-----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, TJqzC04hJg/o4usAGKag9Rp4+ABpHAN72JzC/H7kF2qcgZlhLypCSmbpouiLWwyi 93Alb2x4xJXOPbQfpNwNKQ== 0001095811-01-502177.txt : 20010515 0001095811-01-502177.hdr.sgml : 20010515 ACCESSION NUMBER: 0001095811-01-502177 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATUM INC CENTRAL INDEX KEY: 0000027119 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 952512237 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06272 FILM NUMBER: 1633011 BUSINESS ADDRESS: STREET 1: 9975 TOLEDO WAY CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9495987500 MAIL ADDRESS: STREET 1: 9975 TOLEDO WAY CITY: IRVINE STATE: CA ZIP: 92618 10-Q 1 a72655e10-q.txt FORM 10-Q PERIOD END MARCH 31, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001. ------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________. Commission file no. 0-6272 DATUM INC. (Exact name of registrant as specified in its charter) DELAWARE 95-2512237 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9975 TOLEDO WAY, IRVINE, CA 92618-1819 (Address of principal executive offices) (Zip code) (949) 598-7500 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by a 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 the filing requirements for the past 90 days. YES [X] NO [ ] The registrant had 6,103,819 shares of common stock outstanding as of May 7, 2001. 2 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements....................................................3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................10 Item 3. Quantitative and Qualitative Disclosures about Market Risk..............12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K........................................13
-2- 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data) (Unaudited)
MARCH 31, December 31, 2001 2000 --------- ------------ ASSETS Current assets Cash and cash equivalents $ 1,590 $ 1,017 Accounts receivable, net 30,948 34,988 Inventories Purchased parts 14,191 13,015 Work-in-process 8,347 7,873 Finished products 5,572 5,512 ------- ------- 28,110 26,400 Prepaid expenses 683 375 Deferred income taxes 4,613 4,613 Income tax refund receivable 160 161 ------- ------- Total current assets 66,104 67,554 Plant and equipment Land 2,040 2,040 Buildings 5,463 5,435 Equipment 24,537 23,509 Leasehold improvements 1,278 1,315 ------- ------- 33,318 32,299 Less accumulated depreciation and amortization 18,374 17,567 ------- ------- 14,944 14,732 ------- ------- Excess of purchase price over net assets acquired, net 12,064 12,595 Other assets 758 395 ------- ------- $93,870 $95,276 ======= =======
See Notes to Condensed Consolidated Financial Statements -3- 4 DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data) (Unaudited)
MARCH 31, December 31, 2001 2000 --------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 9,346 $ 8,777 Accrued salaries and wages 3,609 4,179 Accrued warranty 2,281 2,173 Other accrued expenses 1,280 1,376 Income taxes payable 742 1,705 Advances on line of credit 82 2,020 Current portion of long-term debt 3,000 3,000 -------- -------- Total current liabilities 20,340 23,230 -------- -------- Long-term debt 1,000 1,750 -------- -------- Postretirement benefits 1,262 1,188 -------- -------- Other long-term liabilities 512 584 -------- -------- Deferred income taxes 985 985 -------- -------- Stockholders' equity Preferred stock, par value $.25 per share Authorized - 1,000,000 shares Issued - none -- -- Common stock, par value $.25 per share Authorized - 10,000,000 shares Issued -6,093,856 shares in 2001 6,067,065 shares in 2000 1,526 1,517 Additional paid-in capital 52,021 51,441 Retained earnings 17,269 15,516 Unamortized stock compensation (112) (127) Accumulated other comprehensive loss (933) (808) -------- -------- Total stockholders' equity 69,771 67,539 -------- -------- $ 93,870 $ 95,276 ======== ========
See Notes to Condensed Consolidated Financial Statements -4- 5 DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended March 31, ------------------------- 2001 2000 -------- -------- Net Sales $ 32,252 $ 28,944 Operating expenses: Cost of sales 17,461 16,722 Selling 4,058 4,143 Product development 3,791 3,748 General and administrative 3,987 3,398 -------- -------- Operating income 2,955 933 -------- -------- Interest expense 119 441 Interest income (36) (74) -------- -------- Income before income taxes 2,872 566 Income tax provision 1,119 238 -------- -------- Net income $ 1,753 $ 328 ======== ======== Net income per common share: Basic $ 0.29 $ 0.06 ======== ======== Diluted $ 0.28 $ 0.05 ======== ======== Shares used in per share calculation: Basic 6,084 5,874 ======== ======== Diluted 6,364 6,192 ======== ========
