-----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, Qn+b893FTVFEYFGOO85sfYVGXV5fBEvMdlH37qiGP0jVM0D7/rLCVnECSBtwKEY1 3ffd4vRd9TgodbKOV0DkCA== 0001012870-01-000583.txt : 20010214 0001012870-01-000583.hdr.sgml : 20010214 ACCESSION NUMBER: 0001012870-01-000583 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMMETRICOM INC CENTRAL INDEX KEY: 0000082628 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 951906306 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02287 FILM NUMBER: 1538077 BUSINESS ADDRESS: STREET 1: 2300 ORCHARD PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95131-1017 BUSINESS PHONE: 4084287813 MAIL ADDRESS: STREET 1: 2300 ORCHARD PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95131-1017 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-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000 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 our charter) California No. 95-1906306 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2300 Orchard Parkway, San Jose, CA 95131-1017 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (408) 943-9403 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- _____ Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes______ No______ Applicable Only to Corporate Issuers: Indicate number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: CLASS OUTSTANDING AS OF January 28, 2001 ----- ---------------------------------- Common Stock 23,484,492 -1- SYMMETRICOM, INC. FORM 10-Q INDEX
Page ---- PART I. FINANCIAL INFORMATION - ----------------------------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets - December 31, 2000 and June 30, 2000 3 Condensed Consolidated Statements of Operations - Three and six months ended December 31, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows - Six months ended December 31, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings 20 Item 2. Not Applicable 20 Item 3. Not Applicable 20 Item 4. Submission of Matters 20 Item 5. Not Applicable 21 Item 6. Exhibits, Financial Data Schedule and Reports on Form 8-K 21 SIGNATURES 22
-2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements SYMMETRICOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)
December 31, June 30, 2000 2000 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 21,751 $ 19,283 Short-term investments 33,343 36,016 Accounts receivable, net 24,759 19,588 Inventories, net 33,250 22,357 Prepaids and other current assets 2,382 909 ---------- ---------- Total current assets 115,485 98,153 Property, plant and equipment, net 19,259 19,960 Goodwill, net 2,839 3,002 Other intangible assets, net 9,847 10,607 Deferred tax assets 4,225 2,407 Notes receivable 545 540 ---------- ---------- $ 152,200 $134,669 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,904 $ 8,407 Accrued compensation 6,451 6,430 Other accrued liabilities 16,933 16,539 Current maturities of long-term obligations 441 391 ---------- ---------- Total current liabilities 32,729 31,767 Long-term obligations 7,443 7,679 Deferred income taxes 354 203 Shareholders' equity: Preferred stock, no par value; 500,000 shares authorized, none issued -- -- Common stock, no par value; 150,000,000 shares authorized, 23,361,824 and 22,913,510 shares issued and outstanding 24,827 20,503 Accumulated other comprehensive income 5,133 10,204 Retained earnings 81,714 64,313 ---------- ---------- Total shareholders' equity 111,674 95,020 ---------- ---------- $ 152,200 $ 134,669 ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. -3- SYMMETRICOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended December 31, December 31, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $ 38,143 $ 22,968 $ 74,142 $ 42,585 Cost of sales 21,177 13,147 41,756 23,725 --------- --------- --------- --------- Gross profit 16,966 9,821 32,386 18,860 Operating expenses: Research and development 3,353 4,754 6,508 8,057 Selling, general and administrative 7,675 6,504 14,383 11,561 Amortization of goodwill 490 490 980 490 Non-recurring charges - 6,818 -- 6,818 --------- --------- --------- --------- Operating income (loss) 5,448 (8,745) 10,515 (8,066) Gain on sale of equity investments 9,504 - 11,325 - Interest income 594 520 1,186 1,197 Interest expense (167) (174) (336) (350) --------- --------- --------- --------- Earnings (loss) before income taxes 15,379 (8,399) 22,690 (7,219) Income tax provision (benefit) 1,812 (995) 3,640 (700) --------- --------- --------- --------- Net earnings (loss) $ 13,567 $ (7,404) $ 19,050 $ (6,519) ========= ========= ========= ========= Earnings (loss) per share - basic $ 0.58 $ (0.33) $ 0.82 $ (0.29) Weighted average shares outstanding - basic 23,460 22,583 23,288 22,546 Earnings (loss) per share - diluted $ 0.54 $ (0.33) $ 0.76 $ (0.29) Weighted average shares outstanding - diluted 24,909 22,583 24,938 22,546
The accompanying notes are an integral part of these consolidated financial statements. -4- SYMMETRICOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended December 31, 2000 1999 --------- --------- Cash flows from operating activities: Net earnings (loss) $ 19,050 $ (6,519) Adjustments to reconcile net earnings (loss) to net cash used in operating activities: In-process research and development write off - 3,468 Depreciation and amortization 3,335 2,909 Deferred income tax benefit (1,667) (725) Gain on sale of equity investments (11,325) - Gain on sale on Antennae Division (99) - Changes in assets and liabilities: Accounts receivable (4,507) (2,868) Inventories (10,893) (1,857) Prepaids and other current assets (1,473) 237 Accounts payable 497 2,435 Accrued compensation 21 577 Other accrued liabilities tax 3,774 122 Tax benefit from stock option plans 1,500 - Other - (53) --------- --------- Net cash (used in) operating activities (1,787) (2,274) --------- --------- Cash flows from investing activities: Purchases of short-term investments (28,259) (21,139) Maturities of short-term investments 20,954 15,500 Cash paid for acquisition and related costs (228) (19,419) Proceeds from sale of equity investments 12,851 - Purchases of property, plant and equipment (1,940) (2,250) Other (112) (106) --------- --------- Net cash provided by (used in) investing activities 3,266 (27,414) --------- --------- Cash flows from financing activities: Proceeds from sale of common stock 3,004 1,866 Repayment of long-term obligations (186) (139) Repurchase of common stock (1,829) (2,931) --------- --------- Net cash provided by (used in) financing activities 989 (1,204) --------- --------- Net increase (decrease) in cash and cash equivalents 2,468 (30,892) Cash and cash equivalents at beginning of period 19,283 44,897 --------- --------- Cash and cash equivalents at end of period $ 21,751 $ 14,005 ========= ========= Non-cash investing and financing activities: Unrealized gain (loss) on securities, net $ (5,071) $ 1,910 Deferred tax benefit on unrealized gain 3,380 - Cash payments for: Interest $ 336 $ 350 Income taxes 2,047 793 Tax benefit from stock option plans 1,500 -
The accompanying notes are an integral part of these consolidated financial statements. -5- SYMMETRICOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation. The unaudited condensed consolidated --------------------- financial statements included herein have been prepared by Symmetricom, Inc. ("Symmetricom", the "Company"), pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2000. 2. Summary of Significant Accounting Policies. Symmetricom, for ------------------------------------------ presentation purposes, presents the second fiscal quarter as if it ended on December 31. However the Company's fiscal quarter ends on the Sunday closest to December 31. Fiscal quarter December 2000 actually ended on December 26, 1999 and fiscal quarter December 2001 ended on December 31, 2000. All references to the quarter refer to the Company's fiscal quarter. Fiscal year ended June 2000 actually ended on July 2, 2000. In the opinion of the management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company at December 31, 2000, the results of operations for the three and six month period then ended and the cash flows for the six month period then ended. The results of operations for the periods presented are not necessarily indicative of those that may be expected for the full year. 3. Net Earnings (Loss) Per Share. All share and per share amounts have ----------------------------- been restated to reflect the three-for-two stock split effective August 2000. Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options using the treasury method except when antidilutive. The following table reconciles the number of shares utilized in the earnings (loss) per share calculations (In thousands, except per share amounts):
