-----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, A0GG+h7B3Omd38EHekH/OXcea0cEG0raIbNLesdk8DRQ4iCTz5QEr6vtL0zd/fP1 HNLH6KT1Esm/2gkaKtbu9w== 0000082628-95-000008.txt : 19950928 0000082628-95-000008.hdr.sgml : 19950928 ACCESSION NUMBER: 0000082628-95-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950921 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMMETRICOM INC CENTRAL INDEX KEY: 0000082628 STANDARD INDUSTRIAL CLASSIFICATION: 3674 IRS NUMBER: 951906306 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02287 FILM NUMBER: 95575159 BUSINESS ADDRESS: STREET 1: 85 W TASMAN DR CITY: SAN JOSE STATE: CA ZIP: 95134-1703 BUSINESS PHONE: 4089439403 MAIL ADDRESS: STREET 1: 85 WEST TASMAN DRIVE CITY: SAN JOSE STATE: CA ZIP: 95134-1703 FORMER COMPANY: FORMER CONFORMED NAME: SILICON GENERAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: REDCOR CORP DATE OF NAME CHANGE: 19820720 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-2287 SYMMETRICOM, INC. (Exact name of registrant as specified in its charter) California No. 95-1906306 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 85 West Tasman Drive, San Jose, California 95134-1703 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (408) 943-9403 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ($229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant at September 1, 1995 was approximately $329,074,808. The number of shares outstanding of the registrant's Common Stock at September 1, 1995 was 15,403,269. Documents Incorporated by Reference Excerpts of the SymmetriCom, Inc. 1995 Annual Report (Exhibit 13.1 hereto) are incorporated by reference into Parts I, II, and IV of this Annual Report on Form 10-K. With the exception of those excerpts which are specifically incorporated by reference in this Annual Report on Form 10-K, the SymmetriCom, Inc. 1995 Annual Report is not to be deemed filed as part of this Report. Portions of the SymmetriCom, Inc. Proxy Statement for the 1995 Annual Meeting of Shareholders filed with the Commission on or about September 22, 1995 are incorporated by reference into Part III of this Annual Report on Form 10-K. PART I ITEM 1. Business SymmetriCom, Inc. (the "Company") was incorporated in California in 1956. The Company conducts its business through two separate operations, Telecom Solutions and Linfinity Microelectronics Inc. (Linfinity). Each operates in a different industry segment. Telecom Solutions principally designs, manufactures and markets specialized transmission, synchronization and intelligent access systems for both domestic and international telecommunications service providers. Linfinity principally designs, manufactures and markets linear and mixed signal integrated circuits for use in intelligent power management, motion control and signal conditioning applications in commercial, industrial, and defense and space markets. Telecom Solutions Telecom Solutions offers a broad range of time reference, or synchronization, products and digital terminal products for the telecommunications industry. Reliable synchronization is fundamental to telecommunications services as the orderly and error free transmission of data would be impossible without it. The Company's core synchronization products consist principally of quartz and rubidium based Digital Clock Distributors (DCDs), which provide highly accurate and uninterruptible clocks that meet the synchronization requirements of digital networks. Telecom Solutions has established itself as a leader in telephone digital network synchronization and has introduced a series of DCDs and related products. These products provide the critical timing which enables telecommunications service providers to synchronize precisely such diverse telephone network elements as digital switches, digital cross-connect systems and multiplexers for customers who are dependent upon high quality data transmission. Customer requirements for synchronization are increasing in complexity as telecommunications service providers implement new transmission technologies. During fiscal 1994, Telecom Solutions developed a new synchronization platform, the DCD500 Series, in response to evolving network requirements, such as new digital services being provided, the Synchronous Optical Network (SONET) and the Signaling System Seven (SS7) network. Additionally, the platform meets the international standards required for deployment in a Synchronous Digital Hierarchy network. During fiscal 1995, the Company significantly enhanced the DCD500 Series by adding network management functionality and performance monitoring capabilities. Such capabilities include network alarm surveillance, central location monitoring and additional clock functions. A second synchronization platform was also developed in fiscal 1994, the DCD Local Primary Reference (LPR), which provides the ability to cost effectively use Global Positioning System (GPS) and Long Range Navigation (LORAN-C) satellite and land navigation services to provide direct Stratum 1 traceable synchronization at offices equipped with DCD systems. The DCD Integrated Local Primary Reference (ILPR), introduced in fiscal 1995, integrates the LPR and the DCD in a single package. Additionally, a primary reference clock was introduced in fiscal 1994 as Telecom Solutions first Master Clock for telecommunications networks. Telecom Solutions synchronization systems are typically priced from $3,000 to $40,000. In the first quarter of fiscal 1994, the Company acquired Navstar Limited, a United Kingdom company, and its U.S. affiliate (collectively "Navstar"). Navstar develops and manufactures systems that use global positioning technology to determine precise geographic locations and elevations to an accuracy of a few centimeters. GPS receivers are used internally in the Company's synchronization products, such as the LPR and ILPR. Navstar products are also sold in the survey, positioning and location markets. Navstar products are typically priced from $300 to $10,000. Telecom Solutions digital terminal products include the Integrated Digital Services Terminal (IDST) and Secure 7. The IDST is a network access system designed for use in telephone company central and end offices. Customers have deployed the IDST primarily as a transmission, monitoring and test access vehicle for SS7 networks, which provides maintenance personnel with flexible, centralized remote access to SS7 links for troubleshooting and performance verification, resulting in a comprehensive solution in the monitoring and transport of links requiring increased reliability. The IDST can also be deployed as an intelligent digital terminal, an intelligent network element providing connectivity between the transport network and customer-serving side of the network. The IDST enhances the network with distributed digital cross-connect functionality and provides subrate, multipoint, test and surveillance capabilities to the subscriber loop. Secure 7, a new product introduced in fiscal 1995, and to be shipped in fiscal 1996, is a multi-bandwidth digital transmission terminal designed for critical networks, such as SS7 data links, E911 services and customer data communications networks. By design, Secure 7 is highly reliable and provides network access and system automatic route diversity for these critical data applications. Digital terminal products are typically priced at less than $20,000 for a small system to more than $300,000 for a large system. The Company supplies its synchronization systems and digital terminal products predominantly to the seven Regional Bell Operating Companies (RBOCs), independent telephone companies, interexchange carriers and international telecommunications service providers. Navstar predominantly sells it products to Telecom Solutions, the U.S. Government, original equipment manufacturers (OEMs) and international customers. Linfinity Microelectronics Inc. During July 1993, substantially all of the assets and liabilities of the Company's Semiconductor Group were transferred to Linfinity, a newly- formed subsidiary of the Company. Linfinity products principally include linear and mixed signal, standard and custom integrated circuits (ICs) primarily for use in intelligent power management, motion control and signal conditioning applications in the commercial, industrial, and defense and space markets. Linfinity derives a substantial portion of its sales from power management products including pulse width modulators which shape and manage the characteristics of voltage, linear voltage regulators which control the power supply output levels, supervisory circuits which monitor power supply and power factor correction ICs which reduce energy consumption in fluorescent lighting and other applications. Additionally, a significant portion of Linfinity sales is attributable to motion control ICs for the computer disk drive industry. These ICs control the rotation of the disk and the position of the read-write head. Signal conditioning ICs are a relatively new product line for Linfinity. Signal conditioning ICs translate and buffer analog signals from sensors in a variety of industrial, computer, communications and automotive systems. Linfinity manufactures linear and mixed signal ICs utilizing bipolar and bipolar complementary metal oxide silicon (BiCMOS) wafer fabrication processes. Linfinity also sells ICs utilizing CMOS wafer fabrication processes. Linfinity's strategy is to continue development of more market driven standard products which are primarily used in computer and data storage, lighting, automotive, communications equipment, test equipment, instrumentation, and defense and space equipment. Linfinity products are generally priced from $0.30 to $5.00 for commercial and industrial applications, $2.50 to $22.00 for defense applications and $200 to $500 for high reliability defense and space applications. Linfinity sells its products in the commercial, industrial, and defense and space markets to OEMs and distributors. Industry Segment Information Information as to net sales, operating income and identifiable assets attributable to each of the Company's two industry segments for each year in the three-year period ended June 30, 1995, is contained in Note L of the Notes to Consolidated Financial Statements included in the Company's 1995 Annual Report (the "Annual Report"), which Note is incorporated herein by reference to Excerpts of the Annual Report. Marketing In the United States, Telecom Solutions markets and sells most of its products through its own sales force to telephone and telecommunications service providers. Internationally, Telecom Solutions markets and sells its products through its own sales operation in the United Kingdom and independent sales representatives and distributors elsewhere. In the United States and internationally, Linfinity sells its products through its own sales force and independent sales representatives to original equipment manufacturers and distributors. Licensing and Patents The Company incorporates a combination of trademark, copyright and patent registration, contractual restrictions and internal security to establish and protect its proprietary rights. The Company has United States patents and patent applications pending covering certain technology used by its Telecom Solutions and Linfinity operations. In addition, both operations use technology licensed from others. However, while the Company believes that its patents have value, the Company relies primarily on innovation, technological expertise and marketing competence to maintain its competitive advantage. The telecommunications and semiconductor industries are both characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. The Company intends to continue its efforts to obtain patents, whenever possible, but there can be no assurance that any patents obtained will not be challenged, invalidated or circumvented or that the rights granted will provide any commercial benefit to the Company. Additionally, if any of the Company's processes or designs are identified as infringing upon patents held by others, there can be no assurances that a license will be available or that the terms of obtaining any such license will be acceptable to the Company. Manufacturing The Telecom Solutions manufacturing process consists primarily of in- house electrical assembly and test performed by the Company's wholly-owned subsidiary in Aguada, Puerto Rico. Additionally, the Company's wholly-owned subsidiary, Navstar, in England performs in-house electrical assembly and test of its GPS receivers. The Linfinity manufacturing process consists primarily of bipolar and BiCMOS wafer fabrication, component assembly and final test. Its ICs are principally fabricated in the Company's wafer fabrication facility in Garden Grove, California. However, Linfinity also utilizes outside services to perform certain operations during the fabrication process. In addition, most of Linfinity's ICs utilizing CMOS wafer processes are currently manufactured by outside semiconductor foundries. Component assembly and final test are performed in the Far East by independent subcontract manufacturers or in Garden Grove by employees. The Company primarily uses standard parts and components and standard subcontract assembly and test, which are generally available from multiple sources. The Company, to date, has not experienced any significant delays in obtaining needed standard parts, single source components or services from its suppliers but there can be no assurance that such problems will not develop in the future. Additionally, the Company believes that the semiconductor industry's IC production may not meet the demand for complex components from the telecommunications and automotive industries in the near future. However, the Company maintains a reserve of certain ICs, certain single source components and seeks alternative suppliers where possible. The Company believes that a lack of availability of ICs or single source components would have an adverse effect on the Company's operating results. Backlog The Company's backlog was approximately $21,600,000 at June 30, 1995, compared to approximately $18,000,000 at June 30, 1994. Backlog consists of orders which are expected to be shipped within the next twelve months. However, the Company does not believe that current or future backlog levels are meaningful indicators of future revenue levels. Furthermore, most orders in backlog can be rescheduled or canceled without significant penalty. Telecom Solutions backlog was approximately $5,100,000 at both June 30, 1995 and 1994. Historically, a substantial portion of Telecom Solutions net sales in any fiscal period has been derived from orders received during that period. Linfinity backlog was approximately $16,500,000 and $12,900,000 at June 30, 1995 and 1994, respectively. Linfinity backlog is dependent on the cyclical nature of customer demand in each of its markets. Key Customers and Export Sales One of Telecom Solutions' customers, Southwestern Bell Telephone, accounted for 11% of the Company's net sales in fiscal 1995. No customer accounted for 10% or more of net sales in fiscal years 1994 or 1993. Export sales, primarily to the Far East, Canada and Western Europe accounted for 24%, 19% and 13% of the Company's net sales in fiscal years 1995, 1994 and 1993, respectively. International sales may be subject to certain risks, including