See Notes to Condensed Consolidated Financial Statements -5- 6 DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, --------------------- 2001 2000 ------- ------- Cash flows from operating activities: Net income $ 1,751 $ 328 ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 916 1,034 Amortization of goodwill 531 531 Contribution of shares of common stock to the Company's 401(k) plan 322 178 Stock based compensation 15 15 Income tax benefit from stock options exercised 111 -- Changes in assets and liabilities: (Increase) decrease in accounts receivable 4,040 (3,523) Increase in inventories (1,710) (2,899) Increase in prepaid expenses (308) (266) (Increase) decrease in other assets 39 (20) Increase in accounts payable 569 2,798 Increase (decrease) in accrued expenses (556) 794 Increase (decrease) in income taxes payable (1,074) 80 Increase in postretirement benefits 74 39 Decrease in other long-term liabilities (72) (13) ------- ------- Total reconciling items 2,897 (1,252) ------- ------- Net cash provided (used) by operating activities 4,648 (924) ------- ------- Cash flows from investing activities: Proceeds from equipment disposals -- 51 Capital expenditures (1,126) (983) Software development costs (403) -- ------- ------- Net cash used by investing activities (1,529) (932) ------- ------- Cash flows from financing activities: Reduction of line of credit (1,938) -- Payments of long-term debt (750) (1,501) Proceeds from exercise of stock options 169 276 Proceeds from ESP plan 98 68 ------- ------- Net cash used for financing activities (2,421) (1,157) ------- ------- Effect of exchange rate changes on cash and cash equivalents (125) (109) ------- ------- Net increase (decrease) in cash and cash equivalents 573 (3,122) Cash and cash equivalents at beginning of period 1,017 8,271 ------- ------- Cash and cash equivalents at end of period $ 1,590 $ 5,149 ======= =======
See Notes to Condensed Consolidated Financial Statements -6- 7 DATUM INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 AND 2000 NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes which would be presented were such financial statements prepared in accordance with generally accepted accounting principles. The condensed consolidated balance sheet at December 31, 2000 was derived from the audited consolidated balance sheet at that date which is not presented herein. In the opinion of management, the accompanying financial statements reflect all adjustments, which are normal and recurring, necessary to provide a fair presentation of the results for the interim period presented. These condensed consolidated financial statements should be read in conjunction with the audited financial statements presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Operating results for interim periods are not necessarily indicative of operating results for an entire year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. NOTE B - EARNINGS PER SHARE Net income per share-basic excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Net income per share-diluted reflects the potential dilutive effect, calculated using the treasury stock method, of additional common shares that are issuable upon exercise of outstanding stock options and stock warrants as follows (in thousands):
Three months ended March 31, ------------------- 2001 2000 ----- ----- Basic shares outstanding (weighted average) 6,084 5,874 Effect of dilutive securities 280 318 ----- ----- Diluted shares outstanding 6,364 6,192 ===== =====
Options outstanding during the three months ended March 31, 2001 and 2000 to purchase approximately 285,000 and 57,000 shares of common stock, respectively, were not included in the computation of dilutive securities because the options' exercise price was greater than the average market price of the common stock during the period and, therefore, the effect would be anti-dilutive. NOTE C - COMPREHENSIVE INCOME Total comprehensive income was $1,628,000 and $219,000 for the three months ended March 31, 2001 and 2000, respectively. The difference from net income as reported is the change in cumulative translation adjustment. -7- 8 NOTE D - SEGMENT AND RELATED INFORMATION The Company has four reportable segments: Wireless; Wireline; Timing, Test and Measurement (TT&M); and eBusiness. The Wireless segment, in Irvine, CA, produces equipment primarily for the wireless telecommunications market. The Wireline segment, in Austin, TX and Hofolding, Germany, manufactures products primarily for the wireline telecommunications market. In Beverly, MA, the TT&M segment, goods are produced for the enterprise computing, test and measurement, telecommunications and satellite markets. The eBusiness segment, in Lexington, MA, produces products for the eBusiness market. The Company evaluates performance of its segments and allocates resources to them based on segment operating income. Segment operating income does not include corporate expenses, amortization of goodwill and intersegment profit elimination. Identifiable assets include accounts receivable, inventories, and land, building and equipment and do not include cash, income tax refund receivable and deferred income taxes, prepaid expenses, goodwill and other long-term corporate assets. The tables below present information about reported segments for the quarters ended March 31 (amounts in thousands): SEGMENT SALES