Three Months Ended Six Months Ended December 31, December 31, 2000 1999 2000 1999 ---- ---- ---- ---- Net earnings (loss) $ 13,567 $ (7,404) $ 19,050 $ (6,519) ======== ========= ======== ========= Weighted average shares outstanding - basic 23,460 22,583 23,288 22,546 Dilutive stock options 1,449 -- 1,650 -- -------- --------- -------- --------- Weighted average shares outstanding - diluted 24,909 22,583 24,938 22,546 -------- --------- -------- --------- Basic earnings (loss) per share $ 0.58 $ (0.33) $ 0.82 $ (0.29) Diluted earnings (loss) per share $ 0.54 $ (0.33) $ 0.76 $ (0.29)
4. Recent Accounting Pronouncements. In December 1999, the Securities -------------------------------- and Exchange Commission staff released Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (SAB101), which provides guidance on the ADcognition, presentation and disclosure of revenue in financial statements. Management has adopted SAB101 and there was no material impact to the Company's revenue recognition policies. In March 2000 the FASB issued Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB Opinion No. 25. FIN 44 clarifies (i) the definition of -6- employee for purposes of applying APB Opinion No. 25, (ii) the criteria for determining whether a plan qualifies as a non compensatory plan, (iii) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (iv) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but did not materially affect our business. In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," was issued, which defines derivatives, requires all derivatives be carried at fair value, and provides for hedging accounting when certain conditions are met. The adoption of this statement in fiscal 2001 did not have a material impact on our financial position and results of operations. 5. Sale. On September 29, 2000, we sold the United Kingdom based ---- dielectric Antenna Division to a joint venture called Sarantel Limited for approximately $664 thousand cash subject to an escrow agreement. Symmetricom maintains approximately 19% investment stake in Sarantel Limited. We realized a gain of $99 thousand or $80 thousand after taxes related to the sale of the Antenna Division, which pre-tax gain of $99 thousand is included in selling general and administrative expenses. Listed below is the detail of the gain on the sale (in thousands): Cash to be received subject to escrow $ 664 Tangible assets sold (337) Transaction costs (228) ----- Gain on sale $ 99 ===== 6. Investments. Short-term investments consist of corporate debt ----------- securities, which mature between three and twelve months, and marketable equity securities. All highly liquid investments with maturity of three months or less are considered to be cash equivalents. All of the company's debt and marketable equity securities have been classified and accounted for as available-for-sale. These securities are carried at fair value with the unrealized gains and losses, net of taxes, reported as a component of shareholders' equity. The following table summarizes the Company's available-for-sale securities recorded as cash and cash equivalents or short-term investments (in thousands):
Gross Amortized Unrealized Fair December 31, 2000 Cost Gains Value -------- -------- -------- Commercial paper $ 29,703 $ - $ 29,703 Corporate equity securities 1,533 8,555 10,088 -------- -------- -------- Total available-for-sale investments 31,236 8,555 39,791 Less amounts classified as cash equivalents (6,448) - (6,448) -------- -------- -------- Total short term investments $ 24,788 $ 8,555 $ 33,343 ======== ======== ======== June 30, 2000 Commercial paper $ 28,430 $ - $ 28,430 Corporate equity securities 3,060 17,006 20,066 -------- -------- -------- Total available-for-sale investments 31,490 17,006 48,496 Less amounts classified as cash equivalents (12,480) - (12,480) -------- -------- -------- Total short term investments $ 19,010 $ 17,006 $ 36,016 ======== ======== ========
7. Inventories. Inventories are stated at the lower of cost (first-in, ----------- first-out) or market. Inventories consist of (in thousands): -7-
December 31, 2000 June 30, 2000 ----------------- ------------- Raw materials $ 20,979 $14,390 Work-in-process 8,583 4,772 Finished goods 7,547 6,719 -------- -------- 37,109 25,881 Allowance for slow moving inventory (3,859) (3,524) -------- -------- Inventories, net $ 33,250 $22,357 ======== ========
8. Intangibles Assets. Intangible assets, including those that were ------------------ acquired from Hewlett-Packard Company, are carried at cost and consist of the following (in thousands):
December 31, 2000 June 30, 2000 ----------------- ------------- Goodwill $ 3,245 $ 3,245 Less: accumulated amortization (406) (243) ------- -------- Goodwill, net $ 2,839 $ 3,002 ======= ======== Other intangibles Technology 7,607 7,607 Customer lists, workforce, trademarks, and other 4,282 4,227 ------- -------- Total gross other intangible assets 11,889 11,834 Less: accumulated amortization (2,042) (1,227) ------- -------- Other intangible assets, net $ 9,847 $ 10,607 ======= ========
Intangible assets associated with the acquisition of the HP Product Line business includes goodwill of $3.2 million, customer lists of $1.3 million, workforce of $1.4 million, smart clock trademark of $0.9 million, current product technology of $7.6 million and other intangible assets of $0.4 million. Amortization is computed using the straight-line method over a life of 10 years for goodwill, 10 years for customer lists, 7 years for workforce, smart clock trademark and for current product technology. The other intangible assets are amortized over 5 years. Accumulated amortization of these intangible assets was $1.5 million for the period ended June 30, 2000 and $2.4 million for the period ended December 31, 2000. 9. Comprehensive Income. Comprehensive income is comprised of two -------------------- components, net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of shareholders' equity but are excluded from net income. The Company's other comprehensive income is comprised of unrealized gains and losses, net of taxes, on marketable securities categorized as available-for-sale. See Note 6 regarding unrealized gains on available-for-sale securities. The components of comprehensive income, net of tax, are as follows (in thousands):
Three Months Ended Six Months Ended December 31, December 31, 2000 1999 2000 1999 -------- -------- -------- -------- Net income (loss) $13,567 $ (7,404) $19,050 $ (6,519) Other comprehensive income (loss): Unrealized gains (losses) on investments, net of taxes (2,117) 1,050 1,405 1,910 Realized gains included in net income (5,646) - (6,476) - -------- -------- -------- -------- Total comprehensive income (loss) $ 5,804 $(6,354) $13,979 $ (4,609) ======== ======== ======== ========
10. Contingencies. In January 1994, a securities class action complaint ------------- was filed against the Company and certain of our former officers or directors in the United States District Court, Northern District of California. The action was filed on behalf of a putative class of purchasers of the Company's stock during the period April 6, 1993 through November 10, 1993. The complaint sought unspecified money damages and alleges that the Company and certain of our former officers or directors violated federal securities laws in connection with various public statements made during the putative class period. The Court granted summary judgment to the Company and our former officers or directors in August 2000. The plaintiff has filed a notice of appeal to the United States Court of -8- Appeals for the Ninth Circuit. The Company believes that the complaint is without merit, and intends to continue to defend the action vigorously if necessary. The Company is also a party to certain other claims in the normal course of its operations. While the results of such claims cannot be predicted with any certainty, the Company believes that the final outcome of such matters will not have a material impact on the financial position and results of operations. 11. Business Segment Information. The Company has four reportable ---------------------------- segments: Synchronization ("Sync") Products, Wireless Products, Transmission Products, Contract Manufacturing and Other Products. These segments are the segments of the Company for which separate financial information is available and for which gross profit amounts are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. The Company does not allocate assets or specific operating expenses to these individual operating segments. Therefore, segment information reported includes only net sales and gross profit.
