-----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, AylI7BtdK0325jVzR2rZ3unt+kULd7lyAc+GezUkAdRNNyF6ZUq+4pNammeyHRXo 04mK8O9GcqnECGBQGYkGLg== 0001012870-01-500801.txt : 20010516 0001012870-01-500801.hdr.sgml : 20010516 ACCESSION NUMBER: 0001012870-01-500801 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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: 1634848 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 d10q.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 March 31, 2001 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file 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 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 April 29, 2001 ----- -------------------------------- Common Stock 23,721,101 -1- SYMMETRICOM, INC. FORM 10-Q INDEX
Page ---- PART I. FINANCIAL INFORMATION - ----------------------------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets - March 31, 2001 and June 30, 2000 3 Condensed Consolidated Statements of Operations - Three and nine months ended March 31, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows - Nine months ended March 31, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 11 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings 20 Item 2. Not Applicable Item 3. Not Applicable Item 4. Not Applicable Item 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21 Exhibit Index 22
-2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements SYMMETRICOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)
March 31, June 30, 2001 2000 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 39,886 $ 19,283 Short-term investments 16,054 36,016 Accounts receivable, net 22,891 19,588 Inventories, net 29,967 22,357 Prepaids and other current assets 2,718 909 -------- -------- Total current assets 111,516 98,153 Property, plant and equipment, net 21,475 19,960 Goodwill, net 2,754 3,002 Other intangible assets, net 9,422 10,607 Deferred tax assets 4,226 2,407 Notes receivable and other 586 540 -------- -------- $149,979 $134,669 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,398 $ 8,407 Accrued compensation 7,432 6,430 Other accrued liabilities 13,164 16,539 Current maturities of long-term obligations 467 391 -------- -------- Total current liabilities 28,461 31,767 Long-term obligations 7,322 7,679 Deferred income taxes 453 203 Shareholders' equity: Preferred stock, no par value; 500,000 shares authorized, none issued -- -- Common stock, no par value; 150,000,000 shares authorized, 23,733,468 and 22,913,510 shares issued and outstanding 28,208 20,503 Shareholder note receivable (555) Accumulated other comprehensive income 751 10,204 Retained earnings 85,339 64,313 -------- -------- Total shareholders' equity 113,743 95,020 -------- -------- $149,979 $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)
Nine Months Three Months Ended Ended March 31, March 31, 2001 2000 2001 2000 ------- ------- -------- ------- Net sales $39,286 $30,574 $113,428 $73,159 Cost of sales 22,221 17,611 63,977 41,336 ------- ------- -------- ------- Gross profit 17,065 12,963 49,451 31,823 Operating expenses: Research and development 3,464 4,761 9,972 12,818 Selling, general and administrative 7,643 6,619 22,026 18,180 Amortization of goodwill and intangibles 490 490 1,470 980 Non-recurring charges (gains) - (6,689) - 129 ------- ------- -------- ------- Operating income(loss) 5,468 7,782 15,983 (284) Gain on sale of equity investments - - 11,325 - Interest income 647 545 1,833 1,742 Interest expense (165) (172) (501) (522) ------- ------- -------- ------- Earnings before income taxes 5,950 8,155 28,640 936 Income tax provision (benefit) 1,214 200 4,854 (500) ------- ------- -------- ------- Net earnings $ 4,736 $ 7,955 $ 23,786 $ 1,436 ======= ======= ======== ======= Earnings per share - basic $0.20 $0.35 $1.02 $0.06 Weighted average shares outstanding - basic 23,638 22,538 23,404 22,542 Earnings per share - diluted $0.19 $0.33 $0.95 $0.06 Weighted average shares outstanding - diluted 25,123 23,880 25,000 23,334
The accompanying notes are an integral part of these consolidated financial statements. -4- SYMMETRICOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended March 31, 2001 2000 ---- ---- Cash flows from operating activities: Net earnings $ 23,786 $ 1,436 Adjustments to reconcile net earnings to net cash provided by operating activities: In-process research and development write off - 3,468 Depreciation and amortization 4,942 4,725 Deferred income taxes (1,569) (1,272) Gain on disposition of investments and assets (11,424) (6,689) Changes in assets and liabilities: Accounts receivable (2,639) (4,451) Inventories (7,610) (5,771) Prepaids and other current assets (1,855) (95) Accounts payable (1,009) 9,682 Accrued compensation 1,002 820 Other accrued liabilities 5,361 312 -------- -------- Net cash provided by operating activities 8,985 2,165 -------- -------- Cash flows from investing activities: Purchases of short-term investments (37,836) (28,805) Maturities of short-term investments 40,583 34,672 Cash paid for acquisition and related costs (228) (19,419) Proceeds from sale of equity investments 12,851 - Proceeds from sale of GPS division - 9,453 Purchases of plant and equipment, net (5,253) (3,206) Other (108) (115) -------- -------- Net cash provided by (used in) investing activities 