Wireless Wireline TT&M eBusiness Total -------- -------- -------- --------- -------- 2001 Total sales $ 12,460 $ 18,444 $ 6,491 $ 203 $ 37,598 Intersegment sales (2,348) (1,515) (1,474) (9) $ (5,346) -------- -------- -------- ------- -------- Outside sales $ 10,112 $ 16,929 $ 5,017 $ 194 $ 32,252 ======== ======== ======== ======= ======== 2000 Total sales $ 12,562 $ 11,674 $ 7,325 $ 122 $ 31,683 Intersegment sales (1,346) (99) (1,294) -- $ (2,739) -------- -------- -------- ------- -------- Outside sales $ 11,216 $ 11,575 $ 6,031 $ 122 $ 28,944 ======== ======== ======== ======= ========
SEGMENT OPERATING INCOME (LOSS)
Wireless Wireline TT&M eBusiness Total -------- -------- -------- --------- -------- 2001 $ 2,058 $ 3,265 $ 461 $ (907) $ 4,877 2000 $ 1,157 $ 1,931 $ 803 $(1,110) $ 2,781
A reconciliation of segment operating income to consolidated amounts as reported for the quarters ended March 31:
2001 2000 ------- ------- Segment operating income $ 4,877 $ 2,781 Corporate expenses (1,268) (961) Amortization of goodwill (717) (717) Intercompany profit elimination 63 (170) ------- ------- Consolidated operating income $ 2,955 $ 933 ======= =======
The table below presents identifiable segments assets as of March 31, 2001 compared to prior year end: IDENTIFIABLE SEGMENT ASSETS
Wireless Wireline TT&M eBusiness Total -------- -------- -------- --------- -------- March 31, 2001 $ 20,518 $ 31,867 $ 17,856 $ 1,947 $ 72,188 December 31, 2000 $ 23,927 $ 30,890 $ 17,627 $ 1,373 $ 73,817
-8- 9 NOTE E - RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Financial Accounting Standards No. 133 (FAS 133) "Accounting for Derivative Instruments and Hedging Activities," which defines derivatives, requires all derivatives be carried at fair value and provides for hedging accounting when certain conditions are met. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Although the Company has not fully assessed the implications of this new statement, the Company does not believe adoption of this statement will have a material impact on its financial position and results of operations. -9- 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented in the Company's Annual Report to Stockholders on Form 10-K for the year ended December 31, 2000. INTRODUCTORY NOTE All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to have been correct. The Company makes no undertaking to correct or update any such statements in the future. Important factors that could cause actual results to differ materially from the expectations ("Cautionary Statements") are set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations as well as in, or incorporated by reference in, the Annual Report on Form 10-K for the year ended December 31, 2000. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Overview Datum designs, manufactures and markets a wide variety of high performance time and frequency products used to synchronize the flow of information in telecommunications networks. The Company is also a leading supplier of precise timing products for enterprise computing networks and a wide variety of space, scientific and industrial test and measurement applications. A small number of customers account for a substantial portion of the Company's net sales and the Company expects that a limited number of customers will continue to represent a substantial portion of net sales for the foreseeable future. There can be no assurance that a major customer will not reduce, delay or eliminate its purchases from the Company. Any such reduction, delay or loss in orders could have a material adverse effect on the Company's business, financial condition and results of operations. Results of Operations Net sales. Net sales increased $3.3 million, or 11.4%, to $32.3 million for the quarter ended March 31, 2001 from $28.9 million for the corresponding quarter in 2000. Net sales in the wireline synchronization business increased $5.4 million or 46.3%, while net sales in the wireless business decreased $1.1 million or 9.9% and net sales in the TT&M business decreased $1.0 million or 16.8% for the quarter ended March 31, 2001 compared to the corresponding quarter of 2000. Growth in the telecommunications network infrastructure, the Company's emphasis on lower cost solutions and new products all contributed to the growth in net sales. Gross margin. Gross margin increased to 45.9% for the quarter ended March 31, 2001 from 42.2% for the corresponding quarter in 2000. The increase is primarily a result of enhanced manufacturing and development efficiencies, improved supply chain management and efficiencies gained from increases in sales. Selling expense. Selling expense decreased by 2.1% to $4.1 million for the quarter ended March 31, 2001, from $4.1 million for the corresponding quarter in 2000. As a percentage of net sales, selling expense decreased to 12.6% for the quarter ended March 31, 2001 from 14.3% for the corresponding quarter in 2000. The decrease was primarily due to the increase in sales and the continued reduction in outside commissions caused by the replacement of outside sales representatives, where appropriate, with a direct sales force. Product development. Product development expense increased slightly to $3.8 million for the quarter ended March 31, 2001 from $3.7 million in 2000. As a percentage of net sales, product