Three Months Ended Six Months Ended December 31, December 31, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales: Sync Products 27,738 16,125 52,175 33,191 Wireless Products 6,087 4,831 14,983 4,831 Transmission Products 1,535 1,026 2,227 2,401 Contract Manufacturing and Other 2,783 986 4,757 2,162 -------- -------- -------- -------- Total net sales 38,143 22,968 74,142 42,585 Cost of sales: Sync Products 14,968 8,484 28,633 17,587 Wireless Products 3,208 3,257 8,408 3,083 Transmission Products 712 575 1,104 1,241 Contract Manufacturing and Other 2,289 831 3,611 1,814 -------- -------- -------- -------- Total cost of sales 21,177 13,147 41,756 23,725 Gross profit: Sync Products 12,770 7,641 23,542 15,604 Wireless Products 2,879 1,574 6,575 1,748 Transmission Products 823 451 1,123 1,160 Contract Manufacturing and Other 494 155 1,146 348 -------- -------- -------- -------- Total gross profit 16,966 9,821 32,386 18,860 Gross margin: Sync Products 46.0% 47.4 45.1% 47.0% Wireless Products 47.3% 32.6 43.9% 36.2% Transmission Products 53.6% 44.0 50.4% 48.3% Contract Manufacturing and Other 17.8% 15.7 24.1% 16.1% -------- -------- -------- -------- Total gross margin 44.5% 42.8 43.7% 44.3%
12. ProForma Condensed Consolidated Statement of Operations. On ------------------------------------------------------- September 30, 1999 Symmetricom acquired certain assets of Hewlett-Packard Company's Communication Synchronization Business (HP Product Line business) for $19.4 million in cash. The acquisition has been accounted for under the purchase method of accounting and accordingly, the operating results have been included in the Company's consolidated results of operations from the date of acquisition. The following unaudited proforma consolidated results of operations are presented as if the acquisition of HP Product Line business had been made at the beginning of fiscal 2000.
Six Months Ended (in thousands of dollars except per share data) December 31, 1999 ----------------------------------------------- ----------------- Net sales $48,984 Gross Profit 16,550 Net earnings (loss) (6,402) Earnings (loss) per share - basic $ (0.28) Earnings (loss) per share - diluted $ (0.28)
-9- The proforma consolidated results of operations include adjustments to give effect to amortization of goodwill, interest income on cash used for the acquisition and certain other adjustments, together with related income tax effects and exclude non-recurring costs of $3.6 million related to the write-off of in-process research and development and the $3.3 million paid as employee sign on bonuses. The unaudited proforma information is not necessarily indicative of the results of operations that would have occurred had the purchase been made at the beginning of the periods presented or the future results of the combined operations. -10- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The trend analyses and other non-historical information contained in Form 10-Q are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor provisions of those Sections. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and similar expressions identify such forward looking statements. Such forward looking statements include, without limitation, statements concerning the markets for our products, operating results, our Broadband Access division, amortization of goodwill, customer concentration, competition and pricing pressure, the effective tax rate, gross margins, production activities, availability of key components, research and development expense, accounting pronouncements, liquidity and capital resources and market risk in interest rates and foreign currency exchange rates. The Company's actual results could differ materially from those discussed in the forward looking statements, due to a number of factors, including the factors listed below. Overview On September 29, 2000, we sold our United Kingdom based dielectric Antenna Division to a joint venture called Sarantel Limited for approximately $664 thousand cash subject to an escrow agreement. Symmetricom maintains approximately a 19% investment stake in Sarantel Limited. We realized a gain of $99 thousand or $80 thousand after taxes related to the sale of the Antenna Division. See Note 5 of the Notes to Consolidated Financial Statements. On March 30, 2000, we sold our GPS division to Silicon Systems, Ltd. ("SSL") for $9.5 million in cash. Additionally, Symmetricom made an irrevocable application for subscription shares of SSL for $3.0 million. We realized a gain of $6.7 million, or $4.2 million after taxes related to the sale of our GPS division. SSL changed its name to Parthus Technologies plc ("Parthus") prior to completing an initial public offering in May 2000. On September 30, 1999, Symmetricom acquired certain assets of Hewlett- Packard Company's Communications Synchronization Business ("HP Product Line business") for $19.4 million in cash. The acquisition has been accounted for under the purchase method of accounting. The net purchase price of $19.8 million, which includes cash paid of $19.0 million, transaction costs of $0.4 million and assumed liabilities of $0.4 million, was allocated to tangible assets acquired of $1.4 million, purchased developed technology of $7.6 million, other intangible assets of $7.3 million and in-process research and development ("IP R&D") of $3.5 million. As part of the acquisition of the HP Product Line business, goodwill and other intangible assets of approximately $14.9 million will be amortized as follows; $0.4 million over five years, $9.9 million over seven years, and $4.6 million over ten years, and is included in general and administrative expense. Pursuant to this transaction, we recorded $6.8 million of non-recurring charges, $3.5 million for IP R&D and $3.3 million for employee sign on bonuses. On April 14, 1999, we sold our Linfinity Microelectronics Inc. ("Linfinity") semiconductor subsidiary to Microsemi Corporation for $24.1 million in cash, of which $1.1 million is subject to an escrow agreement. The per share consideration paid to shareholders of Linfinity was $2.96 per preferred share and $1.46 per common share. The outstanding capital stock of Linfinity comprised of 6,000,000 shares of preferred stock and 4,197,824 shares of common stock. There were stock options outstanding to purchase 121,449 and 109,000 shares of Linfinity's common stock at an exercise price of $0.50 and $0.80 per share, respectively. The holders of these options were entitled to receive in cash the difference between $1.46 and the exercise price. Of the $24.1 million purchase price, $23.6 million was paid to Symmetricom (including amounts currently held in escrow) and $0.5 million was paid to minority shareholders and option holders of Linfinity. Results of Operations Net sales increased by $15.2 million (or 66.1%) to $38.1million in the second quarter of fiscal 2001 from $23 million in the second quarter of fiscal 2000. This $15.2 million is comprised primarily of Sync Products of $11.6 million (or 72%). The major items included in the second quarter increase in sales of Sync Products are $3.5 million from new products, $3.0 million from existing customers who were expanding, $2.1 million from contract manufacturing, and $3.0 million all other. Net sales increased by $31.6 million (or 74.1%) to $74.1 million in the first half of fiscal 2001 from $42.6 million in the first half of fiscal 2000. This $31.6 million increase is comprised -11- primarily of increased sales of Sync products of $19.0 million (or 57.2%). The major items included in this first half increased sales of Sync products are $6.2 million from new products, $4.5 million from customers who were expanding, $3.5 million from contract manufacturing, and $4.8 million all others. Gross profit, as a percentage of net sales, was 44.5% and 43.7% in the second quarter and first half of fiscal 2001, compared to 42.8% and 44.3% in the corresponding periods of fiscal 2000, respectively. The gross profit increase in the second quarter of fiscal 2001 compared to the corresponding period of fiscal 2000 was primarily due to lower material costs resulting from favorable prices on higher volume component purchases, as well as a favorable mix due to increased sales of higher margin products. Research and development expense was $3.4 million (or 8.8% of net sales) and $6.5million (or 8.8% of net sales) in the second quarter and first half of fiscal 2001, respectively, compared to $4.8 million (or 20.7% of net sales) and $8.1 million (or 18.9% of net sales) in the corresponding periods of fiscal 2000. The decrease as a percentage of net sales, is primarily due to higher sales, management's decision to provide