but not limited to, foreign currency fluctuations, export restrictions, longer payment cycles and unexpected changes in regulatory requirements or tariffs. Gains and losses on the conversion to U.S. dollars of foreign currency accounts receivable and accounts payable arising from international operations may in the future contribute to fluctuations in the Company's business and operating results. Sales and purchase obligations denominated in foreign currencies have not been significant. Accordingly, the Company does not currently engage in foreign currency hedging activities or derivative arrangements but may do so in the future to the extent that such obligations become more significant. Additionally, currency fluctuations could have an adverse effect on the demand for the Company's products in foreign markets. Competition The businesses in which the Company is engaged are highly competitive. A number of the Company's competitors or potential competitors have been in operation for a much longer period of time than the Company, have greater financial, manufacturing, technical and marketing resources, and are able to or could offer much broader lines of products than are presently marketed by the Company. Telecom Solutions competes primarily on product reliability and performance, adherence to standards, customer service and, to a lesser extent, price. The Company believes that Telecom Solutions generally competes favorably with respect to these factors. Linfinity competes primarily on price, product reliability and performance, delivery time, and customer service. Linfinity has a broad spectrum of customers predominantly in North America, the Far East and Europe. Large multinational companies as well as smaller, focused niche companies compete with Linfinity in North America. Primarily large multinational companies compete with Linfinity in the Far East and Europe. The Company believes that Linfinity generally competes favorably with respect to these factors. There can be no assurance that either Telecom Solutions or Linfinity will be able to compete successfully in the future. The Company's ability to compete successfully is dependent upon its response to changing technology and customer requirements, development or acquisition of new products, continued improvement of existing products, cost effectiveness and market acceptance of the Company's products. Research and Development The Company has actively pursued the application of new technology in the industries in which it competes and has its own staff of engineers and technicians who are responsible for the design and development of new products. In fiscal years 1995, 1994 and 1993, the Company's overall research and development expenditures were $13,407,000, $11,454,000, and $8,355,000, respectively. All research and development expenditures were expensed as incurred. At June 30, 1995, 76 engineering and engineering support employees were engaged in development activities. Telecom Solutions focused its development efforts in fiscal year 1995 on enhancement of the DCD500 Series and related synchronization products. Network management functionality and monitoring capabilities were added to the DCD500 Series. Additionally, the new digital terminal product, Secure 7, was designed and introduced in fiscal 1995, and expected to be shipped in fiscal 1996. Telecom Solutions research and development expenditures were $8,457,000, $7,821,000 and $6,374,000 in fiscal years 1995, 1994 and 1993, respectively. Linfinity continued to focus its development efforts in fiscal year 1995 on improving its design capabilities, improving its bipolar and BiCMOS process technologies and new product development. New products, which include but are not limited to low drop out regulators, power factor correction circuits and spindle drivers for use in power management, motion control and signal conditioning applications are currently in the production stage. Enhancement of these products incorporating increased functionality, and additional new products are in the development stage. Linfinity research and development expenditures were $4,950,000, $3,633,000 and $1,981,000 in fiscal years 1995, 1994 and 1993, respectively. The Company will continue to make significant investments in product development, although there can be no assurance that the Company will be able to develop proprietary products in the future which will be accepted in its markets. Government Regulation The telecommunications industry is subject to government regulatory policies regarding pricing, taxation and tariffs which may adversely impact the demand for the Company's telecommunications products. These policies are continuously reviewed and subject to change by the various governmental agencies. The Company is also subject to government regulations which set installation and equipment standards for newly installed hardware. Furthermore, there is certain legislation before the United States Congress which, if enacted, would remove the current legal restrictions on the RBOCs that prohibit them from manufacturing telecommunications equipment and providing certain interexchange and long-distance services. Environmental Regulation The Company's operations are subject to numerous federal, state and local environmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing process. Failure to comply with such regulations could result in suspension or cessation of the Company's operations, could require significant capital expenditures, or could subject the Company to significant future liabilities. Employees At June 30, 1995, the Company had 651 employees, including 387 in manufacturing, 100 in engineering and 164 in sales, marketing and administration. At June 30, 1995, Telecom Solutions had 413 employees and Linfinity had 238 employees. The Company believes that its future success is highly dependent on its ability to attract and retain highly qualified management, sales, marketing and technical personnel. Accordingly, the Company maintains employee incentive and stock plans for certain of its employees. Additionally, Linfinity maintains a separate employee stock option plan for certain Linfinity employees. No Company employees are represented by a labor union, and the Company has experienced no work stoppages. The Company believes that its employee relations are good. Operating Results and Stock Price Volatility Future Company operating results will largely depend upon (i) the Company's ability to implement new technologies and develop new products, (ii) the Company's ability to market and sell new products, (iii) the Company's response to increased competition, (iv) changes in product mix and (v) manufacturing efficiencies. Future Telecom Solutions operating results for a fiscal period will continue to be, as past results have been, highly dependent upon the receipt and shipment of customer orders during that fiscal period. Future Linfinity operating results will also be subject to the cyclical nature of the semiconductor industry. The Company's stock price has been and may continue to be subject to significant volatility. Many factors, including any shortfall in sales or earnings from levels expected by securities analysts and investors could have an immediate and significant adverse effect on the trading price of the Company's common stock. ITEM 2. Properties The following are the principal facilities of the Company as of June 30, 1995: Approximate Owned/Lease Principal Floor Area Expiration Location Operations (Sq. Ft.) Date San Jose, California Corporate Offices, and Telecom Solutions administration, sales, engineering and manufacturing 47,000 July 1997 Aguada, Puerto Rico Telecom Solutions manufacturing 22,000 September 2000 Aguada, Puerto Rico Telecom Solutions manufacturing 23,000 September 1999 Northampton, Navstar administration, England sales, engineering and manufacturing 18,000 April 1999 Garden Grove, Linfinity administration, California sales, engineering and manufacturing 96,000 Owned Garden Grove, Linfinity wafer California fabrication 9,000 Owned The 96,000 square foot facility located in Garden Grove, California is subject to an encumbrance as described in Note E of the Notes to Consolidated Financial Statements which information is incorporated herein by reference to Excerpts of the Annual Report. The Company believes that its current facilities are well maintained and generally adequate to meet short-term requirements. ITEM 3. Legal Proceedings In January 1994, a complaint was filed in the United States District Court for the Northern District of California against the Company and three of its officers, by one of the Company's shareholders. The plaintiff requested that the court certify him as representative of a class of persons who purchased shares of the Company's common stock during a specified period in 1993. The complaint alleges that false and misleading statements made during that period artificially inflated the price of the Company's common stock in violation of federal securities laws. There is no specific amount of damages requested in the complaint. Limited discovery has occurred and no trial date has been set. The Company and its officers believe that the complaint is entirely without merit, and intend to vigorously defend against the action. The Company is also a party to certain other claims which are normal in the course of its operations. While the results of such claims cannot be predicted with certainty, management, after consultation with counsel, believes that the final outcome of such matters will not have a material adverse effect on the Company's financial position or results of operations. ITEM 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the security holders of the Company during the last quarter of the fiscal year ended June 30, 1995. Executive Officers of the Company Following is a list of the executive officers of the Company and brief summaries of their business experience. All officers, including executive officers, are elected annually by the Board of Directors at its meeting following the annual meeting of shareholders. The Company is not aware of any officer who was elected to the office pursuant to any arrangement or understanding with another person. Name Age Position William D. Rasdal 62 Chairman of the Board and Chief Executive Officer Paul N. Risinger 62 Vice Chairman and Assistant Secretary J. Scott Kamsler 47 Vice President, Finance, Chief Financial Officer and Secretary D. Ronald Duren 52 President and Chief Operating Officer, Telecom Solutions Dale Pelletier 44 Vice President, Operations, Telecom Solutions Brad P. Whitney 41 President and Chief Operating Officer, Linfinity Microelectronics Inc. Mr. Rasdal has served as Chairman of the Board of the Company since July 1989 and as Chief Executive Officer since joining the Company in November 1985. From November 1985 until July 1989, Mr. Rasdal was President and a Director of the Company. From March 1980 until March 1985, Mr. Rasdal was associated with Granger Associates, a manufacturer of telecommunications products. His last position with Granger Associates was President and Chief Operating Officer. From November 1972 to January 1980, Mr. Rasdal was employed by Avantek as Vice President and Division Manager for Avantek's microwave integrated circuit and semiconductor operations. For the thirteen years prior to joining Avantek, he was associated with TRW in various management positions. Mr. Risinger has served as Vice Chairman of the Company since August 1990 and as a Director of the Company since March 1989. From November 1985, when Mr. Risinger joined the Company, until August 1990, he served as Executive Vice President, Advanced Marketing and Technology (AMAT). From April 1981 to May 1985, Mr. Risinger served as Executive Vice President, AMAT, for Granger Associates and was responsible for the development of new businesses for the Digital Signal Processing Division. For four years prior thereto, he served as Executive Vice President and Chief Operating Officer of the Safariland Companies, a manufacturer of equipment and accessories in the public safety field. Prior to joining Safariland, Mr. Risinger was associated with TRW in various management roles in marketing, research and development, and general management for seventeen years. Mr. Kamsler has served as Vice President, Finance, Chief Financial Officer and Secretary since joining the Company in October 1989. Mr. Kamsler has also served as a Director of DSP Technology Inc., a manufacturer of computer automated measurement and control instrumentation, since November 1988. Prior to October 1989, Mr. Kamsler served as Vice President, Finance and Chief Financial Officer of Solitec, Inc. (January 1984 to September 1989), a manufacturer of semiconductor production equipment, DSP Technology Inc. (April 1984 to September 1989), a former affiliate of Solitec, and E-H International, Inc. (March 1982 to January 1984), a manufacturer of automatic test equipment, disk and tape drive controllers, and printed circuit boards. From November 1977 until January 1982, Mr. Kamsler held various finance positions with Intel Corporation. Mr. Duren has served as President and Chief Operating Officer, Telecom Solutions since August 1990. From August 1988 until August 1990, Mr. Duren served as Vice President, Sales, Telecom Solutions. From July 1986, when Mr. Duren joined the Company, until August 1988, he held the position of Director of Marketing and Sales, Telecom Solutions. For three years prior to joining the Company, Mr. Duren served as Vice President, Telco Sales for Granger Associates. Previously, Mr. Duren served in various management positions with AT&T for seventeen years. Mr. Pelletier has served as Vice President, Operations, Telecom Solutions since November 1993. From July 1993 until November 1993, Mr. Pelletier served as Vice President and General Manager, Telecom Solutions. From July 1992 until July 1993, Mr. Pelletier served as General Manager, Synchronization Division, Telecom Solutions. From August 1990 until July 1992, he served as Synchronization Division Manager, Telecom Solutions. From August 1989 until August 1990, Mr. Pelletier served as Operations Manager, Telecom and Analog Solutions Divisions. From August 1986, when Mr. Pelletier joined the Company, until August 1989, he held the position of Manufacturing Manager, Telecom Solutions. Previously, Mr. Pelletier served in various finance and manufacturing positions for nine years with several manufacturing companies. Mr. Whitney joined the Company in November 1992 as President and Chief Operating Officer for Linfinity Microelectronics Inc. and has served in such capacity since that date. He joined the Company after twelve years with Texas Instruments (TI), an electronics company. From November 1990 to November 1992, Mr. Whitney was the Standard Linear Products Manager, Semiconductor Group at TI. From December 1985 to November 1990, Mr. Whitney was the Op Amps Product Manager, Semiconductor Group. From November 1983 through November 1985, Mr. Whitney held various positions within the Voltage Regulator Product Group at TI. For the three years prior to working in the Semiconductor Group, Mr. Whitney was associated with the Consumer Products Group. His last position in this Group was as IC Development Manager, Home Computer Division. Prior to joining TI, Mr. Whitney was an Engineering Supervisor and Instructor for the University of Southwestern Louisiana Departments of Computer Science and Electrical Engineering. PART II ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters The information set forth under the caption "Quarterly Results and Stock Market Data (unaudited)" is incorporated herein by reference to Excerpts of the Annual Report. ITEM 6. Selected Financial Data The information set forth under the captions "Financial Highlights," "Five Year Selected Financial Data" and the fourth sentence of footnote A to the information set forth under the caption "Quarterly Results and Stock Market Data (unaudited)" is incorporated herein by reference to Excerpts of the Annual Report. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated herein by reference to Excerpts of the Annual Report. ITEM 8. Financial Statements and Supplementary Data The Consolidated Financial Statements, together with the report thereon of Deloitte & Touche LLP dated July 25, 1995, are incorporated herein by reference to Excerpts of the Annual Report. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III ITEM 10. Directors and Executive Officers of the Registrant Information regarding directors appearing under the caption "Proposal No. One - Election of Directors--Nominees" on pages 2 and 3 of the Company's Proxy Statement for the 1995 Annual Meeting of Shareholders filed with the Commission on September 22, 1995, (the "Proxy Statement") is incorporated herein by reference. Information regarding executive officers is included in Part I hereof under the heading "Executive Officers of the Company" immediately following Item 4 in Part I hereof. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated herein by reference from the section entitled "Other Information--Compliance with Section 16 of the Securities Exchange Act of 1934" appearing on page 15 of the Proxy Statement. ITEM 11. Executive Compensation Incorporated herein by reference to the Proxy Statement under the captions "Proposal No. One - Election of Directors--Nominees" on pages 2 and 3, "Executive Officer Compensation" on pages 17, 18 and 19, "Proposal No. One - Election of Directors--Director Compensation" on page 4 and "Certain Transactions" on page 19. ITEM 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to the Proxy Statement under the caption "Other Information--Share Ownership by Principal Shareholders and Management" on pages 15 and 16. ITEM 13. Certain Relationships and Related Transactions Incorporated herein by reference to the Proxy Statement under the caption "Certain Transactions" on page 19. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements and Financial Statement Schedules The following documents are filed as part of this report: 1. Financial Statements*: Consolidated Balance Sheets at June 30, 1995 and 1994 Consolidated Statements of Operations for the years ended June 30, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Independent Auditors' Report * Incorporated herein by reference to Excerpts of the Company's 1995 Annual Report 2. Financial Statement Schedules: Independent Auditors' Report For the three fiscal years ended June 30, 1995, Schedule II, Valuation and Qualifying Accounts and Reserves All other schedules have been omitted because they are not applicable, not required, or the required information is included in the Consolidated Financial Statements or notes thereto. 3. Exhibits: See Item 14(c) below. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the fiscal year ended June 30, 1995. (c) Exhibits The exhibits listed on the accompanying index immediately following the signature page are filed as a part of this report. (d) Financial Statement Schedules See Item 14(a) above. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders SymmetriCom, Inc. We have audited the consolidated financial statements of SymmetriCom, Inc. as of June 30, 1995 and 1994, and for each of the three years in the period ended June 30, 1995, and have issued our report thereon dated July 25, 1995; such financial statements and report are included in your 1995 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of SymmetriCom, Inc. listed in Item 14(a)2. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP _________________________ DELOITTE & TOUCHE LLP San Jose, California July 25, 1995 SCHEDULE II SYMMETRICOM, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands) Balance Charged at to Costs Balance Beginning and Deductions at of Year Expenses (1) End of Year Year ended June 30, 1995: Accrued warranty expense $ 2,071 $ 1,021 $ 572 $ 2,520 Allowance for doubtful accounts $ 242 $ 122 $ 25 $ 339 Year ended June 30, 1994: Accrued warranty expense $ 2,136 $ 386 $ 451 $ 2,071 Allowance for doubtful accounts $ 114 $ 155 $ 27 $ 242 Year ended June 30, 1993: Accrued warranty expense $ 1,047 $ 1,646 $ 557 $ 2,136 Allowance for doubtful accounts $ 109 $ 8 $ 3 $ 114 (1) Deductions represent amounts written off against the reserve or allowance. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYMMETRICOM, INC. Date: September 22, 1995 By: /s/ J. Scott Kamsler ____________________ (J. Scott Kamsler) Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date Chairman of the Board and Chief Executive Officer /s/ William D. Rasdal (Principal Executive Officer) September 22, 1995 (William D. Rasdal) Vice President, Finance and Chief Financial Officer /s/ J. Scott Kamsler (Principal Financial (J. Scott Kamsler) and Accounting Officer) September 22, 1995 /s/ Howard Anderson Director September 22, 1995 (Howard Anderson) /s/ Paul N. Risinger Director September 22, 1995 (Paul N. Risinger) /s/ Roger A. Strauch Director September 22, 1995 (Roger A. Strauch) /s/ Robert M. Wolfe Director September 22, 1995 (Robert M. Wolfe) Exhibit Number Index of Exhibits 3.1(1) Restated Articles of Incorporation. 3.2(2) Certificate of Amendment to Restated Articles of Incorporation filed December 11, 1990. 3.3(10) Certificate of Amendment to Restated Articles of Incorporation filed October 27, 1993. 3.4(10) By-Laws, as amended July 21, 1993. 4.1(3) Common Shares Rights Agreement dated December 6, 1990, between Silicon General, Inc. and Manufacturers Hanover Trust Company of California, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively. 4.2(4) Amendment to the Common Shares Rights Agreement dated February 5, 1993 between Silicon General, Inc. and Chemical Trust Company of California, formerly Manufacturers Hanover Trust Company of California, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively. 10.1(5)(12) Amended and Restated Employees' Stock Option Plan (1980), with form of Stock Option Agreement (1980 Plan). 10.2(5)(12) Amended and Restated Non-Qualified Stock Option Plan (1982), with form of Employee Non-Qualified Stock Option (1982 Plan). 10.3(5)(12) Amended and Restated Employee Stock Option Plan (1983), with form of Stock Option Under Incentive Stock Option Plan 1983. 10.4(12) 1990 Director Option Plan (as amended through October 25, 1995). 10.5(5)(12) Form of Director Option Agreement. 10.6(12) 1990 Employee Stock Plan (as amended through October 25, 1995). 10.7(5)(12) Forms of Stock Option Agreement, Restricted Stock Purchase Agreement, Tandem Stock Option/SAR Agreement, and Stock Appreciation Right Agreement for use under the 1990 Employee Stock Plan. 10.8(11)(12) 1995 Employee Stock Purchase Plan, with form of Subscription Agreement. 10.9(2) Loan Agreements between the Company and the John Hancock Mutual Life Insurance Company, dated October 18, 1990, including exhibits thereto. 10.10(6) Lease Agreement by and between the Company and Menlo Tasman Investment Company dated June 16, 1986, and Amendment to Lease dated March 27, 1987. 10.11(2) Lease Agreement by and between Zeltex Puerto Rico, Inc., a subsidiary of the Company, and Puerto Rico Industrial Development Company dated January 22, 1991. 10.12(10) Lease Agreement by and between Telecom Solutions Puerto Rico, Inc., a subsidiary of the Company, and Puerto Rico Industrial Development dated August 9, 1994. 10.13(10) Lease Agreement by and between Navstar Systems Limited, a subsidiary of the Company, and Baker Hughes Limited dated April 22, 1994. 10.14(10) Revolving Credit Loan Agreement between the Company and Comerica Bank-Detroit dated December 1, 1993. 10.15 First Amendment to the Revolving Credit Loan Agreement between the Company and Comerica Bank-Detroit dated April 20, 1995. 10.16(7) Form of Indemnification Agreement. 10.17(9) Linfinity Microelectronics Inc. Common Stock and Series A Preferred Stock Purchase Agreement dated June 28, 1993. 10.18(9) Tax Sharing Agreement between Linfinity Microelectronics Inc. and the Company dated June 28, 1993. 10.19(9) Intercompany Services Agreement between Linfinity Microelectronics Inc. and the Company dated June 28, 1993. 10.20(9)(12) Linfinity Microelectronics Inc. 1993 Stock Option Plan with form of Stock Option Agreement. 10.21(9) Linfinity Microelectronics Inc. Form of Indemnification Agreement. 10.22(9)(12) Employment offer letter by and between the Company and Brad P. Whitney, President and Chief Operating Officer, Linfinity Microelectronics Inc. dated November 20, 1992. 10.23(8) Agreement for Sale and Purchase of the Navstar Business of Radley Services Limited. 10.24(8) Agreement for the Sale and Purchase of Certain Assets of Navstar Electronics, Inc. 13.1 SymmetriCom, Inc. Excerpts of the 1995 Annual Report. 21.1 Subsidiaries of the Company. 23.1 Independent Auditors' Consent. 27.1 Financial Data Schedule. Footnotes to Exhibits (1) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended July 2, 1989. (2) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1991. (3) Incorporated by reference from Exhibits to Registration Statement on Form 8-A filed with the Securities and Exchange Commission on December 8, 1990. (4) Incorporated by reference from Exhibits to Registration Statement on Form 8-A filed with the Securities and Exchange Commission on February 11, 1993. (5) Incorporated by reference from Exhibits to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on December 24, 1990. (6) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 28, 1987. (7) Incorporated by reference from Exhibits to the 1990 Proxy Statement. (8) Incorporated by reference from Exhibits to Current Report on Form 8-K filed with the Securities and Exchange Commission on September 2, 1993. (9) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1993. (10) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1994. (11) Incorporated by reference from Exhibits to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 4, 1995. (12) Indicates a management contract or compensatory plan or arrangement. EX-21 2 EXHIBIT 21.1 SYMMETRICOM, INC. SUBSIDIARIES OF THE COMPANY Analog Solutions, Inc., a California corporation Telecom Solutions, Inc., a Delaware corporation Telecom Solutions Puerto Rico, Inc., a Delaware corporation Linfinity Microelectronics Inc., a Delaware corporation Telecom Solutions (Europe) Limited, a United Kingdom Corporation Navstar Systems Ltd., a United Kingdom Corporation EX-23 3 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-38384 on Form S-8, Post-Effective Amendment No. 2 to Registration Statement No. 33-3456 on Form S-8, Post Effective Amendment No. 2 to Registration Statement No. 33-11317 on Form S-8, Post-Effective Amendment No. 3 to Registration Statement No. 2-70291 on Form S-8, Registration Statement No. 33-56042 on Form S-8 and Registration Statement No. 33-57163 on Form S-8 of our report dated July 25, 1995, appearing in and incorporated by reference in this Annual Report on Form 10-K of SymmetriCom, Inc. for the year ended June 30, 1995. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP San Jose, California September 22, 1995 EX-1 4 SYMMETRICOM, INC. FINANCIAL HIGHLIGHTS (In thousands, except per share amounts) Year ended June 30, 1995 1994 1993 _______ _______ _______ Net sales: Telecom Solutions $ 62,814 $59,215 $57,031 Linfinity Microelectronics 40,294 39,170 30,882 ________ _______ _______ Total 103,108 98,385 87,913 Operating income 10,868 8,331 7,940 Earnings before income taxes 11,599 8,125 7,724 Net earnings 10,346 6,551 6,001 Net earnings per common and common equivalent share .66 .43 .40 Cash and cash equivalents, and short-term investments 33,205 21,250 18,232 Working capital 50,739 38,503 29,348 Total assets 85,326 69,054 58,954 Shareholders' equity 60,125 46,786 38,102 SYMMETRICOM, INC. CONSOLIDATED BALANCE SHEETS (In thousands) June 30, 1995 1994 _______ _______ ASSETS Current assets: Cash and cash equivalents $19,354 $21,250 Short-term investments 13,851 Accounts receivable, net of allowance for doubtful accounts of $339 and $242 11,845 12,277 Inventories 17,855 15,811 Other current assets 3,715 2,405 _______ _______ Total current assets 66,620 51,743 Property, plant and equipment, net 16,978 14,930 Other assets, net 1,728 2,381 _______ _______ $85,326 $69,054 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,308 $ 4,224 Accrued liabilities 11,521 8,969 Current maturities of long-term debt 52 47 _______ _______ Total current liabilities 15,881 13,240 Long-term debt, less current maturities 5,766 5,818 Deferred rent 231 430 Deferred income taxes 3,323 2,780 Commitments and contingencies Shareholders' equity: Preferred stock, no par value: Authorized - 500 shares Issued - none Common stock, no par value: Authorized - 32,000 shares Issued and outstanding - 15,097 and 14,071 shares 19,062 16,069 Retained earnings 41,063 30,717 _______ _______ Total shareholders' equity 60,125 46,786 _______ _______ $85,326 $69,054 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year ended June 30, 1995 1994 1993 ________ _______ _______ Net sales $103,108 $98,385 $87,913 Cost of sales 56,047 57,165 52,984 ________ _______ _______ Gross profit 47,061 41,220 34,929 Operating expenses: Research and development 13,407 11,454 8,355 Selling, general and administrative 22,786 21,435 18,634 ________ _______ _______ Operating income 10,868 8,331 7,940 Interest income 1,341 397 392 Interest expense (610) (603) (608) ________ _______ _______ Earnings before income taxes 11,599 8,125 7,724 Income taxes 1,253 1,574 1,723 ________ _______ _______ Net earnings $ 10,346 $ 6,551 $ 6,001 ======== ======= ======= Net earnings per common and common equivalent share $ .66 $ .43 $ .40 ======= ======= ======= Weighted average common and common equivalent shares outstanding 15,714 15,370 15,036 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Total Share- Common Stock Retained holders' Shares Amount Earnings Equity ______ _______ _______ _______ Balances at June 30, 1992 12,869 $12,020 $18,165 $30,185 Issuance of common stock: Stock option exercises, net of shares tendered upon exercise 859 1,916 1,916 Net earnings 6,001 6,001 ______ _______ _______ _______ Balances at June 30, 1993 13,728 13,936 24,166 38,102 Issuance of common stock: Stock option exercises 343 977 977 Tax benefits from stock option plans 1,156 1,156 Net earnings 6,551 6,551 ______ _______ _______ _______ Balances at June 30, 1994 14,071 16,069 30,717 46,786 Issuance of common stock: Stock option exercises, net of shares tendered upon exercise 910 1,611 1,611 Employee stock purchase plan 18 188 188 Net exercise of warrant 98 Tax benefits from stock option plans 1,194 1,194 Net earnings 10,346 10,346 ______ _______ _______ _______ Balances at June 30, 1995 15,097 $19,062 $41,063 $60,125 ====== ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year