development expense decreased to 11.8% for the quarter ended March 31, 2001 from 12.9% for the corresponding quarter of 2000. The spending reflects the continual emphasis on new product design and enhancement of current products. -10- 11 General and administrative. General and administrative expense increased 17.3% to $4.0 million for the quarter ended March 31, 2001, from $3.4 million for the corresponding quarter of 2000. The increase was caused primarily by incentive accruals attributed to higher profits in the first quarter of 2001 over 2000. As a percentage of net sales, general and administrative expense increased to 12.4% for the quarter ended March 31, 2001, from 11.7% for the corresponding quarter of 2000. Interest, net. Net interest expense decreased by $284,000 to $83,000 for the quarter ended March 31, 2001 from $367,000 for the corresponding quarter of 2000. The decrease in net interest expense is due to the Company's refinancing of its debt in July 2000, resulting in lower net debt and lower interest rates on debt. Shares outstanding. Shares outstanding increased for the quarter ended March 31, 2001 as a result of shares issued through the Company's 401(k), Employee Stock Purchase Plan and incentive stock option plans. Liquidity and Capital Resources On July 6, 2000, the Company refinanced its debt. The balance of the Series A and Series B notes were paid off in full and replaced with a $6 million term loan payable in monthly principal installments of $250,000 plus interest beginning August 1, 2000. The interest rate on the $6 million term loan is fixed at 9.15%. The Company has a secured credit facility at an amount not to exceed $10 million, under which $0.08 million was outstanding at March 31, 2001. The current facility expires in June 2001. Wells Fargo Bank has committed to an increase in the credit facility to $16 million, including the term loan. The interest rate on advances under the facility will be lowered to LIBOR plus 2.0% from LIBOR plus 2.25%. The Company believes that its cash and credit facilities are adequate to fund the Company's operations for the foreseeable future. Cash provided by operations was approximately $4.6 million for the three months ended March 31, 2001 compared to cash used by operations of $0.9 million for the corresponding period of 2000. Cash flows were positively affected in the first quarter of 2001 by an increase in net income and a decrease in accounts receivable, partially offset by an increase in inventory levels, a decrease in accrued expense and a decrease in income taxes payable. Cash used in investing activities was approximately $1.5 million for the three months ended March 31, 2001 compared to $0.9 million for the corresponding period of 2000, primarily due to the capitalization of software development costs of the Company's Trusted Time Initiative. Cash used in financing activities was approximately $2.4 million for the three months ended March 31, 2001 compared to $1.2 million for the corresponding three months of 2000. This was the result of scheduled principal payments on the term loan and a reduction of the outstanding balance of the line of credit. Accounts receivable decreased $4.0 million to $30.9 million at March 31, 2001 from $35.0 million at December 31, 2000 due to increased collections in the wireless segment during the first quarter of 2001 as compared to the fourth quarter of 2000. Inventories increased $1.7 million to $28.1 million at March 31, 2001 from $26.4 million at December 31, 2000, as a result of an increase in bookings in the TT&M segment and a decrease in shipments in the wireless segment in the first quarter of 2001 as compared to the fourth quarter of 2000. At March 31, 2001, the Company had working capital of $45.8 million and a current ratio of 3.2:1 compared to working capital of $44.3 million and a current ratio of 2.9:1 at December 31, 2000. The increase is primarily due to the positive cash flow provided by operating activities. -11- 12 Information Regarding Potential Fluctuations in Quarterly Operating Results The Company has experienced, and expects to continue to experience, fluctuations in sales and operating results from quarter to quarter. As a result, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful, and that such comparisons cannot be relied upon as indicators of future performance. A significant component of the fluctuations results from rescheduling of orders by the Company's major customers, in some cases due in part to the customers' attempts to minimize inventories. Other factors that could cause the Company's sales and operating results to vary significantly from period to period include: contractual price reductions on products sold to certain major customers; the timing, availability and sale of new products; changes in the mix of products with differing gross margins; variations in manufacturing capacities, efficiencies and costs; the availability and cost of components; warranty expenses; and variations in product development and other operating expenses. In addition, the sales cycles for many of the products are often lengthy and unpredictable, and can take up to 36 