10,009 (7,420) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock 5,264 3,137 Shareholder note receivable (317) - Repayment of long-term obligations (281) (211) Repurchase of common stock (3,057) (2,931) -------- -------- Net cash provided by (used in) financing activities 1,609 (5) -------- -------- Net increase (decrease) in cash and cash equivalents 20,603 (5,260) Cash and cash equivalents at beginning of period 19,283 44,897 -------- -------- Cash and cash equivalents at end of period $ 39,886 $ 39,637 ======== ======== Non-cash investing and financing activities: Unrealized gain (loss) on securities, net $ (9,453) $ 6,138 Issuance of common stock for note receivable (238) - Deferred taxes on unrealized gain (loss) (6,236) - Cash payments for: Interest $ 446 $ 522 Income taxes 4,283 972
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. For presentation purposes, ------------------------------------------ Symmetricom denotes the end of the third fiscal quarter as March 31. However, the Company's fiscal quarter ends on the Sunday closest to March 31. Fiscal quarter March 2001 actually ended April 1, 2001, and fiscal quarter March 2000 ended April 2, 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 March 31, 2001, the results of operations for the three and nine month period then ended and the cash flows for the nine 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 Per Share. All share and per share amounts have been ---------------------- restated to reflect the three-for-two stock split effective August 2000. Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net earnings 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 per share calculations. (In thousands, except per share amounts)
Three Months Ended Nine Months Ended March 31, March 31, March 31, March 31, 2001 2000 2001 2000 ------- ------- ------- ------- Net earnings $ 4,736 $ 7,955 $23,786 $ 1,436 Weighted average shares outstanding - basic 23,638 22,538 23,404 22,542 Dilutive stock options 1,485 1,342 1,596 792 ------- ------- ------- ------- Weighted average shares outstanding - diluted 25,123 23,880 25,000 23,334 Basic earnings per share $ 0.20 $ 0.35 $ 1.02 $ 0.06 Diluted earnings per share $ 0.19 $ 0.33 $ 0.95 $ 0.06
-6- 4. 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 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, which 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 ===== 5. Investments. Short-term investments consist of corporate debt ----------- securities, which mature between three and twelve months, and marketable equity securities. All highly liquid investments purchased with a remaining 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. Third-party managed funds consist of trading securities held for the benefit of certain employees who participate in a Company deferred compensation plan. Such funds are restricted to the payment of deferred compensation liabilities. Liabilities associated with the deferred compensation plan are included in "Accrued compensation" in the accompanying consolidated balance sheet at amounts equal to the fair value of the restricted funds. None of the third-party managed funds are invested in the common stock of the Company. The following table summarizes the Company's available-for-sale securities recorded as cash and cash equivalents or short-term investments as of March 31, 2001 and June 30, 2000 (in thousands):
Gross March 31, 2001 Amortized Unrealized Cost Gains (losses) Fair Value ---- ------------- ---------- Commercial paper $ 29,062 $ - $ 29,062 Corporate equity securities 1,533 1,418 2,951 -------- ------- -------- Total available-for-sale investments 30,595 1,418 32,013 Less amounts classified as cash equivalents (16,402) - (16,402) Add third-party managed funds 544 (101) 443 -------- ------- -------- Total short term investments $ 14,737 $ 1,317 $ 16,054 ======== ======= ======== 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- 6. Inventories. Inventories are stated at the lower of cost (first-in, ----------- first-out) or market. Inventories consist of (in thousands):
Mar 31, 2001 June 30, 2000 ------------ ------------- Raw materials $17,292 $14,390 Work-in-process 7,621 4,772 Finished goods 8,967 6,719 ------- ------- 33,880 25,881 Allowance for slow moving inventory (3,913) (3,524) ------- ------- Inventories, net $29,967 $22,357 ======= =======
7. Intangibles Assets. Intangible assets, including those that were ------------------ acquired from Hewlett-Packard Company, are carried at cost and consist of the following (in thousands):
Mar 31, 2001 June 30, 2000 ------------ ------------- Goodwill $ 3,245 $ 3,245 Less Accumulated Amortization (491) (243) ------- ------- Goodwill, Net $ 2,754 $ 3,002 ======= ======= Other intangibles: Technology 7,607 7,607 Customer lists, workforce, trademarks, other 4,282 4,227 ------- ------- Total gross other intangible assets 11,889 11,834 Less: Accumulated Amortization (2,467) (1,227) ------- ------- Other intangible assets, net $ 9,422 $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, SMARTCLOCK 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, SMARTCLOCK trademark and for current product technology. The other intangible assets are amortized over 5 years. 8. 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 Nine Months Ended March 31, March 31, March 31, March 31, 2001 2000 2001 2000 ---- ---- ---- ---- Net income $ 4,736 $ 7,955 $23,786 $1,436 Other Comprehensive income: Unrealized gains (losses) on investments, net of taxes (4,382) 4,228 (2,977) 6,138 Reclassification adjustment for gains included in - - (6,476) - net income ------- ------- ------- ------ Total comprehensive income $ 354 $12,183 $14,333 $7,574 ======= ======= ======= ======