a more concentrated focus on specific research and development projects and the sale of the GPS division in the third quarter of fiscal 2000. Selling, general and administrative expense was $8.2 million (or 21.4 % of net sales) and $15.5 million (or 20.9% of net sales) in the second quarter and first half of fiscal 2001, respectively, compared to $7.0 million (or 30.5% of net sales) and $12.1 million (or 28.3% of net sales) in the corresponding periods of fiscal 2000. The increase was primarily due to higher marketing and sales expense associated with our increased sales. The gain of $99 thousand or $80 thousand after taxes on the sale of the United Kingdom based dielectric Antenna Division is also netted in the general and administrative expense. In December 2000, the Company recorded a non-recurring gain on sale of investment (Parthus stock) of $9.5 million and a $1.8 million non-recurring gain during the first quarter of fiscal 2001. Due to the September 1999, acquisition of the HP Product Line business, the Company recorded non-recurring charges of $6.8 million in the second quarter of fiscal 1999. This was comprised of $3.5 million for the write-off of acquired in-process research and development expenses and $3.3 million for employee sign on bonuses paid to the employees of the HP Product Line business. Interest income in the second quarter and first half of fiscal 2001 was flat with the comparable prior periods at $0.6 million and $1.2 million. Interest expense was also flat at $0.2 million and $0.4 million in the second quarter and first half of fiscal 2001 and in the corresponding periods of fiscal 2000. Interest expense is for the capital lease on the Company's building in San Jose. The Company's effective tax rate was at 11.8 % in the second quarter of fiscal 2001, compared to 11.8% in the corresponding period of fiscal 2000. Tax rate during the first half of 2001 was 16.0% compared to 9.7% for the first half of 2000. During the second quarter of fiscal 2000, management favorably revised its judgment of the realizability of certain deferred tax assets because of a combination of the following: increased income from investments and increased sales and pretax income forecasts. Accordingly, $3.3 million of the valuation allowance was released as certain deferred tax assets were judged to be more likely realized than not. Symmetricom retains a valuation allowance on certain deferred tax assets related to stock option exercise deductions, which will be credited to equity when realized. Our effective tax rate is also affected by the percentage of qualified Puerto Rico earnings compared to our total earnings as most of our Puerto Rico earnings are taxed under Section 936 of the U.S. Internal Revenue Code, which exempts qualified Puerto Rico earnings from federal income taxes. The increase in effective tax rate for the first half of fiscal 2001 is partially due to our expectation that a higher percentage of total earnings will be subject to the full federal tax rate. The federal 936 exemption is subject to wage-based limitations and is scheduled to expire at the end of fiscal 2006. In addition, this exemption will be subject to further limitations during fiscal years 2003 through 2006. -12- As a result of the factors discussed above, net income in the second quarter of fiscal 2001 was $13.6 million or $0.54 per share (diluted) compared to a net loss of ($7.4) million or ($0.33) per share (diluted) during the same period of fiscal 2000. Net earnings was $19.1 million or $0.76 per share (diluted) in the first half of fiscal 2001, compared to a net loss of ($6.5) million or ($0.29) per share diluted in the corresponding period of fiscal 2000. Liquidity and Capital Resources Working capital increased to $82.4 million at December 31, 2000 from $66.4 million at June 30, 2000, and the current ratio increased to 3.6 from 3.1 The increase in the current ratio resulted primarily from increases in net receivables and net inventories. During the same period, cash, cash equivalents, and short-term investments decreased to $55.1 million from $55.3 million, primarily due to $1.8 million used for operating activities, $1.8 million used for repurchase of common stock $1.9 million used for capital expenditures offset by $12.9 million from the sale of Brocade/Parthus stocks. At December 31, 2000 we had approximately $7.0 million of unused credit available under our bank line of credit. Accounts receivable at December 31, 2000 increased by $5.2 million (or 26.5%)to $24.8 million from June 30, 2000. Approximately one-half of the increase is due to the increased sales volume and the balance of the increase is due to higher international sales. Day's sales outstanding in receivables increased to 59 days at December 31, 2000 compared to 52 days at June 30, 2000 primarily due to higher sales to international customers who have longer payment terms. Inventory levels at December 31, 2000 increased by $10.9 million from June 30, 2000 to $33.2 million. The Inventory turnover was 2.8 turns for the quarter ended December 31, 2000 compared to 4.1 turns for the quarter ended June 30, 2000. The increase in inventory is primarily due to a planned build up in raw material inventory to avoid component shortages and compensate for long lead-times while managing inventory requirements to meet higher sales volume. The Company anticipates that inventory turnover will increase in the third and fourth quarters of the fiscal year 2001. During the six months ended December 31, 2000 and December 31, 1999, the Company made investments totaling $21.0 million and $15.5 million respectively, in commercial paper. During the six months ended December 31, 2000 and December 31, 1999, proceeds from maturities and sales of commercial paper were $28.3 million and $21.1 million respectively and the proceeds from the sales of equity investments totaled $12.9 million. We believe that cash, cash equivalents, funds generated from operations, investments, financing activities, and funds available under our bank line of credit will be sufficient to satisfy working capital requirements and capital expenditures in fiscal 2001. During the second quarter of fiscal 2001, we did commit to implementing a new ERP system, which we anticipate to be completed by December 2001 at a total projected cost of $5 million. Factors That May Affect Future Operating Results Our actual results could differ materially from those discussed in the forward looking statements, due to a number of factors, including the factors listed below. Fluctuations in Operating Results. Our quarterly and annual operating results have fluctuated in the past and may continue to fluctuate in the future, due to several factors, including, without limitation: (a) the ability to integrate successfully and timely the Communications Synchronization business, products and employees acquired from Hewlett-Packard with our employees including the transfer of Korea production lines to our Puerto Rico facility; (b) the ability to obtain sufficient supplies of GPS products from SSL; (c) the ability to obtain sufficient supplies of sole or limited source components; (d) changes in the product or customer mix of sales; -13- (e) the ability to manage fluctuations in manufacturing yields and other factors; (f) increases in the prices of the components the we purchase; (g) the ability to manage the level and value of inventories; (h) the ability to accurately anticipate both the volume and timing of customer orders, including current and planned Communications Synchronization products; (i) the cancellation or rescheduling of customer orders; (j) the gain or loss of significant customers; (k) the ability to introduce new products on a timely and cost- effective basis; (l) the timing of new product introductions and that of our competitors; (m) customer delays in qualification of new products; (n) the ability to manage increased competition and competitive pricing pressures; (o) the ability to manage fluctuations, especially declines, in the average selling prices of products; (p) market acceptance of new or enhanced versions of our products and our competitors' products; (q) the ability to manage the long sales cycle associated with our products; (r) the ability to manage cyclical conditions in the telecommunications industry; (s) the ability to maintain quality levels for the product's, and (t) reduced rates of growth of telecommunications services and high-bandwidth applications. A significant portion of our operating and manufacturing expenses are relatively fixed in nature and planned expenditures are based in part on anticipated orders. If we are unable to adjust spending in a timely manner to