months. Further, there can be no assurance that the Company will be successful in closing large transactions on a timely basis or at all. The timing of these transactions could cause additional variability in the Company's operating results. The Company's quarterly results of operations are also influenced by competitive factors, including pricing and availability of the Company's and competing companies' time and frequency products. Large portions of the Company's expenses are fixed and difficult to reduce in a short period of time. If net sales do not meet the Company's expectations, the Company's fixed expenses would exacerbate the effect of such net sales shortfall. Furthermore, announcements by the Company or its competitors regarding new products and technologies could cause customers to defer purchases of the Company's products. Order deferrals by the Company's customers, purchase policy changes, delays in the Company's introduction of new products and longer than anticipated sales cycles for the Company's products have in the past materially adversely affected the Company's quarterly results of operations. Due to the foregoing factors, as well as other unanticipated factors, it is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts or investors. In such event, the price of the Company's common stock would be materially adversely affected. Item 3. Quantitative and Qualitative Disclosures about Market Risk. There has been no material change from the disclosure regarding market risk contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2000. -12- 13 PART II. OTHER INFORMATION Items 1 through 5 have been omitted because the related information is either inapplicable or has been previously reported. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.56 Severance Compensation Agreement dated December 8, 2000, by and between the Registrant and Robert J. Krist (b) No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended March 31, 2001 -13- 14 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATUM INC. /s/ Erik H. van der Kaay Date May 14, 2001 - ---------------------------------------- ------------ Erik H. van der Kaay, President and Chief Executive Officer /s/ Robert J. Krist Date May 14, 2001 - ---------------------------------------- ------------ Robert J. Krist, Vice President and Chief Financial Officer -14- 15 EXHIBIT INDEX
Sequentially Numbered Exhibit No. Description - ------------ ----------- 10.56 Severance Compensation Agreement dated December 8, 2000, by and between the Registrant and Robert J. Krist
-15- EX-10.56 2 a72655ex10-56.txt EXHIBIT 10.56 1 EXHIBIT 10.56 SEVERANCE COMPENSATION AGREEMENT DATED AS OF DECEMBER 8, 2000 BETWEEN DATUM INC., A DELAWARE CORPORATION, (THE "COMPANY") AND ROBERT J. KRIST (THE "EXECUTIVE") The Company's Board of Directors (the "Board") has determined that it is appropriate to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company. This Agreement sets forth the severance compensation which the Company agrees it will pay to the Executive if the Executive's employment with the Company terminates under one of the circumstances described herein following a "Change in Control" of the Company (as defined in Section 2). 1. Term. The term ("Term") of this Agreement shall commence on the date hereof and, subject to earlier termination pursuant to Section 3(b), 3(c) or 3(d) hereof, shall end three (3) years following the date on which notice of non-renewal or termination of this Agreement is given by either the Company or Executive to the other. Thus, this Agreement shall be renewable automatically on a daily basis so that the outstanding Term is always three (3) years following any effective notice of non-renewal or of termination given by the Company or Executive. 2. Change in Control. No compensation shall be payable under this Agreement unless and until (a) there has been a Change in Control of the Company while the Executive is still an employee of the Company and (b) the Executive's employment by the Company terminates in the circumstances specified in Section 3(a). For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a consolidation or merger of the Company in which the holders of the Company's Common Stock immediately prior to the consolidation or merger have substantially the same proportionate ownership of at least 65% of common stock of the surviving corporation immediately after the consolidation or merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company other than to a corporation in which the holders of the Company's Common Stock immediately prior to such transaction have substantially the same proportionate ownership of at least 65% of the common stock of such corporation, or (ii) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more than 35% of the Company's outstanding shares of Common Stock, or (iv) during any period of two consecutive years during the term of this Agreement, individuals who at the beginning of the two (2) year period constituted the entire Board do not for any reason constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, 2 of each new director was approved by a vote of at least five-eighths of the directors then still in office who were directors at the beginning of the period. 