-8- 9. 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 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. 10. Business Segment Information. The Company has four reportable ---------------------------- segments: Synchronization ("Sync") Products, Wireless Products, Transmission Products, Contract Manufacturing and Other Products. Sync Products consist principally of digital Clock Distributors (DCDs) based on quartz, rubidium and Global Positioning System (GPS) technologies. Revenues for the Sync Products consist of sales of these products as well as services. Our Sync products provide highly accurate and uninterruptible timing to meet the synchronization requirements of digital networks. Our Wireless base station timing products are designed to deliver stable timing to cellular/PCS base station through a GPS receiver to capture a cesium-based time signals produced by GPS satellites. Our Transmission products include Secure7, Secure7 Lite and the Integrated Digital Services Terminal (IDST). These products are used primarily to support intelligent, fault-tolerant, digital transmission terminal that automatically reroutes disrupted high priority telephone data links. The IDST network access system is deployed as a transmission, monitoring and test access vehicle for the maintenance personnel. Contract Manufacturing involves the utilization of the Company's production facilities to manufacture third-party products. The Company generates revenue by fabricating finished goods inventory of third-party products on a contract basis. 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 Nine Months Ended March 31, March 31, 2001 2000 2001 2000 ---- ---- ---- ---- Net sales: Sync Products $ 29,658 $ 20,444 $ 81,834 $ 53,635 Wireless Product 6,362 7,856 21,345 12,687 Transmission Products 771 979 2,998 3,380 Contract Manufacturing and Other 2,495 1,295 7,251 3,457 -------- -------- -------- -------- Total net sales 39,286 30,574 113,428 73,159 Cost of sales: Sync Products 16,149 11,301 44,736 28,888 Wireless Products 3,414 4,886 11,867 7,969 Transmission Products 524 458 1,629 1,699 Contract Manufacturing and Other 2,134 966 5,745 2,780 -------- -------- -------- -------- Total cost of sales 22,221 17,611 63,977 41,336 Gross profit: Sync Products 13,509 9,143 37,098 24,747 Wireless Products 2,948 2,970 9,478 4,718 Transmission Products 247 521 1,369 1,681 Contract Manufacturing and Other 361 329 1,506 677 -------- -------- -------- -------- Total gross profit $ 17,065 $ 12,963 $ 49,451 $ 31,823 Gross margin:
-9- Sync Products 45.5% 44.7% 45.3% 46.1% Wireless Products 46.3% 37.8% 44.4% 37.2% Transmission Products 32.0% 53.2% 45.7% 49.7% Other Products 14.5% 25.4% 20.8% 19.6% ------- ------- -------- -------- Total gross margin 43.4% 42.4% 43.6% 43.5%
11. Pro forma Condensed Consolidated Statement of Operations. On -------------------------------------------------------- September 30, 1999 Symmetricom acquired certain assets of Hewlett-Packard Company's Communication Synchronization 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 pro forma consolidated results of operations are presented as if the acquisition of Hewlett-Packard Product Line had been made at the beginning of fiscal 2000. Nine Months Ended (in thousands of dollars except per share data) March 31, 2000 - ------------------------------------------------ -------------- Net sales $79,558 Gross Profit 50,045 Net earnings 1,553 Earnings per share - basic $ 0.07 Earnings per share - diluted $ 0.07 The pro forma 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 $3.5 million paid as employee retention bonuses. The unaudited pro forma 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. 12. Shareholder Note Receivable. During the third quarter of fiscal 2001, --------------------------- the Company issued a full-recourse promissory note in the amount of $555,000 to a senior executive of the Company. The note accrues interest at an annual rate of 7.75%. Interest payments are to be made annually and the entire principal balance is due and payable on January 31, 2006. The note is secured by Company stock pledged by the borrower. As of March 31, 2001, the entire principal balance was outstanding. -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 $0.6 million cash subject to an escrow agreement. Symmetricom maintains approximately 19% investment stake in Sarantel Limited. We realized a gain of $0.1 million or $0.08 million 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, capitalized 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 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 recruiting and employee expenses. Results of Operations Net sales increased by $8.7 million (or 28.5%) to $39.3 million in the third quarter of fiscal 2001 from $30.6 million in the third quarter of fiscal 2000. The $8.7 million increase is primarily comprised of an increase in the sales of Sync Products