ended June 30, 1995 1994 1993 ________ _______ _______ Cash flows from operating activities: Cash received from customers $103,800 $97,514 $85,433 Cash paid to suppliers and employees (86,910) (87,805) (73,446) Interest received 1,303 407 359 Interest paid (610) (603) (608) Income taxes paid (725) (1,273) (896) ________ _______ _______ Net cash provided by operating activities 16,858 8,240 10,842 ________ _______ _______ Cash flows from investing activities: Purchases of short-term investments (16,754) Maturities of short-term investments 2,903 Capital expenditures, net (6,629) (3,606) (4,573) Acquisition of other assets (26) (539) (61) Purchase of Navstar (2,012) ________ _______ _______ Net cash used for investing activities (20,506) (6,157) (4,634) ________ _______ _______ Cash flows from financing activities: Repayment of long-term debt (47) (42) (38) Proceeds from issuance of common stock 1,799 977 1,916 ________ _______ _______ Net cash provided by financing activities 1,752 935 1,878 ________ _______ _______ Net increase (decrease) in cash and cash equivalents (1,896) 3,018 8,086 Cash and cash equivalents at beginning of year 21,250 18,232 10,146 ________ _______ _______ Cash and cash equivalents at end of year $ 19,354 $21,250 $18,232 ======== ======= ======= Reconciliation of net earnings to net cash provided by operating activities: Net earnings $ 10,346 $ 6,551 $ 6,001 Adjustments (net of effects of 1994 Navstar purchase): Depreciation and amortization 5,260 5,789 4,945 Net deferred income taxes (712) (656) 674 (Increase) decrease in accounts receivable 432 (1,060) (2,516) Increase in inventories (2,044) (2,430) (515) (Increase) decrease in other current assets (55) (194) 83 Increase (decrease) in accounts payable 84 275 (323) Increase in accrued liabilities 3,746 139 2,634 Decrease in deferred rent (199) (174) (141) ________ _______ _______ Net cash provided by operating activities $ 16,858 $ 8,240 $10,842 ======== ======= ======= The accompanying notes are an integral part of these consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A Summary of Significant Accounting Policies Business. SymmetriCom, Inc. (the Company) conducts its business through two separate operations, Telecom Solutions and Linfinity Microelectronics Inc. (Linfinity). Each operates in a different industry segment. Telecom Solutions principally designs, manufactures and markets telecommunications equipment. Linfinity designs, manufactures and markets linear and mixed signal integrated circuits. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated. Fiscal Period. The Company's fiscal year ends on the Sunday closest to June 30. For presentation purposes, however, each fiscal year is presented as if it ended on June 30. All references to years refer to the Company's fiscal years. Fiscal years 1995 and 1993 consisted of 52 weeks and fiscal year 1994 consisted of 53 weeks. Cash Equivalents. The Company considers all highly liquid debt investments purchased with an original maturity of three months or less to be cash equivalents. Short-term Investments. Effective July 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement requires the Company to classify debt and equity securities with readily determinable market values as held-to-maturity, available-for-sale or trading. Adoption of SFAS No. 115 did not have a significant effect on the Company's financial position or results of operations. Short-term investments, consisting of corporate debt securities which mature through November 1995, are reported at fair value which approximates amortized cost and are classified as available-for-sale. Unrealized gains and losses, if significant, are excluded from earnings and included as a component of shareholders' equity. The cost of securities sold is based on the specific identification method. Inventories. Inventories are stated at the lower of cost (first-in, first-out) or market. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight- line method based on the estimated useful lives of the assets (three to thirty years) or the lease term if shorter. Intangible Assets. Intangible assets, primarily purchased technology, are included in other assets and amortized over five years. Revenue Recognition. Sales are recognized upon shipment. Provisions are made for warranty costs, sales returns and price protection. Foreign Currency Translation. Foreign currency translation gains and losses and the effect of foreign currency exchange rate fluctuations have not been significant. Concentrations of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, short-term investments and accounts receivable. The Company places its investments with high-credit-quality corporations and financial institutions. Accounts receivable are derived primarily from sales to telecommunications service providers and to original equipment manufacturers. Management believes that its credit evaluation, approval and monitoring processes substantially mitigate potential credit risks. Net Earnings Per Common and Common Equivalent Share. Net earnings per common and common equivalent share is computed using the weighted average number of common shares outstanding and dilutive stock options, using the treasury stock method. Reclassifications. Certain 1994 and 1993 balances have been reclassified to conform to the 1995 presentation. Note B Acquisition In August 1993, the Company acquired, in a purchase transaction, substantially all the assets of Navstar Limited, a U.K. company, and its U.S. affiliate (collectively "Navstar") for $2,012,000 in cash and the assumption of $1,035,000 in liabilities. The fair value of assets acquired included purchased technology of $1,756,000, tangible assets of $1,071,000 and goodwill of $220,000. Navstar designs, manufactures and markets Global Positioning System receivers. Note C Linfinity Microelectronics Inc. In July 1993, substantially all of the assets and liabilities of the Company's Semiconductor Group were transferred to Linfinity, a newly- formed subsidiary, in exchange for 6,000,000 shares of Linfinity Series A preferred stock and 2,000,000 shares of Linfinity common stock. No other Linfinity capital stock has been issued except for shares issued under Linfinity's employee stock option plan. Each Series A preferred share is convertible into one share of common stock. Linfinity has reserved 2,000,000 shares of common stock for issuance under its employee stock option plan. Options have been granted at fair market value at the date of grant as determined by Linfinity's Board of Directors based upon independent appraisal; accordingly, no compensation expense has been recorded. Outstanding stock options vest 25% per year from date of grant and expire no later than ten years from date of grant. At June 30, 1995, options to purchase 1,784,000 shares of Linfinity's common stock had been granted and were outstanding at exercise prices of $.50 to $2.65 per share, options to purchase 2,000 shares had been exercised at prices of $.50 to $.80 per share, 214,000 shares were available for grant and options to purchase 487,000 shares were exercisable at prices of $.50 to $.80 per share. Note D Balance Sheet Information June 30, 1995 1994 _______ _______ (In thousands) Inventories: Raw materials $ 5,433 $ 7,677 Work-in-process 6,910 5,110 Finished goods 5,512 3,024 _______ _______ $17,855 $15,811 ======= ======= Property, Plant and Equipment, net: Land $ 1,247 $ 1,247 Buildings and improvements 8,666 7,991 Machinery and equipment 30,369 26,452 Leasehold improvements 2,173 2,268 _______ _______ 42,455 37,958 Accumulated depreciation and amortization (25,477) (23,028) _______ _______ $16,978 $14,930 ======= ======= Accrued Liabilities: Employee compensation and benefits $ 5,954 $ 3,769 Accrued warranty expense 2,520 2,071 Other 3,047 3,129 _______ _______ $11,521 $ 8,969 ======= ======= Note E Borrowing Arrangements The Company has a $7,000,000 unsecured bank line of credit which expires in December 1996 and bears interest at the bank's prime rate, 9% at June 30, 1995. The line of credit agreement requires that the Company maintain certain financial ratios and prohibits an operating loss in two consecutive quarters. At June 30, 1995, the Company had available credit of $7,000,000. Long-term debt consists of a 10.25% note, payable in monthly installments of approximately $54,000, including interest, until November 1997 when the balance of the principal is due. The note is collateralized by land, building and related personal property. At June 30, 1995, maturities of long-term debt were $52,000 in 1996, $57,000 in 1997 and $5,709,000 in 1998. Note F Income Taxes Income tax expense consists of: Year ended June 30, 1995 1994 1993 _______ _______ _______ (In thousands) Current: Federal $ 1,341 $ 1,366 $ 183 State 159 778 151 Puerto Rico 466 86 715 _______ _______ _______ 1,966 2,230 1,049 _______ _______ _______ Deferred: Federal (532) (1,144) (767) State (373) 104 370 Puerto Rico 192 384 1,071 _______ _______ _______ (713) (656) 674 _______ _______ _______ $ 1,253 $ 1,574 $ 1,723 ======= ======= ======= Deferred income tax expense (benefit) is recorded when income and expenses are recognized in different periods for financial reporting and tax purposes. The significant components of deferred income tax expense (benefit) are as follows: Year ended June 30, 1995 1994 1993 _______ _______ _______ (In thousands) Net operating loss and credit carryforwards $ (813) $ 642 $ 421 Reserves and accruals 631 (548) (815) Depreciation and amortization (263) (639) (678) Deferred taxes on Puerto Rico earnings 204 1,339 1,441 Change in valuation allowance (472) (1,450) 1,072 Reduction of taxes provided in prior years (767) _______ _______ _______ $ (713) $ (656) $ 674 ======= ======= ======= The Company's effective income tax rate differs from the federal statutory income tax rate as follows: Year ended June 30, 1995 1994 1993 _______ _______ _______ Federal statutory income tax rate 35.0% 35.0% 34.0% Change in valuation allowance (17.6) (17.8) (9.5) Federal tax benefit of Puerto Rico operations (12.9) (8.9) (20.0) Puerto Rico taxes 5.7 5.8 23.1 Research and development tax credit (2.6) (1.6) (1.0) State income taxes, net of federal benefit 1.2 5.9 4.5 Reduction of taxes provided in prior years (9.9) Other 2.0 1.0 1.1 _______ _______ _______ Effective income tax rate 10.8% 19.4% 22.3% ======= ======= ======= During 1993, the Company reduced previously provided federal taxes by $767,000 as a result of the resolution of all outstanding Internal Revenue Service examinations. Also in 1993, the Company's tax provision included a non-recurring charge of approximately $980,000 for prior years unremitted Puerto Rico earnings. The principal components of the Company's deferred tax assets and liabilities are as follows: June 30, 1995 1994 _______ _______ (In thousands) Deferred tax assets: Net operating loss and credit carryforwards $ 5,404 $ 4,591 Reserves and accruals 2,724 3,355 _______ _______ 8,128 7,946 Valuation allowance (4,308) (4,780) _______ _______ 3,820 3,166 _______ _______ Deferred tax liabilities: Depreciation and amortization 908 1,171 Unremitted Puerto Rico earnings 2,984 2,780 _______ _______ 3,892 3,951 _______ _______ Net deferred tax liability $ 72 $ 785 ======= ======= Based on the Company's assessment of future realizability of deferred tax assets, a valuation allowance has been provided due to the uncertainty of the realization of certain temporary differences and tax credit carryforwards. Additionally, at June 30, 1995, approximately $3,950,000 of the valuation allowance was attributable to the potential tax benefit of stock option transactions, which will be credited directly to common stock when realized. At June 30, 1995, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $3,500,000 which expire in the years 2003 through 2010, research and development and investment tax credit carryforwards of approximately $2,900,000 which expire in the years 1999 through 2010 and alternative minimum tax credit carryforwards of approximately $800,000 which have no expiration date. Additionally, for state income tax purposes, the Company had research and development tax credit carryforwards of approximately $500,000 which have no expiration date. The Company operates a subsidiary in Puerto Rico under a grant providing for partial exemption from Puerto Rico taxes through the year 2008. During 1993, the Company elected to have this subsidiary taxed under Section 936 of the U.S. Internal Revenue Code which exempts qualified Puerto Rico source earnings from federal income taxes. The Omnibus Budget Reconciliation Act of 1993 included changes which limit the amount of income that is exempt from federal income tax. Since enactment, there has been no effect on the Company resulting from this Act. However, future earnings of the Puerto Rico operation may receive less favorable tax treatment. Appropriate taxes have been provided on this subsidiary's earnings which are intended to be remitted to the parent company. At June 30, 1995, total unremitted earnings and the related tax liability of this subsidiary were approximately $24,000,000 and $2,984,000, respectively. Note G Commitments The Company leases certain facilities and equipment under operating lease agreements which expire at various dates through September 2000. Rental expense charged to operations was $1,554,000 in 1995, $1,859,000 in 1994 and $2,015,000 in 1993. Future minimum payments due under noncancelable leases at June 30, 1995, were $1,555,000 in 1996, $1,261,000 in 1997, $307,000 in 1998, $193,000 in 1999, $60,000 in 2000, and $12,000 thereafter. Note H Contingencies In January 1994, a complaint was filed in the United States District Court for the Northern District of California against the Company and three of its officers, by one of the Company's shareholders. The plaintiff requests that the court certify him as representative of a class of persons who purchased shares of the Company's common stock during a specified period in 1993. The complaint alleges that false and misleading statements made during that period artificially inflated the price of the Company's common stock in violation of federal securities laws. There is no specific amount of damages requested in the complaint. Limited discovery has occurred and no trial date has been set. The Company and its officers believe that the complaint is entirely without merit, and intend to vigorously defend against the action. The Company is also a party to certain other claims which are normal in the course of its operations. While the results of such claims cannot be predicted with certainty, management, after consultation with counsel, believes that the final outcome of such matters will not have a material adverse effect on the Company's financial position or results of operations. Note I Related Party Transactions During 1995 and 1994, the Company paid $36,000 in each year for marketing research to a firm whose Managing Director is a director of the Company. During 1995, certain executive officers exercised stock options in exchange for notes of $43,000. These notes bear interest at approximately 6% per annum, payable annually. The notes are collateralized by the stock issued upon exercise of the stock options and are due in July 1997. The notes are offset against common stock. During 1993, the Company made a $95,000 unsecured loan to an