3. Termination Following Change in Control. (a) Termination. If a Change in Control of the Company shall have occurred while the Executive is still an employee of the Company, the Executive shall be entitled to the compensation provided in Section 4 upon the subsequent termination of the Executive's employment with the Company within twenty-four (24) months of such Change in Control, whether requested by the Executive or by the Company, unless such termination is as a result of (i) the Executive's death; (ii) the Executive's Disability (as defined in Section (3)(b) below); (iii) the Executive's Retirement (as defined in Section 3(c) below); (iv) the Executive's termination by the Company for Cause (as defined in Section 3(d) below); or (v) the Executive's decision to terminate employment other than for Good Reason (as defined in Section 3(e) below). (b) Death or Disability. If, as a result of the Executive's incapacity due to physical or mental illness, the Executive is absent from his duties with the Company on a full-time basis for six (6) months, the Company may elect to terminate the Executive for "Disability" by written notice to Executive and without liability to Executive pursuant to this Agreement; provided, however, that any such termination shall be effective only at the end of thirty (30) days following the delivery of such notice and only if Executive fails to return to the full-time performance of duties by the end of such 30-day notice period. In addition, this Agreement shall terminate immediately in the event of the death of the Executive occurring at any time during the Term hereof, and in such event the Company shall have no liability by reason of such termination. (c) Retirement. The Executive shall be deemed terminated automatically, without liability to Executive pursuant to this Agreement, upon Retirement (as hereinafter defined) of Executive without liability to the Company pursuant to this Agreement. "Retirement" as used in this Agreement shall be deemed to occur upon the Executive's having reached such age as shall have been fixed in any arrangement mutually established by the Company and the Executive. (d) Cause. The Company may terminate the Executive, without liability to the Executive pursuant to this Agreement, if the Executive's employment with the Company is terminated for Cause. For purposes solely of determining whether the Company may terminate the Executive pursuant to this Section 3(d) without liability to the Executive, the Executive shall be deemed to have been terminated for "Cause" only if Executive had engaged in fraud, misappropriation or embezzlement, or any conviction or admission of a felony or other offense involving dishonest or moral turpitude. Notwithstanding the foregoing, the Executive shall not be deemed, for purposes of this Agreement, to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than five-eighths of the entire membership of the Company's Board at a meeting of the Board called and held for that purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth in the second sentence of this Section 3(d) and specifying the particulars thereof in detail. 3 (e) Good Reason. The Executive may terminate the Executive's employment for Good Reason at any time after a Change in Control during the Term. For purposes of this Agreement, "Good Reason" shall mean any of the following: (i) The Company has materially changed the Executive's position, duties, responsibilities, status, or offices as in effect immediately prior to a Change in Control of the Company, or has removed the Executive from or failed to reelect the Executive to any of such positions; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time during the Term; (iii) Any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, the Company's life insurance, accident, disability and health insurance plans, 401(k) and bonus plans, stock options, and all other similar plans which are from time to time made generally available to senior executives/officers of the Company) and in which the Executive is participating at the time of a Change in Control of the Company, unless there are substituted therefore plans or arrangements providing the Executive with essentially equivalent and no less favorable benefits (hereinafter referred to as "Benefit Plans"), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Benefit Plan or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of a Change in Control of the Company; (iv) Any failure by the Company to continue in effect any incentive plan or arrangement (including, without limitation, the Company's plans enumerated in subparagraph (iii) above and similar incentive compensation benefits) in which the Executive is participating at the time of a Change in Control of the Company, unless there are substituted therefore plans or arrangements providing the Executive with essentially equivalent and no less favorable benefits (hereinafter referred to as "Incentive Plans"), or the taking of any action by the Company which would adversely affect the Executive's