERMINATION, then to the extent that Employee or any of Employee's dependents may be covered under the terms of any medical and dental plans of the Company (or any subsidiary) for active Employees immediately prior to the termination, Employee may, at his option, continue coverage under such medical and dental plans, or equivalent plans offered by the Company, for himself and those dependents until Employee's death. The coverages may be procured directly by the Company (or any subsidiary, if appropriate) apart from, and outside of the terms of, the plans themselves; provided that Employee and Employee's dependents comply with all of the conditions of the medical or dental plans. In consideration for the Company's efforts in procuring these benefits, Employee shall pay the entire cost of such coverage, including what is typically considered the Employer's portion. IX. LIFE INSURANCE. A. STANDARD GROUP LIFE INSURANCE. The Company shall provide Employee with personal life insurance in accordance with the terms of the Company's Group Life Insurance Policy, which currently provides life insurance benefits for each employee in the amount of twice their annual salary up to the maximum amount provided in the policy. In addition, the Company will procure, or reimburse Employee for the cost of $100,000 in term life insurance on Employee's life payable to a beneficiary chosen by Employee. B. KEY MAN LIFE INSURANCE. Employee hereby consents to the purchase by the Company, at the Company's option, of one or more Key Man life insurance policies on Employee's life naming the Company or its designee as beneficiary (the "Key Man Policies"); provided, however, that the Company shall not be required to obtain such insurance. Employee agrees that he shall take any reasonable actions which may be requested by the Company, and otherwise fully cooperate with the Company, in its efforts to purchase and maintain the Key Man Policies. The Key Man Policies will be owned by the Company and the proceeds made payable to the Company or its designee. If purchased by the Company, the Key Man Policies shall be for the purpose of providing funds necessary to obtain a replacement for Employee and for any other reasonable business purpose as may determined by the Company in amounts sufficient to accomplish their intended purpose. X. DIRECTORS AND OFFICERS INSURANCE. The Company shall procure Directors and Officers liability insurance coverage on all directors and officers in such an amount as the Company deems reasonable and necessary under the circumstances. XI. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail to Employee's residence in the case of Employee or to its principal office in the case of the Company. XII. WAIVER. The waiver of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement. No waiver shall be valid unless in writing and executed by the party to be charged therewith. XIII. SEVERABILITY/MODIFICATION. In the event that any clause or provision of this Agreement shall be determined to be invalid, illegal or unenforceable, such clause or provision may be severed or modified to the extent necessary, and, as severed and/or modified, this Agreement shall remain in full force and effect. XIV. ASSIGNMENT. Except for a transfer by will or by the laws of descent or distribution, Employee's right to receive payments or benefits under this Agreement shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise. In the event of any attempted assignment or transfer contrary to this paragraph, the Company shall have no liability to pay any amount so attempted to be assigned or transferred. Employee acknowledges that the services to be rendered under this Agreement are unique and personal. Accordingly, Employee may not assign such duties or obligations under this Agreement. XV. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns (including, without limitation, any company into or with which the Company may merge or consolidate). The Company agrees that it will not effect the sale or other disposition of all or substantially all of its assets unless either (i) the person or entity acquiring the assets or a substantial portion of the assets shall expressly assume by an instrument in writing all duties and obligations of the Company under this Agreement or (ii) the Company shall provide, through the establishment of a separate reserve for the payment in full of all amounts which are or may reasonably be expected to become payable to Employee under this Agreement. XVI. ENTIRE AGREEMENT. This instrument contains the entire agreement concerning the employment arrangement between the parties and shall, as of the effective date hereof, supersede all other such agreements between the parties provided, however, that nothing in this Agreement shall prevent the Company from granting additional or special compensation or benefits to Employee after the date of execution of this Agreement. This Agreement may not be amended except by an agreement in writing signed by both parties. Nothing in this paragraph shall be deemed to modify or amend the Settlement Agreement nor any agreements or instruments entered into between the parties hereto as a result of that Settlement Agreement. XVII. GOVERNING LAW AND JURISDICTION. This Agreement shall be interpreted, construed, and enforced under the laws of the State of Colorado. The courts and authorities of the State of Colorado shall have sole jurisdiction and venue over all controversies which may arise with respect to this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year indicated above. THE COMPANY: VARI-L COMPANY, INC. By:/s/ David G. Sherman David G. Sherman, President EMPLOYEE: /s/Jon L. Clark Jon L. Clark -----END PRIVACY-ENHANCED MESSAGE-----