executive officer. The loan bears interest at approximately 5% per annum, payable quarterly. The loan is due and payable in April 1998. At June 30, 1995, the loan balance outstanding was $23,000. Note J Employee Benefit Plans The Company's U.S. and Puerto Rico employees are eligible to participate in the Company's 401(k) plans. The Company's discretionary contributions vest immediately and were $101,000, $89,000 and $63,000 in 1995, 1994 and 1993, respectively. Note K Shareholders' Equity Stock Options. The Company has an employee stock option plan under which employees and consultants may be granted non-qualified and incentive options to purchase shares of the Company's authorized but unissued common stock. Stock appreciation rights may also be granted under this plan, however, none have been granted. In addition, the Company has a director stock option plan under which non-employee directors are granted options each January to purchase 10,000 shares of the Company's authorized but unissued common stock. In July 1995, the Company's Board of Directors amended its stock option plans, subject to shareholder approval; the number of shares reserved for issuance was increased by 650,000 shares, and beginning in July 1996 and annually thereafter, the number of shares reserved for issuance under the employee stock option plan will increase by an amount equal to 3% of the Company's outstanding shares. All options have been granted at the fair market value of the Company's common stock on the date of grant. Options expire no later than ten years from the date of grant and are generally exercisable in annual installments of 25%, 25% and 50% at the end of each of the first three years following the date of grant. In July 1994, the Company exchanged options for certain employees, other than executive officers, to purchase 235,000 shares of the Company's common stock with exercise prices greater than $8.9375 per share for new options with an exercise price of $8.9375. These options began re- vesting in July 1994. Stock option activity for the three years ended June 30, 1995, is as follows: Shares Options Outstanding Available Number Price For Grant of Shares Per Share _________ _________ ______________ (In thousands, except per share amounts) Balances at June 30, 1992 194 2,864 $1.50 to 5.69 Authorized 1,000 Granted (316) 316 4.88 to 13.00 Exercised (867) 1.50 to 5.69 Canceled 58 (58) 1.50 to 10.13 Canceled under closed plans (24) 1.63 to 3.63 _____ _____ Balances at June 30, 1993 936 2,231 1.50 to 13.00 Granted (489) 489 7.63 to 17.75 Exercised (343) 1.50 to 7.50 Canceled 92 (92) 2.50 to 17.75 _____ _____ Balances at June 30, 1994 539 2,285 1.63 to 17.75 Granted (591) 591 8.94 to 16.75 Exercised (967) 1.63 to 13.00 Canceled 332 (332) 3.13 to 17.75 _____ _____ Balance at June 30, 1995 280 1,577 $1.63 to 17.75 ===== ===== ============== Exercisable at June 30, 1995 751 $1.63 to 17.75 ===== ============== Employee Stock Purchase Plan. The Company has an employee stock purchase plan under which eligible employees may authorize payroll deductions of up to 10% of their compensation to purchase shares of the Company's common stock at 85% of the fair market value at certain specified dates. At June 30, 1995, 432,000 shares of common stock were reserved for issuance under this plan. Common Share Purchase Rights. The Company has a shareholder rights plan which authorizes the issuance of one common share purchase right for each share of common stock. The rights expire in December 2000 and are not exercisable or transferable apart from the common stock until the occurrence of certain events. Such events include the acquisition of 20% or more of the Company's outstanding common stock or the commencement of a tender or exchange offer for 30% or more of the Company's outstanding common stock. If the rights become exercisable, each right entitles its holder to purchase one new share of common stock at an exercise price of $25.00, subject to certain antidilution adjustments. Additionally, if the rights become exercisable, a holder will be entitled, under certain circumstances, to purchase, for the exercise price, shares of common stock of the Company or in other cases, of the acquiring company, having a market value of twice the exercise price of the right. Under certain conditions, the Company may redeem the rights for a price of $.01 per right or exchange each right not held by the acquirer for one share of the Company's common stock. Warrants. In connection with the exercise of a warrant to purchase common stock at $3.375 per share during March 1995, the Company issued 98,000 shares of common stock, net of 27,000 shares tendered upon exercise. Note L Business Segment Information Industry Segment Information. Information relating to the Company's industry segments is as follows: Year ended June 30, 1995 1994 1993 ________ _______ _______ (In thousands) Net sales: Telecom Solutions $ 62,814 $59,215 $57,031 Linfinity 40,294 39,170 30,882 ________ _______ _______ $103,108 $98,385 $87,913 ======== ======= ======= Operating income: Telecom Solutions $ 6,222 $ 3,588 $ 7,877 Linfinity 4,646 4,743 63 ________ _______ _______ $ 10,868 $ 8,331 $ 7,940 ======== ======= ======= Identifiable assets: Telecom Solutions $ 55,098 $43,223 $37,258 Linfinity 30,228 25,831 21,696 ________ _______ _______ $ 85,326 $69,054 $58,954 ======== ======= ======= Depreciation and amortization expense: Telecom Solutions $ 2,841 $ 2,917 $ 1,965 Linfinity 2,419 2,872 2,980 ________ _______ _______ $ 5,260 $ 5,789 $ 4,945 ======== ======= ======= Capital expenditures: Telecom Solutions $ 2,102 $ 2,017 $ 2,475 Linfinity 4,527 1,589 2,098 ________ _______ _______ $ 6,629 $ 3,606 $ 4,573 ======== ======= ======= Major Customers and Export Sales. One of Telecom Solutions' customers accounted for 11% of the Company's net sales in 1995. No customer accounted for 10% or more of net sales in 1994 or 1993. Export sales, primarily to the Far East (11% in 1995), Canada and Western Europe accounted for 24%, 19% and 13% of the Company's net sales in 1995, 1994 and 1993, respectively. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders SymmetriCom, Inc. We have audited the accompanying consolidated balance sheets of SymmetriCom, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of SymmetriCom, Inc. and subsidiaries at June 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. San Jose, California July 25, 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto. Results of Operations The Company conducts its business through two separate operations, Telecom Solutions, which designs, manufactures and markets telecommunications equipment, and Linfinity Microelectronics Inc. (Linfinity), which designs, manufactures and markets linear and mixed signal integrated circuits. Net sales increased by $4.7 million (5%) to $103.1 million in fiscal 1995 and by $10.5 million (12%) to $98.4 million in fiscal 1994. The increase in fiscal 1995 sales was due to higher sales at both Telecom Solutions and Linfinity. The increase in fiscal 1994 sales was primarily due to higher unit volume at Linfinity and to the addition of sales from Navstar, which was acquired in August 1993. Telecom Solutions net sales increased by $3.6 million (6%) to $62.8 million in fiscal 1995 and by $2.2 million (4%) to $59.2 million in fiscal 1994. The increase in fiscal 1995 sales primarily resulted from sales of new Synchronization products which more than offset substantial declines in sales of Analog products and mature Synchronization products. Future Analog sales are not expected to be significant. The increase in fiscal 1994 sales principally resulted from sales added by Navstar and slightly higher Integrated Digital Services Terminal (IDST) and Analog sales, which more than offset a decline in Synchronization sales. Linfinity net sales increased by $1.1 million (3%) to $40.3 million in fiscal 1995 and by $8.3 million (27%) to $39.2 million in fiscal 1994. The increases were primarily due to higher unit volume which more than offset a shift in sales to lower priced products. The gross profit margin, as a percentage of net sales, was 46%, 42% and 40% in fiscal 1995, 1994 and 1993, respectively. In fiscal 1995, the higher gross profit margin percentage resulted primarily from increased manufacturing efficiencies at both operations and to a shift to higher margin products at Telecom Solutions. In fiscal 1994, the gross profit margin increase was principally attributable to increased unit volume and other manufacturing efficiencies at Linfinity which offset a shift to lower margin products and decreased manufacturing efficiencies at Telecom Solutions. Future gross profit margins will largely depend on product mix and manufacturing efficiencies. Research and development expense increased to $13.4 million (or 13% of sales) in fiscal 1995 from $11.5 million (or 12% of sales) and $8.4 million (or 10% of sales) in fiscal 1994 and 1993, respectively. The increases were primarily due to the Company's continued emphasis on new product development, with proportionately higher increases at Linfinity. Selling, general and administrative expense increased by 6% to $22.8 million (or 22% of sales) in fiscal 1995 from $21.4 million (or 22% of sales) in fiscal 1994 and by 15% in fiscal 1994 from $18.6 million (or 21% of sales) in fiscal 1993. The increase in fiscal 1995 was principally due to higher incentive compensation resulting from improved performance. The increase in fiscal 1994 was due to continued development of a Telecom Solutions international presence, establishment of a Linfinity marketing department and higher selling expenses associated with increased sales. Operating income of $10.9 million in fiscal 1995 increased by 30% from operating income in fiscal 1994 of $8.3 million which increased by 5% from operating income in fiscal 1993 of $7.9 million. The increase in fiscal 1995 was entirely due to higher Telecom Solutions operating income as Linfinity operating income declined slightly. The increase in fiscal 1994 was due to higher Linfinity operating income which more than offset the decrease in Telecom Solutions operating income. See Note L of Notes to Consolidated Financial Statements. Fiscal 1994 fourth quarter operating income declined to $1.4 million (or 6% of sales) from $2.1 million (or 9% of sales) in the third quarter of fiscal 1994 principally due to higher Telecom Solutions research and development expense, increased trade show activity and higher commission expense. Interest income increased by $.9 million to $1.3 million in fiscal 1995 from $.4 million in fiscal 1994 and 1993 essentially due to an increase in cash available for investment and higher interest rates. Interest expense was $.6 million in fiscal 1995, 1994 and 1993. The Company's effective tax rate was 11%, 19% and 22% in fiscal 1995, 1994 and 1993, respectively. The effective tax rate was lower than the combined federal and state tax rate essentially due to a reduction in the valuation allowance for deferred tax assets based on the Company's assessment of future realizability of such assets, to the benefit of lower income tax rates on income earned in Puerto Rico and to state and federal research and development tax credits. Certain provisions of the Omnibus Budget Reconciliation Act of 1993 may result in less favorable tax treatment for the Puerto Rico operation in subsequent years. In future years, the Company expects the effective tax rate to increase substantially over the tax rates in the prior three fiscal years, and to more closely approximate the combined federal and state tax rate reduced by any available tax credits and any benefit that may be derived from the Company's operation in Puerto Rico. As a result of the factors discussed above, net income in fiscal 1995 was $10.3 million, or $.66 per share, compared to net income of $6.6 million, or $.43 per share, in fiscal 1994 and net income of $6.0 million, or $.40 per share, in fiscal 1993. Effective July 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." There was no material impact on the Company's financial position or results of operations due to the adoption of this new standard. Management does not believe inflation has had a significant effect on operations. Future Company operating results will largely depend upon (i) the Company's ability to implement new technologies and develop new products, (ii) the Company's response to increased competition, (iii) changes in product mix and (iv) manufacturing efficiencies. Future Telecom Solutions operating results for a fiscal period will continue to be, as past results have been, highly dependent upon the receipt and shipment of customer orders during that fiscal period. Future Linfinity operating results will also be subject to the cyclical nature of the semiconductor industry. The Company's stock price has been and may continue to be subject to significant volatility. Many factors, including any shortfall in sales or earnings from levels expected by securities analysts and investors could have an immediate and significant adverse effect on the trading price of the Company's common stock. Liquidity and Capital Resources Working capital increased by $12.2 million to $50.7 million at June 30, 1995, from $38.5 million at June 30, 1994, while the current ratio increased to 4.2 to 1.0 from 3.9 to 1.0. During the same period, cash and cash equivalents, and short-term investments increased to $33.2 million from $21.3 million primarily due to $16.9 million in cash provided by operating activities and $1.8 million in proceeds from the issuance of common stock, offset by $6.6 million used for capital expenditures. At June 30, 1995, the Company had $7.0 million of unused credit available under its bank line of credit. The Company believes that cash and cash equivalents, short-term investments, funds generated from operations and funds available under its bank line of credit will be sufficient to satisfy working capital and capital equipment requirements in fiscal 1996. At June 30, 1995, the Company had no material outstanding commitments to purchase capital equipment. QUARTERLY RESULTS AND STOCK MARKET DATA (UNAUDITED) First Second Third Fourth Total Quarter Quarter Quarter Quarter Year _______ _______ _______ _______ ________ (In thousands, except per share amounts) Fiscal Year 1995: Net sales $24,181 $25,590 $26,261 $27,076 $103,108 Gross profit 10,821 11,380 12,463 12,397 47,061 Operating income 2,371 2,419 2,924 3,154 10,868 Earnings before income taxes 2,444 2,547 3,152 3,456 11,599 Net earnings 1,999 2,412 2,786 3,149 10,346 Net earnings per common and common equivalent share .13 .15 .18 .20 .66 Common stock price range (A): High 12 13-5/8 17 21-3/4 21-3/4 Low 8 10-7/8 13-1/8 15-1/2 8 Fiscal Year 1994: Net sales $24,034 $25,011 $24,368 $24,972 $98,385 Gross profit 10,420 10,811 9,911 10,078 41,220 Operating income 2,428 2,402 2,100 1,401 8,331 Earnings before income taxes 2,380 2,307 2,032 1,406 8,125 Net earnings 1,723 1,670 1,471 1,687 6,551 Net earnings per common and common equivalent share .11 .11 .10 .11 .43 Common stock price range (A): High 18-1/8 17 10-1/2 8-5/8 18-1/8 Low 13-1/2 7-7/8 7-1/2 6-5/8 6-5/8 (A) The Company's common stock trades on The Nasdaq Stock Market under the symbol SYMM. At June 30, 1995, there were approximately 1,544 shareholders of record. Common stock prices are closing prices as reported on the Nasdaq Stock Market