compensate for any unexpected future sales shortfall, it may harm our business. Our operations entail a high level of fixed costs and require an adequate volume of production and sales to achieve and maintain reasonable gross profit margins and net earnings. Therefore, any significant decline in demand for our products or reduction in our average selling prices, or any material delay in customer orders may harm our business, financial condition and results of operations. In addition, our future results depend in large part on growth in the markets for our products. The growth in each of these markets may depend on, among other things, changes in general economic conditions, or conditions which relate specifically to the markets in which we compete, changes in regulatory conditions, legislation, export rules or conditions, interest rates and fluctuations in the business cycle for any particular market segment. If our quarterly or annual operating results do not meet the expectations of securities analysts and investors, the trading price our common stock could significantly decline. Uncertainty of Timing of Product Sales; Limited Backlog. A substantial portion of our quarterly net sales depends on orders received and shipped during a particular quarter, of which a significant portion may be received during the last month or even the last days of that quarter. The timing of the receipt and shipment of even one large order may have a significant impact on our net sales and results of operations for such a quarter. Furthermore, most orders in our backlog can be rescheduled or canceled without any significant penalty. As a result, it is difficult to predict our quarterly results even during the final days of a quarter. Delays in Obtaining Needed Standard Parts, Single Source Components and Services from Suppliers. Delays in standard parts and services from our suppliers are due to an overall worldwide parts shortage which has resulted in longer lead times for certain key parts. Additionally, we have experienced delays in our single source -14- components from time to time. The inability to obtain sufficient key components as required could result in delays or reductions in product shipments, which could harm our business. For example we will be discontinuing our IDST product line because components are no longer readily available from our suppliers. Customer Concentration. A relatively small number of customers have historically accounted for, and are expected to continue to account for, a significant portion of our net sales in any given fiscal period. Samsung accounted for 15% of our net sales and Wandel and Golterman accounted for 13% of our net sales in the second quarter of fiscal 2001. The timing and level of sales to our largest customers have fluctuated significantly in the past and are expected to continue to fluctuate significantly from quarter to quarter and year to year in the future. For example our sales to Samsung were 10.7 million in fiscal 2000 compared to zero in fiscal 1999 and 1998. This was primarily due to the acquisition of the HP Product Line business. We cannot be sure as to the timing or level of future sales to our customers. The loss of one or more of our significant customers, or a significant reduction or delay in sales to any such customer may harm our business. New Product Development. The market for our products is characterized by: (a) rapidly changing technology; (b) evolving industry standards; (c) changes in end-user requirements, and, (d) frequent new product introductions. Technological advancements could render our products obsolete and unmarketable. Our success will depend on our ability to respond to changing technologies, customer requirements and our ability to develop and introduce new and enhanced products, in a cost-effective and timely manner. We recently established a Broadband Access division and have not yet commercially shipped the GoLong solution. The development of new or enhanced products is a complex and uncertain process requiring the accurate anticipation of technological and market trends. We may experience design, manufacturing, marketing and other difficulties that could delay or prevent the development, introduction or marketing of our new products and enhancements. The introduction of new or enhanced products also requires that we manage a smooth transition from older products to new products. In the future, we expect to develop certain new products, that we may not successfully develop, introduce or manage such transitions. Furthermore, products such as those we currently offer may contain undetected or unresolved errors when they are first introduced or as new versions are released. Despite testing, errors may be found in new products or upgrades after the commencement of commercial shipments. These errors could result in delays; or loss of market acceptance and sales; diversion of development resources; injury to our reputation and increased service and warranty costs. Delays in new product development or delays in production startup could materially impact our business. Product Performance and Reliability. Our customers establish demanding specifications for product performance and reliability. Our products are complex and often use state of the art components, processes and techniques. Undetected errors and design flaws have occurred in the past and could occur in the future. In addition to higher service, warranty and replacement costs, such product defects may seriously harm our customer relationships and industry reputation, further magnifying the impact to our business. Competition; Pricing Pressure. We believe that competition in the telecommunications industry in general, and in the new and existing markets served by us in particular, is intense and likely to increase substantially. Our ability to compete successfully in the future will depend on, among other things: (a) the cost effectiveness, quality, price, service and market acceptance our products; (b) our response to the entry of new competitors or the introduction of new products by our competitors; (c) our ability to keep pace with changing technology and customer requirements; -15- (d) the timely development or acquisition of new or enhanced products and (e) the timing of new product introductions by our competitors or us. We believe that our primary competitor is Datum Inc. Incumbent Local Exchange Carriers (ILECs) may become significant competitors due in part to the enactment of The Telecommunications Act of 1996, which permits ILECs, among our largest customers, to manufacture telecommunications equipment. Many of our competitors or potential competitors are more established than we are and have greater financial, manufacturing, technical and marketing resources. Furthermore, we expect: (a) our competitors to continually improve their design and manufacturing capabilities and to introduce new products and services with enhanced performance characteristics and/or lower prices and (b) to continue to experience pricing pressures in all of our markets and to continue to experience price erosion in several of our product lines. Proprietary Technology. Our success will depend, on our ability to protect trade secrets, obtain or license patents and operate without infringing on the rights of others. We rely on a combination of trademark, copyright and patent registration, contractual restrictions and internal security to establish and protect our proprietary rights. There can be no assurance that such measures will provide meaningful protection for our trade secrets or other proprietary information. We have United States and international patents and patent applications pending that cover certain technology used by our operations. However, while we believe that our patents have value, we rely primarily on innovation, technological expertise and marketing competence to maintain our competitive position. The telecommunications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. While we intend to continue our efforts to obtain patents whenever possible, there can be no assurance that patents will be issued, or that new, or existing patents will not be challenged, invalidated or circumvented, or that the rights granted will provide any commercial benefit to us. We are also subject to the risk of adverse claims and litigation alleging infringement of the intellectual property rights of others. Although we are currently not a party to any intellectual property litigation, from time to time we have received claims asserting that we have infringed the proprietary rights of others. There can be no assurance that third parties will not assert infringement claims against