participation in any such Incentive Plan or reduce the Executive's potential benefits under any such Incentive Plan, expressed as a percentage of his base salary, by more than ten (10) percentage points in any fiscal year as compared to the immediately preceding fiscal year; (v) Any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, the Company's stock option and purchase plans and any other plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof) in which the Executive is participating at the time of a Change in Control of the Company, unless there are substituted therefor plans or arrangements providing the Executive with essentially equivalent and no less favorable (hereinafter referred to as "Securities Plans"), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Securities Plan; (vi) A relocation of the Company's principal executive offices to a location outside of Orange County, California, or the Executive's relocation to any place other than the location at which the Executive performed the Executive's duties prior to a Change in Control of the Company, except for required travel by the Executive on the Company's business to an extent 4 substantially consistent with the Executive's business travel obligations during the twelve (12) months immediately preceding a Change of Control of the Company; (vii) Any failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled at the time of a Change of Control of the Company; (viii) Any material breach by the Company of any provision of this Agreement; (ix) Any failure by the Company to obtain the assumption of this Agreement by any successor or assignee of the Company; or (x) Any purported termination of the Executive's employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(f), and for purposes of this Agreement, no such purported termination shall be effective. (f) Notice of Termination. Any termination of the Executive by the Company for Disability pursuant to Section 3(b) or for Cause pursuant to Section 3(d) shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provisions so indicated. For purposes of this Agreement, no such purported termination by the Company shall be effective without such Notice of Termination. (g) Date of Termination. "Date of Termination" shall mean (i) if the Executive is terminated by the Company for Disability, thirty (30) days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period) or (ii) if the Executive is terminated by the Company for any other reason, the date on which a Notice of Termination is given; provided that if within thirty (30) days after any Notice of Termination is given to the Executive by the Company the Executive notifies the Company that a dispute exists concerning the termination, the Date of Termination shall be the date the dispute is finally determined, whether by mutual agreement by the parties or upon final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 4. Severance Compensation upon Termination of Employment. Subject to Section 4(e) below, if, within twenty-four (24) months following a Change in Control, the Company shall terminate the Executive's employment other than pursuant to Section 3(b), 3(c) or 3(d), or if the Executive terminates his employment for Good Reason pursuant to Section 3(e), then: 5 (a) Severance Payment. The Company shall pay to the Executive as severance pay a lump sum, in cash, in full on the fifth day following the Date of Termination an amount equal to (i) the Executive's highest annual base salary in effect during the 12-month period immediately preceding the Date of Termination, and (ii) a lump sum payment of the Executive's incentive compensation bonus that would otherwise be payable to Executive under the Company's Bonus Plan then in effect for the year in which the Date of Termination occurred assuming one hundred percent (100%) satisfaction of all performance goals established under such Bonus Plan for the Executive, multiplied by 2.0. The foregoing payment shall be in addition to any payments or other compensation that would otherwise be payable to executives under any other then existing Severance Plan of the Company. All payments hereunder shall be made net of withholdings required by applicable federal, state or local laws. (b) Stock Options. All stock options not currently exercisable held by the Executive will accelerate and become exercisable as of the Date of Termination. (c) Restricted Stock. All restrictions on any restricted stock, including without limitation any vesting requirements on any unvested stock, held by the Executive as of the Date of Termination shall be removed. (d) Continuation of Benefits. The Company shall continue for a period of one (1) year from the Date of Termination to provide the following benefits to the Executive on the same terms as provided to the Executive on the Date of Termination: (i) Participation in the Company's medical, dental and vision plans; (ii) Long-term disability insurance; and (iii) Life Insurance. Notwithstanding the foregoing, any benefits payable under this subsection 4(d) shall terminate at such time as the Executive becomes eligible for similar benefits from any subsequent