System. The Company has not paid cash dividends during the last two fiscal years and has no present plans to do so. FIVE YEAR SELECTED FINANCIAL DATA Year ended June 30, 1995 1994 1993 1992 1991 ________ _______ _______ _______ _______ (In thousands, except per share amounts) Operating Results: Net sales: Telecom Solutions $ 62,814 $59,215 $57,031 $42,094 $28,950 Linfinity Microelectronics Inc. 40,294 39,170 30,882 26,704 33,018 ________ _______ _______ _______ _______ Total 103,108 98,385 87,913 68,798 61,968 Operating income 10,868 8,331 7,940 3,136 2,574 Earnings before income taxes 11,599 8,125 7,724 2,825 2,055 Net earnings 10,346 6,551 6,001 2,194 1,801 Net earnings per common and common equivalent share .66 .43 .40 .16 .14 Balance Sheet: Cash and cash equivalents, and short-term investments 33,205 21,250 18,232 10,146 7,482 Working capital 50,739 38,503 29,348 20,661 16,092 Total assets 85,326 69,054 58,954 48,231 43,097 Long-term debt 5,766 5,818 5,865 5,907 5,945 Shareholders' equity 60,125 46,786 38,102 30,185 27,264 CORPORATE DIRECTORY Directors Telecom Solutions Officers William D. Rasdal 1 D. Ronald Duren Chairman of the Board President and Chief Operating and Chief Executive Officer Officer SymmetriCom, Inc. M.J. Narasimha, Ph.D. Vice President, Technology Paul N. Risinger Vice Chairman Dale Pelletier SymmetriCom, Inc. Vice President, Operations Howard Anderson 2,3 Managing Director Rick Stroupe The Yankee Group Vice President, Sales Roger A. Strauch 2,3 Toney C. Warren President, Chief Executive Vice President, Strategic Officer and Director Planning TCSI Corporation Linfinity Microelectronics Inc. Officers Robert M. Wolfe 1,2,3 Brad P. Whitney Telecommunications President and Chief Operating Network Consultant Officer 1 Member, Executive Committee Ralph Brandi 2 Member, Audit Committee Vice President, Sales 3 Member, Stock Option and Compensation Committee Shufan Chan Corporate Officers Vice President, Development William D. Rasdal Chairman of the Board Mark Granahan and Chief Executive Officer Vice President, Marketing Paul N. Risinger Kelly Jones Vice Chairman Vice President, Manufacturing J. Scott Kamsler Vice President, Finance, Corporate Counsel Chief Financial Officer and Secretary Wilson, Sonsini, Goodrich & Rosati Palo Alto, California Independent Auditors Deloitte & Touche LLP San Jose, California Transfer Agent & Registrar Chemical Mellon Shareholder Services San Francisco, California Locations SymmetriCom, Inc. Corporate Headquarters 85 West Tasman Drive San Jose, California 95134-1703 Telephone: 408-943-9403 Fax: 408-428-7896 Telecom Solutions 85 West Tasman Drive San Jose, California 95134-1703 Telephone: 408-433-0910 Fax: 408-428-7897 NavSymm Positioning Systems 85 West Tasman Drive San Jose, California 95134-1703 Telephone: 408-433-1905 Fax: 408-428-7972 Linfinity Microelectronics Inc. 11861 Western Avenue Garden Grove, California 92641-2119 Telephone: 714-898-8121 Fax: 714-898-2781 Telecom Solutions Puerto Rico, Inc. Industrial Park, Building 7 P.O. Box 1046 Aguada, Puerto Rico 00602-1046 Telephone: 809-868-3535 Fax: 809-868-4466 Telecom Solutions (Europe) Limited 2 The Billings Walnut Tree Close Guildford, Surrey, GU1 4UL England Telephone: 44-1483-451122 Fax: 44-1483-451133 Navstar Systems Ltd. Mansard Close Westgate Northampton NN5 5DL England Telephone: 44-1604-585588 Fax: 44-1604-585599 Form 10-K Shareholders may obtain a copy of SymmetriCom's 1995 annual report on Form 10-K as filed with the Securities and Exchange Commission, without charge, by writing to: Investor Relations, SymmetriCom, Inc., 85 West Tasman Drive, San Jose, California 95134-1703 EX-2 5 FIRST AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT This AMENDMENT, dated the 20th day of April, 1995 between SYMMETRICOM, INC., a California corporation, (herein referred to as the "Borrower") and COMERICA BANK-California (herein referred to as the "Bank"). WITNESSETH: WHEREAS, the Bank and the Borrower on December 1, 1993 entered into a certain Revolving Credit Loan Agreement (the "Agreement"), a certain Revolving Credit Master Note (the "Revolving Credit Note"), a certain Guaranty, a certain Corporate Resolution Authorizing Execution of Guaranty, a certain Loan Disbursement Order, and a certain Advance & Repayment Agreement (collectively the "Loan Documents"); and WHEREAS, the Borrower desires to borrow up to Seven Million and 00/100 Dollars ($7,000,000.00) from the Bank from time to time for the working capital needs of the Borrower; and WHEREAS, the modifications to the Agreement and to the Revolving Credit Note contemplated hereby are in the best interest of, and will mutually benefit, the parties hereto; and NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree to amend the Agreement in the manner and to the extent hereinafter set forth: 1. In Section 1.1 titled "Definitions", delete the following section: "Termination Date". 2. In Section 1.1 titled "Definitions", add the following section: "'Termination Date' shall mean December 1, 1996 (or such earlier date on which the Borrower shall permanently terminate the Bank's commitment under Section 2.8.1 of this Agreement)". 3. Replace Section 6.5 with the following: "Maintain Tangible Net Worth. On a consolidated basis, maintain a Tangible Net Worth for it of not less than the amount specified during the period specified below: (a) $40,000,000.00 from the date of this Amendment and at all times thereafter". 4. Replace the first paragraph of the Revolving Credit Master Note with the following: FOR VALUE RECEIVED, the undersigned promises to pay to the order of COMERICA BANK-CALIFORNIA (the "Bank") at Pier 33 South Bulkhead, San Francisco, California, on December 1 , 1996, the principal sum or so much of the principal sum of Seven Million Dollars ($7,000,000.00) as may from time to time have been advanced and be outstanding under that certain Revolving Credit Loan Agreement dated December 1 , 1993, between the undersigned and the Bank (the "Agreement") plus all accrued but unpaid interest thereon. IN ADDITION, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree to amend the Revolving Credit Note and the Loan Documents in the manner and to the extent hereinafter set forth: IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to the Agreement and the Revolving Credit Note to be executed and delivered by their duly authorized officers on the day and year first written above. By: /s/ William D. Rasdal By: /s/ J. Scott Kamsler William D. Rasdal J. Scott Kamsler Its: Chief Executive Officer Its: Chief Financial Officer COMERICA BANK -CALIFORNIA By: /s/ Greg H. Atkinson Greg H. Atkinson Its: Assistant Vice President EX-3 6 SYMMETRICOM, INC. 1990 EMPLOYEE STOCK PLAN (as amended through October 25, 1995) 1. Purposes of the Plan. The purposes of this Employee Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or non-statutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. Stock appreciation rights ("SARs") and stock purchase rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. (d) "Common Stock" means the Common Stock of the Company. (e) "Company" means Symmetricom, Inc., a California corporation. (f) "Committee" means a Committee, if any, appointed by the Board in accordance with paragraph (a) of Section 4 of the Plan. (g) "Consultant" means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services, provided the term Consultant shall not include directors who are not compensated for their services or are paid only a director's fee by the Company. (h) "Continuous Status as an Employee or Consultant" means the absence of any interruption or termination of the employ- ment or consulting relationship by the Company or any Subsidiary. Continuous Status as an Employee or Consultant shall not be consid- ered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Board, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or its successor. (i) "Disability" means total and permanent disability, as defined in Section 22(e)(3) of the Code. (j) "Employee" means any person, including officers and directors, employed by the Company or any Subsidiary. The payment of directors' fees by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any estab- lished stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the day of determination, as reported in the Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high and low asked prices for the Common Stock on the day of determination, as reported in the Wall Street Journal or such other source as the Administrator deems reliable; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option that satisfies the provisions of Section 422A of the Code. (n) "Nonstatutory Stock Option" means an Option that is not an Incentive Stock Option. (o) "Option" means an Option granted pursuant to the Plan. (p) "Optioned Stock" means the Common Stock subject to an Option or Right. (q) "Optionee" means an Employee or Consultant who receives an Option or Right. (r) "Parent" corporation shall have the meaning defined in Section 425(e) of the Code. (s) "Plan" means this 1990 Employee Stock Plan. (t) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 8 below. (u) "Right" means and includes SARs and Stock Purchase Rights granted pursuant to the Plan. (v) "SAR" means a stock appreciation right granted pursuant to Section 7 below. (w) "Share" means the Common Stock, as adjusted in accordance with Section 11 of the Plan. (x) "Stock Purchase Right" means the right to purchase Common Stock pursuant to Section 8. (y) "Subsidiary" corporation shall have the meaning defined in Section 425(f) of the Code. In addition, the terms "Rule 16b-3" and "Applicable Laws," the term "Insiders," the term "Tax Date," and the terms "Change of Con- trol" and "Change of Control Price," shall have the meanings set forth, respectively, in Sections 4, 7, 9 and 11 below. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the total number of Shares reserved and available for distribution pursuant to awards made under the Plan shall be two million, two hundred thousand (2,200,000), increased on the first day of each fiscal year of the Company, beginning with the fiscal year commencing July 1, 1996, by a number equal to 3.0% of the number of shares outstanding as of the last trading day of the Company's immediately preceding fiscal year. The maximum number of Shares reserved and available for issuance pursuant to Incentive Stock Options is 2,200,000. The Shares may be authorized but unissued, or reacquired stock. If an Option or Right should expire or become unexer- cisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for other Options or Rights under the Plan. 4. Administration of the Plan. (a) Procedure. (i) Administration With Respect to Directors and Officers. With respect to grants of Options or Rights to Employees who are also officers or directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with Rule 16b-3 promulgated under the Exchange Act or any successor rule ("Rule 16b-3") with respect to a plan intended to qualify thereunder as a discretionary plan, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted in such a manner as to permit the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitu- tion therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. (ii) Administration With Respect to Consultants and Other Employees. With respect to grants of Options or Rights to Employees or Consultants who are neither directors nor officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the legal requirements, if any, relating to the administration of incentive stock option plans under California corporate and securities laws and under the Code (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise direc- ted by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (iii) Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to directors, non-director officers and Employees who are neither directors nor officers and Consultants who are not directors. (b) Powers of the Administrator. Subject to the provi- sions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the officers, Consultants and Employees to whom Options and Rights may from time to time be granted hereunder; (iii) to determine whether and to what extent Options and Rights or any combination thereof, are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, the share price and any restriction or limitation, or any vesting acceleration or waiver of forfeiture restrictions regarding any Option or other award and/or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator shall determine, in its sole discretion); (vii) to determine whether and under what circum- stances an Option may be settled in cash under subsection 7(a)(vii) instead of Common Stock; (viii) to determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant (including providing for and determining the amount (if any) of any deemed earnings on any deferred amount during any deferral period); (ix) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; and (x) to determine the terms and restrictions appli- cable to Options and Rights and any Restricted Stock acquired pursuant to Rights. (c) Effect of Committee's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding. 5. Eligibility. (a) Nonstatutory Stock Options and Rights may be granted only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee who has been granted an Option or Right may, if he or she is otherwise eligible, be granted additional Options or Rights. Each Option shall be evidenced by a written Option agreement, which shall expressly identify the Options as Incentive Stock Options or as Nonstatutory Stock Options, and which shall be in such form and contain such provisions as the Administrator shall from time to time deem appropriate. Without limiting the foregoing, the Administrator may, at any time, or from time to time, authorize the Company, with the consent of the respective recipients, to issue Options in exchange for the surrender and cancellation of any or all outstanding Options, other options, or Rights. (b) Neither the Plan nor any Option or Right agreement shall confer upon any Optionee any right with respect to continuation of employment by the Company, nor shall it interfere in any way with the Optionee's right or the Company's right to terminate the Optionee's employment at any time. (c) The following limitations shall apply to grants of Options and Rights to Employees: (i) No Employee shall be granted, in any fiscal year of the Company, Options and Rights to purchase more than an aggregate of 250,000 Shares. (ii) In connection with his or her initial employment, an Employee may be granted Options and Rights to purchase up to an additional 250,000 Shares in the aggregate which shall not count against the limit set forth in subsection (i) above. (iii)The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 11. (iv) If an Option or Right is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11), the cancelled Option or Right will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option or Right is reduced, the transaction will be treated as a cancellation of the Option or Right and the grant of a new Option or Right. 6. Term of Plan. Subject to Section 17 of the Plan, the Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company as described in Section 17. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Options and SARs. (a) Options. The Administrator, in its discretion, may grant Options to eligible participants and shall determine whether such Options shall be Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be evidenced by a written Option agree- ment which shall expressly identify the Options as Incentive Stock Options or as Nonstatutory Stock Options, and be in such form and contain such provisions as the Administrator shall from time to time deem appropriate. Without limiting the foregoing, the Administrator may, at any time, or from time to time, authorize the Company, with the consent of the respective recipients, to issue Options or Rights in exchange for the surrender and cancellation of any or all outstanding Options or Rights. Option agreements shall contain the following terms and conditions: (i) Option Price; Number of Shares. The per Share exercise price for the Shares issuable pursuant to an Option shall be such price as is determined by the Administrator, but shall in no event be less than 85% of the Fair Market Value of Common Stock, determined as of the date of grant of the Option. In the event that the Administrator shall reduce the exercise price, the exercise price shall be no less than 85% of the Fair Market Value as of the date of that reduction. The Option agreement shall specify the number of Shares to which it pertains. (ii) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will determine the terms and conditions to be satisfied before Shares may be purchased, including the dates on which Shares subject to the Option may first be purchased. The Administrator may specify that an Option may not be exercised until the completion of the service period specified at the time of grant. (Any such period is referred to herein as the "waiting period.") At the time an Option is granted, the Admin- istrator shall fix the period within which the Option may be exer- cised, which shall not be less than the waiting period, if any, nor, in the case of an Incentive Stock Option, more than ten (10) years, from the date of grant. (iii) Form of Payment. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six months on the date of sur- render or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan pro- ceeds required to pay the exercise price, (6) delivery of an irre- vocable subscription agreement for the Shares which irrevocably obligates the Optionee to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agree- ment, (7) any combination of the foregoing methods of payment, or (8) such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Laws. (iv) Termination of Employment or Consulting Relationship. In the event an Optionee's Continuous Status as an Employee or Consultant terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within such period of time as is determined by the Admin- istrator at the time of grant, not to exceed six (6) months (three (3) months in the case of an Incentive Stock Option) from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). To the extent that Optionee was not entitled to exercise an Option at the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (v) Special Incentive Stock Option Provisions. In addition to the foregoing, Options granted under the Plan which are intended to be Incentive Stock Options under Section 422A of the Code shall be subject to the following terms and conditions: (A) Exercise Price. The per share exercise price of an Incentive Stock Option shall be no less than 100% of the Fair Market Value per Share on the date of grant. (B) Dollar Limitation. To the extent that the aggregate Fair Market Value of (i) the Shares with respect to which Options designated as Incentive Stock Options plus (ii) the shares of stock of the Company, Parent and any Subsidiary with respect to which other incentive stock options are exercisable for the first time by an Optionee during any calendar year under all plans of the Company and any Parent and Subsidiary exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of the preceding sentence, (i) Options shall be taken into account in the order in which they were granted, and (ii) the Fair Market Value of the Shares shall be determined as of the time the Option or other incentive stock option is granted. (C) 10% Shareholder. If any Optionee to whom an Incentive Stock Option is to be granted pursuant to the pro- visions of the Plan is, on the date of grant, the owner of Common Stock (as determined under Section 425(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary, then the following special provisions shall be applicable to the Option granted to such individual: (1) The per Share Option price of Shares subject to such Incentive Stock Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and (2) The Option shall not have a term in excess of five (5) years from the date of grant. Except as modified by the preceding provisions of this subsec- tion 7(a)(v) and except as otherwise limited by Section 422A of the Code, all of the provisions of the Plan shall be applicable to the Incentive Stock Options granted hereunder. (vi) Other Provisions. Each Option granted under the Plan may contain such other terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Administrator. (vii) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. (b) SARs. (i) In Connection with Options. At the sole discretion of the Administrator, SARs may be granted in connection with all or any part of an Option, either concurrently with the grant of the Option or at any time thereafter during the term of the Option. The following provisions apply to SARs that are granted in connection with Options: (A) The SAR shall entitle the Optionee to exer- cise the SAR by surrendering to the Company unexercised a portion of the related Option. The Optionee shall receive in exchange from the Company an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the SAR of the Common Stock covered by the surrendered portion of the related Option over (y) the exercise price of the Common Stock covered by the surrendered portion of the related Option. Notwithstanding the foregoing, the Administrator may place limits on the amount that may be paid upon exercise of an SAR; provided, however, that such limit shall not restrict the exercisability of the related Option. (B) When an SAR is exercised, the related Option, to the extent surrendered, shall cease to be exercisable. (C) An SAR shall be exercisable only when and to the extent that the related Option is exercisable and shall expire no later than the date on which the related Option expires. (D) An SAR may only be exercised at a time when the Fair Market Value of the Common Stock covered by the related Option exceeds the exercise price of the Common Stock covered by the related Option. (ii) Independent of Options. At the sole discretion of the Administrator, SARs may be granted without related Options. The following provisions apply to SARs that are not granted in connection with Options: (A) The SAR shall entitle the Optionee, by exercising the SAR, to receive from the Company an amount equal to the excess of (x) the Fair Market Value of the Common Stock covered by the exercised portion of the SAR, as of the date of such exer- cise, over (y) the Fair Market Value of the Common Stock covered by the exercised portion of the SAR, as of the last market trading date prior to the date on which the SAR was granted; provided, however, that the Administrator may place limits on the aggregate amount that may be paid upon exercise of an SAR. (B) SARs shall be exercisable, in whole or in part, at such times as the Administrator shall specify in the Optionee's SAR agreement. (iii) Form of Payment. The Company's obligation arising upon the exercise of an SAR may be paid in Common Stock or in cash, or in any combination of Common Stock and cash, as the Administrator, in its sole discretion, may determine. Shares issued upon the exercise of an SAR shall be valued at their Fair Market Value as of the date of exercise. (iv) Section 16 Restrictions. SARs granted to per- sons who are subject to Section 16 of the Exchange Act ("Insiders") shall be subject to any additional restrictions applicable to SARs granted to such persons in compliance with Rule 16b-3. An Insider may only exercise an SAR during such time or times as are permitted by Rule 16b-3. (c) Method of Exercise. (i) Procedure for Exercise; Rights as a Share- holder. Any Option or SAR granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option or SAR shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option or SAR by the person entitled to exercise the Option or SAR and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator (and, in the case of an Incentive Stock Option, determined at the time of grant) and permitted by the Option Agree- ment consist of any consideration and method of payment allowable under subsection 7(a)(iii) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter shall be avail- able, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. Exercise of an SAR in any manner shall, to the extent the SAR is exercised, result in a decrease in the number of Shares which thereafter shall be available for purposes of the Plan, and the SAR shall cease to be exercisable to the extent it has been exercised. (ii) Rule 16b-3. Options and SARs granted to Insiders must comply with the applicable provisions of Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (iii) Termination of Employment or Consulting Relationship. In the event an Optionee's Continuous Status as an Employee or Consultant terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option or SAR, but only within such period of time as is determined by the Administrator at the time of grant, not to exceed six (6) months (three (3) months in the case of an Incentive Stock Option) from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option or SAR as set forth in the Option or SAR Agreement). To the extent that Optionee was not entitled to exercise an Option or SAR at the date of such termination, and to the extent that the Optionee does not exercise such Option or SAR (to the extent otherwise so entitled) within the time specified herein, the Option or SAR shall terminate. (iv) Disability of Optionee. In the event an Optionee's Continuous Status as an Employee or Consultant terminates as a result of the Optionee's Disability, the Optionee may exercise his or her Option or SAR, but only within six (6) months from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option or SAR as set forth in the Option or SAR Agreement). To the extent that Optionee was not entitled to exercise an Option or SAR at the date of such termination, and to the extent that the Optionee does not exercise such Option or SAR (to the extent otherwise so entitled) within the time specified herein, the Option or SAR shall terminate. (v) Death of Optionee. In the event of an Optionee's death, the Optionee's estate or a person who acquired the right to exercise the deceased Optionee's Option or SAR by bequest or inheritance may exercise the Option or SAR, but only within six (6) months following the date of death, and only to the extent that the Optionee was entitled to exercise it at the date of death (but in no event later than the expiration of the term of such Option or SAR as set forth in the Option or SAR Agreement). To the extent that Optionee was not entitled to exercise an Option or SAR at the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option or SAR (to the extent otherwise so entitled) within the time specified herein, the Option or SAR shall terminate. 8. Stock Purchase Rights. (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid (which price shall not be less than 50% of the Fair Market Value of the Shares as of the date of the offer), and the time within which the offeree must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator made the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock." (b) Repurchase Option. Unless the Administrator deter- mines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or Disability). The pur- chase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. (c) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Admin- istrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each purchaser. (d) Section 16 Restrictions. Stock Purchase Rights granted to Insiders, and Shares purchased by Insiders in connection with Stock Purchase Rights, shall be subject to any restrictions applicable thereto in compliance with Rule 16b-3. An Insider may only purchase Shares pursuant to the grant of a Stock Purchase Right, and may only sell Shares purchased pursuant to the grant of a Stock Purchase Right, during such time or times as are permitted by Rule 16b-3. (e) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 11 of the Plan. 9. Stock Withholding to Satisfy Withholding Tax Obligations. At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this Section 9. When an Optionee incurs tax liability in connection with the an Option or Right, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by electing to have the Company withhold from the Shares to be issued upon exercise of the Option, or the Shares to be issued in connection with the Right, if any, that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by an Optionee to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option or Right as to which the election is made; (c) all elections shall be subject to the consent or disapproval of the Administrator; (d) if the Optionee is an Insider, the election must comply with the applicable provisions of Rule 16b-3 and shall be subject to such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option or Right is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 10. Non-Transferability of Options. Options and Rights may not be sold, pledged, assigned, hypothecated, transferred or dis- posed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes in Capitalization or Merger. (a) Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option and Right, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options or Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Right, as well as the price per Share covered by each such outstanding Option or Right, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the aggregate number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of Shares of stock of any class, or securities convertible into Shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option or Right. In the event of the proposed dissolution or liqui- dation of the Company, all outstanding Options and Rights will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option or Right shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his Option or Right as to all or any part of the Optioned Stock or Right, including Shares as to which the Option or Right would not otherwise be exercisable. Subject to the provisions of paragraph (b) hereof, in the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Option and Right shall be assumed or an equivalent option or Right shall be substituted by such successor corporation or a parent or subsidiary of such suc- cessor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Optionee shall have the right to exercise the Option or Right as to all of the Optioned Stock, including Shares as to which the Option or Right would not otherwise be exercisable. If the Board makes an Option or Right fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Company