us in the future, or that any such claims will not result in costly litigation or require us to obtain a license for such intellectual property rights regardless of the merit of such claims. No assurance can be given that any necessary licenses will be available or that, if available, such licenses can be obtained on commercially reasonable terms. Business Acquisition and Integration. Our acquisition of HP Product Line business resulted in the use of significant amounts of cash, dilutive issuances of stock options, and amortization expense related to goodwill and other intangible assets. In addition, the acquisition involves numerous risks, including: (a) the ability to integrate the acquired operations, technologies and products; (b) the ability to successfully transfer the subcontractor manufacturing lines in Korea to our Puerto Rico facility; (c) potential disruption in sales and marketing; (d) the diversion of management's attention from other business concerns; (e) risks of entering markets in which we have no or limited direct prior experience and (f) the potential loss of key employees of the acquired company. -16- Potential Acquisition. As part of our growth strategy, we expect to review opportunities to buy other businesses or technologies that would complement our current products, expand our market coverage, enhance our technical capabilities and offer growth opportunities. In the event of any future transactions, we could: (a) issue stock that would dilute our current shareholders' percentage ownership; (b) incur debt; (c) assume liabilities or (d) incur significant one-time write-offs. These transactions also involve numerous risks, including: (a) problems combining the acquired operations, technologies or products; (b) unanticipated costs; (c) diversion of management's attention from our core business; (d) adverse effects on existing business relationships with suppliers and customers; (e) risks associated with entering markets in which we have no or limited prior experience and (f) potential loss of key employees of the purchased organizations. We cannot assure that we will be able to successfully integrate any business, products, technologies or personnel from any future acquisitions. Environmental Matters. Our 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 our manufacturing process. While we have not experienced any significant effects on our operations from environmental regulations, we cannot assure you that changes in such regulations will not impose the need for additional capital equipment or other requirements or restrict our ability to expand our operations. Failure to comply with such regulations could result in suspension or cessation of our operations, or could subject us to significant liabilities. Although we periodically review our facilities and internal operations for compliance with applicable environmental regulations, such reviews are necessarily limited in scope and frequency and, therefore, there can be no assurance that such reviews have revealed, or will reveal, all potential instances of noncompliance. The liabilities arising from any noncompliance with such environmental regulations could materially impact our business. Governmental Regulations. Federal and state regulatory agencies, including the Federal Communications Commission and the various state public utility commissions and public service commissions, regulate most of our domestic telecommunications customers. Similar government oversight also exists in the international market. In general we are not directly affected by such legislation, but the effects of such regulation on our customers may, in turn, impact our business. For instance, the sale of our products may be affected by the imposition upon certain of our customers of common carrier tariffs and the taxation of telecommunications services. These regulations are continuously reviewed and subject to change by the various governmental agencies. Changes in current or future laws or regulations, in the United States or elsewhere, could materially impact our business. Risks Associated with International Sales. Our export sales, which are primarily to Western Europe, Latin America, the Far East, and Canada accounted for 27% of net sales in second quarter of fiscal 2001 and 21% of net sales in the corresponding second quarter of fiscal 2000, respectively. International sales subject us to increased risks including: (a) foreign currency fluctuations; -17- (b) export restrictions; (c) longer payment cycles; (d) unexpected changes in Regulatory Requirements or Tariffs; (e) protectionist laws and business practices that favor local competition; (f) dependence on local vendors; (g) reduced or limited protections of intellectual property rights and political and economic instability. To date, almost none of our international revenue and cost obligations has been denominated in foreign currencies. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive and thus less competitive in foreign markets. A portion of our international revenues may be denominated in foreign currencies in the future, including the Euro, which will subject us to risks associated with fluctuations in these foreign currencies. We do 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. Inventory Risks. Although we believe that we currently have appropriate provisions for inventory that has declined in value, become obsolete or is in excess of anticipated demand, there can be no assurance that such provisions will be adequate. Our business could be materially affected, if significant inventories become obsolete, or are otherwise not able to be sold at favorable prices. Changes to Effective Tax Rate. Our effective tax rate is affected by the percentage of qualified Puerto Rico earnings compared to total earnings as most of our Puerto Rico earnings are taxed under Section 936 of the U.S. Internal Revenue Code, which exempts qualified Puerto Rico earnings from federal income taxes. This results in an overall lower effective tax rate for us. This exemption is subject to certain wage-based limitations and expires at the end of fiscal 2006. In addition, this exemption will be subject to further limitations during fiscal years 2003 through 2006. Fluctuations in Stock Price. Our 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 effect on the trading price of our common stock. -18- Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk related to fluctuations in interest rates and in foreign currency exchange rates: Interest Rate Exposure. The Company's exposure to market risk due to fluctuations in interest rates relates primarily to its short-term investment portfolio, which consists of corporate debt securities, which are classified as available-for-sale and were reported at an aggregate fair value of $33.3 million as of December 31, 2000. These available-for-sale securities are subject to interest rate risk inasmuch as their fair value will fall if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from the levels prevailing at December 31, 2000, the fair value of the portfolio would not decline by a material amount. Additionally, a 10% decrease in the market interest rates would not materially impact the fair value of the portfolio. The Company does not use derivative financial instruments to mitigate the risks inherent in these securities. However, the Company does attempt to reduce such risks by typically limiting the maturity date of such securities to no more than nine months, placing its investments with high credit quality issuers and limiting the amount of credit exposure with any one issuer. In addition, the Company believes that it currently has the ability to hold these investments until maturity, and therefore, believes that reductions in the value of such securities attributable to short-term fluctuations in interest rates would not materially harm our business. Foreign Currency Exchange Rate Exposure. The Company's exposure to market risk due to fluctuations in foreign currency exchange rates relates primarily to the intercompany balance with its U.K. subsidiary. Although the Company transacts business with various foreign countries, settlement amounts are usually based on U.S. currency. Transaction gains or losses have not been significant in the past and there is no hedging activity on pound sterling or other currencies. Based on the company's foreign denominated net receivables of $0.1 million at December 31, 2000, a hypothetical 10% adverse change in sterling against U.S. dollars would not result in a material foreign exchange loss. Consequently, the Company does not expect that reductions in the value of such intercompany balances or of other