employer; provided, however that at the end of the period of coverage hereinabove provided for, the Executive shall have the option to have assigned to the Executive at no cost and with no apportionment of prepaid premiums, any assignable insurance owned by the Company and relating specifically to the Executive. (e) Limitation. To the extent that any or all of the payments and benefits provided for in this Agreement constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code (the "Code") and, but for this Section 4(e), would be subject to the excise tax imposed by Section 4999 of the Code, then the aggregate amount of such payments and benefits shall be reduced such that the present value thereof (as determined under the Code and applicable regulations) is equal to 2.99 times the Executive's "base amount" (as defined in the Code). The determination of any reduction or increase of any payment or benefits under this Section 4 pursuant to the foregoing provision shall be made by a nationally recognized public accounting firm chosen by the Company in good faith, and such determination shall be conclusive and binding on the Company and the Executive. 6 5. No Obligation to Mitigate Damages: No Effect on Other Contractual Rights. (a) No Obligation to Mitigate. The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor, except as set forth in Section 4(d), shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. (b) No Effect on Other Contractual Rights. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any Benefit Plan, Incentive Plan or Securities Plan, employment agreement or other contract, plan or arrangement. 6. Successors and Assigns. (a) The Company. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assignee to its business and/or assets as aforesaid which assumes the obligations of the Company under this Agreement or which otherwise becomes bound by all of the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement the Executive is employed by any corporation a majority of the voting securities of which is then owned by the Company, such indirect employment of the Executive by the Company shall not excuse the Company from performing its obligations under this Agreement as if the Executive were directly employed by the Company, and the Company agrees that it shall pay or shall cause such employer to pay any amounts owed to the Executive pursuant to Section 4 hereof, notwithstanding any such indirect employment relationship. (b) The Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 7. Notice. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered, one business day after being sent for overnight delivery by a nationally recognized overnight courier or three business days after being mailed by United States registered mail, return-receipt requested, postage-prepaid, addressed as follows: If to the Company: Vice President and Chief Financial Officer Datum Inc. 9975 Toledo Way Irvine, California 92618 7 If to the Executive: ---------------------------------- ---------------------------------- or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 8. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 9. Validity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Arbitration, Legal Fees and Expenses. In the event of any controversy, claim or dispute between the parties hereto arising out of or relating to this Agreement, the matter shall be determined by arbitration, which shall take place in Orange County, California, under the rules of the American Arbitration Association; and a judgment upon such award may be entered in any court having jurisdiction thereof. Any decision or award of such arbitrator shall be final and binding upon the parties and shall not be appealable. The parties hereby consent to the jurisdiction of such arbitrator and of any court having jurisdiction to enter judgment upon and enforce any action taken by such arbitrator. The Company shall pay all legal fees and expenses that the Executive may incur as a result of the Company's contesting the validity, enforceability or the executive's interpretation of, or determinations under, this Agreement. 12. Confidentiality. The Executive shall retain in confidence any and all confidential information known to the Executive concerning the Company and its business so long as such information is not otherwise publicly disclosed. 13. Entire Agreement. This Agreement contains all of the terms agreed upon between the Executive and the Company with respect to the subject matter hereof and replaces and supersedes all prior severance agreements between the Executive and the Company. The Executive and the Company agree that no term, provision or condition of this Agreement shall be held to be altered, amended, changed or waived in any respect except as evidenced by written agreement of the Executive and the Company. 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. "COMPANY" "EXECUTIVE" DATUM, INC. By: /s/ G. Tilton Gardner By: /s/ Robert J. Krist Name: G. Tilton Gardner Name Robert J. Krist Title: Chairman of the Compensation Title: Vice President and Chief Committee Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----