shall notify the Optionee that the Option or Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Right will terminate upon the expiration of such period. For purposes of this paragraph, an Option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the Option confers the right to purchase, for each Share of Optioned Stock subject to the Option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each Share held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders if a majority of the outstanding Shares); provided, however, that if such consideration received in the sale of assets or merger was not solely Common Stock of the successor corporation or its parent, the Board may, with the consent of the successor corporation and the participant, provide for the consideration to be received upon exercise of the Option or Right to be solely Common Stock of the successor corporation or its parent equal in Fair Market Value to the per share consideration received by holders of Common Stock in the sale of assets or merger. (b) In the event of a "Change in Control" of the Company, as defined in paragraph (c) below, any or all or none of the following acceleration and valuation provisions shall apply, as the Board, in its discretion, shall determine prior to such Change of Control: (i) Any Options and Rights outstanding as of the date such Change in Control is determined to have occurred that are not yet exercisable and vested on such date shall become fully exercisable and vested; (ii) To the extent they are exercisable and vested, the value of all outstanding Options and Rights shall, unless otherwise determined by the Board at or after grant, shall be cashed out at the Change in Control Price, reduced by the exercise price applicable to such Options or Rights. The cash out proceeds shall be paid to the Optionee or, in the event of death of an Optionee prior to payment, to the estate of the Optionee or to a person who acquired the right to exercise the Option or Right by bequest or inheritance. (c) Definition of "Change in Control". For purposes of this Section 11, a "Change in Control" means the happening of any of the following: (i) When any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company employee benefit plan, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The occurrence of a transaction requiring shareholder approval, and involving the sale of all or substantially all of the assets of the Company or the merger of the Company with or into another corporation. (d) Change in Control Price. For purposes of this Section 11, "Change in Control Price" shall be, as determined by the Board, (i) the highest closing sale price of a Share of Common Stock as reported by the NASDAQ System and as appearing in the Wall Street Journal (or, in the event the Common Stock is listed on a stock exchange, the highest closing price on such exchange as reported on the Composite Transaction Reporting System), at any time within the 60 day period immediately preceding the date of determination of the Change in Control Price by the Board (the "60-Day Period"), or (ii) the highest price paid or offered, as determined by the Board, in any bona fide transaction or bona fide offer related to the Change in Control of the Company, at any time within the 60-Day Period, or (iii) some lower price as the Board, in its discretion, determines to be a reasonable estimate of the fair market value of a share of Common Stock. 12. Time of Granting Options and Rights. The date of grant of an Option or Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Right. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Right is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or under Section 422A of the Code (or any other applicable law or regulation), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amend- ment or termination of the Plan shall not affect Options or Rights already granted and such Options and Rights shall remain in full force and effect as if this Plan had not been amended or terminated. 14. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an Option or Right unless the exercise of such Option or Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option or the issuance of Shares on exercise of an Option or Right, the Company may require the person exercising such Option or Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the non-issuance or sale of such Shares as to which such requisite authority shall not have been obtained. 16. Agreements. Options and Rights shall be evidenced by written agreements in such form as the Board shall approve from time to time. 17. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted as provided in Section 6. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law. EX-4 7 SYMMETRICOM, INC. 1990 DIRECTOR OPTION PLAN (as amended through October 25, 1995) 1. Purposes of the Plan. The purposes of this 1990 Director Option Plan are to attract and retain the best available personnel for service as Directors of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be "non-statutory stock options". 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, as amended. (c) "Common Stock" means the Common Stock of the Company. (d) "Company" means Symmetricom, Inc., a California corporation. (e) "Continuous Status as a Director" means the absence of any interruption or termination of service as a Director. (f) "Director" means a member of the Board. (g) "Employee" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (h) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (i) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (ii)If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable, or; (iii)In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (j) "Option" means a stock option granted pursuant to the Plan. (k) "Optioned Stock" means the Common Stock subject to an Option. (l) "Optionee" means an Outside Director who receives an Option. (m) "Outside Director" means a Director who is not an Employee. (n) "Parent" means a "parent corporation", whether now or hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of 1986. (o) "Plan" means this 1990 Director Option Plan. (p) "Share" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. (q) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 425(f) of the Internal Revenue Code of 1986. 3. Stock Subject to the Plan. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is three hundred thousand (300,000) Shares (the "Pool") of Common Stock. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. 4. Administration of and Grants of Options under the Plan. (a) Administrator. Except as otherwise required herein, the Plan shall be administered by the Board. No discretion con- cerning decisions regarding the Plan shall be afforded to any person who is not a "disinterested person" (as defined in Rule 16b-3 under the Exchange Act). (b) Procedure for Grants. All grants of Options hereunder shall be automatic and non-discretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors. (ii)Each Outside Director shall be automa- tically granted an Option to purchase 10,000 Shares (the "First Option") on the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company or appointment by the Board to fill a vacancy; provided, however, that no First Option shall be granted to an Outside Director who, immediately prior to becoming an Outside Director, was a Director. After the First Option has been granted to an Outside Director, such Outside Director shall thereafter be automatically granted an Option to purchase 10,000 Shares on January 1 of each year, if on such date, he or she shall have served on the Board for at least six (6) months. (iii)The terms of each Option granted hereunder shall be as follows: (A) the term of the Option shall be ten (10) years. (B) the Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 8 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option. (D) the Option shall become exercisable in installments cumulatively as to twenty-five percent (25%) of the Optioned Stock one year after the date of grant and as to an addi- tional twenty-five percent (25%) of the Optioned Stock two years after the date of grant and as to an additional fifty percent (50%) of the Optioned Stock three years after the date of grant, so that 100% of the Optioned Stock granted under an individual Option shall be exercisable three years after the date of grant of the Option. (iv)In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors on the automatic grant date. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the shareholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. (c) Powers of the Board. Subject to the provisions and restrictions of the Plan, the Board shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with Section 2(i) of the Plan, the Fair Market Value of the Common Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (v) to make all other determinations deemed necessary or advisable for the administration of the Plan. (d) Effect of Board's Decision. All decisions, deter- minations and interpretations of the Board shall be final. 5. Eligibility. Options may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4(b) hereof. An Outside Director who has been granted an Option may, if he is otherwise eligible, be granted an additional Option or Options in accordance with such provisions. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his directorship at any time. 6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company as described in Section 16 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11 of the Plan. 7. Exercise Price and Consideration. (a) Exercise Price. The per Share exercise price for Optioned Stock shall be 100% of the Fair Market Value per Share on the date of grant of the Option. (b) Form of Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist entirely of (i) cash, (ii) check, (iii) promissory note, (iv) other shares which (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (v) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds required to pay the exercise price, (vi) delivery of an irrevocable subscrip- tion agreement for the Shares which irrevocably obligates the Optionee to take and pay for the Shares not more than twelve (12) months after the date of delivery of the subscription agreement, (vii) any combination of the foregoing methods of payment, or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted under applicable law. 8. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4(b) hereof; provided, however, that no Options shall be exercisable until shareholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Rule 16b-3. Options granted to Outside Directors must comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act or any successor thereto and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (c) Termination of Continuous Status as a Director. In the event an Optionee's Continuous Status as a Director terminates (other than upon the Optionee's death or total and permanent dis- ability (as defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only within three (3) months from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option at the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) Disability of Optionee. In the event Optionee's Continuous Status as a Director terminates as a result of total and permanent disability (as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but only within six (6) months from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option at the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (e) Death of Optionee. In the event of an Optionee's death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within six (6) months following the date of death, and only to the extent that the Optionee was entitled to exercise it at the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option at the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. Non-Transferability of Options. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or dis- tribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 10. Adjustments Upon Changes in Capitalization or Merger. (a) Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the aggregate number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of Shares of stock of any class, or securities convertible into Shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. In the event of the proposed dissolution or liquidation of the Company, all outstanding Options will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall termi- nate as of a date fixed by the Board and give each Optionee the right to exercise his Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. Subject to the provisions of paragraph (b) hereof, in the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Option shall be assumed or an equiv- alent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation. In the event that the successor corporation does not agree to assume the Option or to substitute an equivalent option, each outstanding Option shall become fully vested and exercisable, including as to Shares as to which it would not otherwise be exercisable. If an Option becomes fully vested and exercisable in the event of a merger or sale of assets, the Company shall notify the Optionee that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For purposes of this paragraph, an Option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the Option confers the right to purchase, for each Share of Optioned Stock subject to the Option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each Share held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders if a majority of the outstanding Shares). (b) In the event of a "Change in Control" of the Company, as defined in paragraph (c) below, any Options outstanding as of the date such Change in Control is determined to have occurred that are not yet exercisable and vested on such date shall become fully exercisable and vested. (c) Definition of "Change in Control". For purposes of this Section 10, a "Change in Control" means when any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company employee benefit plan, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities. 11. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act (or any other applicable law or regulation), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amend- ment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 12. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4(b) hereof. Notice of the determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant. 13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the afore- mentioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any lia- bility in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 14. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 15. Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve. 16. Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company at or prior to the first annual meeting of shareholders held subsequent to the granting of an Option hereunder. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law. EX-27 8
5 1000 YEAR JUN-30-1995 JUN-30-1995 19354 13851 12184 339 17855 66620 42455 25477 85326 15881 0 19062 0 0 0 85326 103108 103108 56047 56047 0 0 610 11599 1253 10346 0 0 0 10346 .66 .66
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