accounts denominated in foreign currencies, resulting from even a sudden or significant fluctuation in foreign exchange rates, would have a direct material impact on the Company's business. Notwithstanding the foregoing analysis of the direct effects of interest rate and foreign currency exchange rate fluctuations on the value of certain of the Company's investments and accounts, the indirect effects of such fluctuations could have a materially harmful effect on the Company's business. For example, international demand for the Company's products is affected by foreign currency exchange rates. In addition, interest rate fluctuations may affect the buying patterns of the Company's customers. Furthermore, interest rate and currency exchange rate fluctuations have broad influence on the general condition of the U.S., foreign and global economies, which could materially harm our business. -19- PART II. OTHER INFORMATION Item 1. Legal Proceedings The information required by this item is disclosed in Note 10 of Notes to Condensed Consolidated Financial Statements set forth in Item 1 of Part I. above. The text of such Note is hereby incorporated herein by reference. Item 2. Not Applicable Item 3. Not Applicable Item 4. Submission of Matters to a Vote of Security Holders (a) The Company's Annual Meeting of the Shareholders was held on October 23, 2000. (b) All director candidates: Richard W. Oliver, Thomas W. Steipp, Robert M. Neumeister, Krish A. Prabhu, Richard N. Snyder, and Robert T. Clarkson were duly elected. (c)(i) The votes for the director candidates were as follows: Nominee Votes For Votes Withheld ------- --------- -------------- Richard W. Oliver 18,808,163 1,589,590 Thomas W. Steipp 17,252,540 3,145,213 Robert M. Neumeister 18,797,213 1,600,540 Krish A. Prabhu 18,797,213 1,600,540 Robert T. Clarkson 18,811,913 1,585,840 Richard N. Snyder 18,789,713 1,608,040 There were no abstentions or broker non-votes with respect to election of directors. (c)(ii) An Amendment to the Company's Bylaws to increase the size of the Board of Directors to a minimum of five and a maximum of eight members was approved. The votes were as follows: For Against Abstain Broker non-votes --- ------- ------- ---------------- 12,696,310 193,725 135,902 7,709,586 (c)(iii) An Amendment to the Company's Articles of Incorporation to increase the number of authorized shares from 32,000,000 to 150,000,000 was approved. The votes were as follows: For Against Abstain Broker non-votes --- ------- ------- ---------------- 15,431,265 4,343,406 121,865 0 (c)(iv) An Amendment to the Company's 1999 Employee Stock Option Plan to increase the number of shares reserved for issuance from 900,000 to 2,900,000 and to reserve 2,000,000 shares of the Company's common stock for issuance thereunder was approved. The votes were as follows: For Against Abstain Broker non-votes --- ------- ------- ---------------- 5,416,244 5,035,325 331,710 9,113,257 (c)(v) An Amendment to Section 4(a)(iii) of the Company's 1999 Director Stock Option Plan was approved. The votes were as follows: For Against Abstain Broker non-votes --- ------- ------- ---------------- 18,667,614 864,545 364,377 0 -20- (c)(vi) The shareholders ratified the appointment of Deloitte & Touche LLP as the Company's independent auditors for the current fiscal year. The votes were as follows: For Against Abstain Broker non-votes --- ------- ------- ---------------- 19,733,986 52,594 109,956 0 Item 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1(1) 1999 Employee Stock Option Plan as Amended on October 23, 2000. 10.2(1) Certificate of Amendment of 1999 Director Stock Option Plan. Footnotes to Exhibits (1) Indicates a management contract or compensatory plan or arrangement. (b) No reports on Form 8-K were filed during the quarter ended December 31, 2000. -21- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized. SYMMETRICOM, INC. (Registrant) DATE: February 13, 2001 By: /s/ William Slater -------------------- ------------------------------------------- William Slater Chief Financial Officer (for Registrant and as Principal Financial and Accounting Officer) -22- Exhibit Index Exhibit No. Description - ----------- ----------- 10.1 1999 Employee Stock Option Plan as Amended through October 23, 2000. 10.2 Certificate of Amendment of 1999 director Stock Option Plan. -23- EX-10.1 2 0002.txt 1999 EMPLOYEE STOCK OPTION PLAN AS AMENDED Exhibit 10.1 SYMMETRICOM, INC. 1999 EMPLOYEE STOCK OPTION PLAN AS AMENDED ON OCTOBER 23, 2000 1 Purposes of the Plan. The purposes of this 1999 Employee Stock Option -------------------- Plan are: . to attract and retain the best available personnel for positions of substantial responsibility, . to provide additional incentive to Employees, Directors and Consultants, and . to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. 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) "Applicable Laws" means the requirements relating to the --------------- administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a committee of Directors appointed by the --------- Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the common stock of the Company. ------------ (g) "Company" means Symmetricom, Inc., a California corporation. ------- (h) "Consult" means any person, including an advisor, engaged by ------- the Company or a Parent or Subsidiary to render services to such entity. (i) "Director" means a member of the Board. -------- (j) "Disability" means total and permanent disability as defined ---------- in Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and -------- Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a -1- Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of ------------ 1934, as amended. (m) "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 Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the same day as the date of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is 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 bid 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 Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to ---------------------- qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "Nonstatutory Stock Option" means an Option not intended ------------------------- to qualify as an Incentive Stock Option. (p) "Notice of Grant" means a written or electronic notice --------------- evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. (q) "Officer" means a person who is an officer of the ------- Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "Option" means a stock option granted pursuant to the ------ Plan. (s) "Option Agreement" means an agreement between the ---------------- Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (t) "Optioned Stock" means the Common Stock subject to an -------------- Option or Stock Purchase Right. (u) "Optionee" means the holder of an outstanding Option or -------- Stock Purchase Right granted under the Plan. (v) "Parent" means a "parent corporation," whether now or ------ hereafter existing, as defined in Section 424(e) of the Code. (w) "Plan" means this 1999 Employee Stock Option Plan as ---- amended on October 23, 2000. (x) "Restricted Stock" means shares of Common Stock acquired ---------------- pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan. -2- (y) "Restricted Stock Purchase Agreement" means a written ----------------------------------- agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. (z) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any ---------- successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (aa) "Section 16(b)" means Section 16(b) of the Exchange Act. ------------- (bb) "Service Provider" means an Employee, Director or ---------------- Consultant. (cc) "Share" means a share of the Common Stock, as adjusted ----- in accordance with Section 13 of the Plan. (dd) "Stock Purchase Right" means the right to purchase -------------------- Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. (ee) "Subsidiary" means a "subsidiary corporation", whether ---------- now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of ------------------------- Section 13 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 2,900,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued -------- under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. -------------------------- (a) Procedure. --------- (i) Multiple Administrative Bodies. The Plan may be ------------------------------ administered by different Committees with respect to different groups of Service Providers. (ii) Section 162(m). To the extent that the -------------- Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify ---------- transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided -------------------- above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions --------------------------- of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: -3- (i) to determine Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (viii) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (ix) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right 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. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable-, (x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xi) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The Administrator's ---------------------------------- decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. 5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may ----------- be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. Limitations. ----------- (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds -4- $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 250,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 250,000 Shares, 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 13. (iv) If an Option 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 13), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. Term of Plan. Subject to Section 19 of the Plan, the Plan ------------ shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. Term of Option. The term of each Option shall be stated in the -------------- Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. --------------------------------------- (a) Exercise Price. The per share exercise price for the -------------- Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than I 10% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. -5- (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator, but shall in no event be less than 85% of the Fair Market Value of the Common Stock. In the case of a Nonstatutory Stock Option intended to qualify as "performance- based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) Waiting Period and Exercise Dates. At the time an --------------------------------- Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall --------------------- determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of. (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) 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) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (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 by Applicable Laws. 10. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Shareholder. Any ----------------------------------------------- Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option -6- Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), 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. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter 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) Termination of Relationship as a Service Provider. If ------------------------------------------------- an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a ---------------------- Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for six (6) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a ----------------- Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement, (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for six (6) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) 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. 11. 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 or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, -7- 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. (b) Repurchase Option. Unless the Administrator ----------------- determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase 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 a rate determined by the Administrator. (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 Administrator in its sole discretion. (d) 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 13 of the Plan. 12. Non-Transferability of Options and Stock Purchase Rights. -------------------------------------------------------- Unless determined otherwise by the Administrator, an Option or Stock Purchase Right 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 distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 13. Adjustments Upon Changes in Capitalization, Dissolution. ------------------------------------------------------- Merger or Asset Sale. - -------------------- (a) Changes in Capitalization. Subject to any required ------------------------- action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock 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 number of issued shares of Common Stock 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 of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the -------------------------- proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or -8- Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the -------------------- Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase 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 merger or sale of assets. (d) Change in Control. In the event of a "Change in ----------------- Control" of the Company, as defined in paragraph (e) 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 Stock Purchase 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 Stock Purchase 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 Stock Purchase 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 Stock Purchase Right by bequest or inheritance. (e) Definition of "Change in Control". For purposes of this --------------------------------- Section 13, 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. -9- (f) Change in Control Price. For purposes of this Section 13, ----------------------- "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. 14. Date of Grant. The date of grant of an Option or Stock Purchase ------------- Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 15. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time ------------------------- amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Company shall obtain -------------------- shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, ---------------------------------- alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 16. Conditions Upon Issuance of Shares. ---------------------------------- (a) Legal Compliance. Shares shall not be issued pursuant to ---------------- the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the -------------------------- exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase 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. 17. Inability to Obtain Authority. The 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 failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. 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. 19. Shareholder Approval. The Plan shall be subject to approval by -------------------- the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. -10- EX-10.2 3 0003.txt CERT. OF AMENDMENT OF DIRECTOR STOCK OPTION PLAN Exhibit 10.2 CERTIFICATE OF AMENDMENT OF THE 1999 DIRECTOR STOCK OPTION PLAN OF SYMMETRICOM, INC. The undersigned, Thomas W. Steipp and William Slater, do hereby certify: 1. They are the duly elected and acting Chief Executive Officer and Secretary, respectively, of Symmetricom, Inc., a California corporation (the "Corporation"). 2. Section 4(a)(iii) of the 1999 Director Stock Option Plan of the Corporation is amended to read as follows: "(iii) On January I of each year, each Outside Director shall be automatically granted an Option (a "Subsequent Option") to purchase 10,000 Shares or a pro rata share of the 10,000 Shares based on the time period between the Director's start date and January I as a percentage of twelve months, provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months." 3. The foregoing amendment of the 1999 Director Stock Option Plan has been duly approved by the board of directors. 4. The foregoing amendment of the 1999 Director Stock Option Plan has been duly approved by the required vote of the shareholders. The total number of outstanding shares of the Corporation entitled to vote with respect to the amendment is 23,306,217 shares of Common Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was a majority of the outstanding shares of Common Stock. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Dated: October 31, 2000 /s/ Thomas Steipp --------------------------------------------- Thomas W. Steipp, Chief Executive Officer /s/ William Slater --------------------------------------------- William Slater, Secretary -----END PRIVACY-ENHANCED MESSAGE-----