of $9.2 million, offset by a decrease in the sale of other products by $0.5 million. Third quarter increase in sales of Sync Products includes the following: $2.8 million from new products, $3.0 million from existing customers who were expanding their operations, and $3.4 million from all other sources. Net sales increased by $40.3 million (or 55%) to $113.4 million in the first nine months of fiscal 2001 from $73.2 million in the corresponding period of fiscal 2000. This $40.3 million increase in revenue is comprised primarily of a $28.2 million increase in sales of Sync products. The nine month increase in sales of Sync Products includes the following major items: $8.9 million from new products, $4.3 million from customers who were expanding their existing operations, and $13.1 million from all others. Gross profit as a percentage of net sales was 43.4% and 43.6% in the third quarter and first nine months of fiscal 2001, respectively, compared to 42.4% and 43.5% in the corresponding periods of fiscal 2000. The slight increase in the gross profit in the third quarter of fiscal 2001 compared to the corresponding period of fiscal 2000 -11- 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 $3.5 million (or 8.8% of net sales) and $10 million (or 8.8% of net sales) in the third quarter and first nine months of fiscal 2001, respectively, compared to $4.8 million (or 15.6% of net sales) and $12.8 million (or 17.5% of net sales) in the corresponding periods of fiscal 2000. The decrease as a percentage of net sales is primarily due to higher net 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 $8.1 million (or 20.7% of net sales) and $23.5 million (or 20.7% of net sales) in the third quarter and first nine months of fiscal 2001, respectively, compared to $7.1 million (or 23.3% of net sales) and $19.2 million (or 26.2 % of net sales) in the corresponding periods of fiscal 2000. The increase in aggregate dollars expensed was primarily due to higher marketing and sales expense associated with our increased sales. The gain of $0.1 million or $0.08 million after taxes on the sale of the United Kingdom based dielectric Antenna Division is also netted in the general and administrative expense. In March 2000 the Company recorded a non recurring gain on the sale of the GPS division of $6.7 million (or 21.9% of net sales for the third quarter of fiscal 2000). Similarly, in December 2000 the Company recorded a non-recurring gain on sale of equity investments (Parthus stock) of $9.5 million (or 24.9 % of net sales for the second quarter of fiscal 2001) and a $1.8 million non- recurring gain from the sale of equity investments during the first quarter of fiscal 2001. During the third quarter of fiscal 1999 the company recorded non- recurring charges of $6.8 million as a result of the acquisition of the HP Product Line business. The non-recurring charges were 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 third quarter and first nine months of fiscal 2001 was $0.6 million and $1.8 million, respectively, compared to $0.5 million and $1.7 million in the corresponding periods of fiscal 2000. The increase in interest income is primarily due to the increase in cash, cash equivalents and short-term investments. Interest expense was flat at $0.2 million and $0.5 million in the third quarter and first nine months of fiscal 2001 and in the corresponding periods of fiscal 2000. Interest expense represents the interest on the capital lease for the building the Company leases in San Jose. The Company's effective tax rate was 20.4% in the third quarter of fiscal 2001, compared to 2.5% in the corresponding period of fiscal 2000. The effective tax rate during the first nine months of 2001 was 16.9% compared to (53.4)% for the first nine months of fiscal 2000. During the second quarter of fiscal 2001, 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. During the third quarter of fiscal 2001, the release of $0.4 million from the valuation allowance reduced the Company's effective tax rate by about 6.4 %. . Symmetricom retains a valuation allowance on certain deferred tax assets related to stock option deductions, which will be credited to equity when realized. The 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 nine months 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. As a result of the factors discussed above, net income in the third quarter of fiscal 2001 was $4.7 million or $0.19 per share (diluted) compared to $8.0 million or $0.33 per share (diluted) during the same period of fiscal 2000. Net earnings was $23.8 million or $0.95 per share (diluted) in the first nine months of fiscal 2001, compared to $1.4 million or $0.06 per share (diluted) in the corresponding period of fiscal 2000. -12- Liquidity and Capital Resources Working capital increased to $83.1 million at March 31, 2001, from $66.4 million at June 30, 2000, and the current ratio increased to 3.9 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 increased to $55.9 million from $55.3 million, primarily due to $9.0 million provided by operating activities, $12.9 million provided from the sale of equity investments, and $4.9 million from the issuance of common stock. This was partially offset by $3.1 million used for repurchase of common stock and $5.3 million used for capital expenditure. At March 31, 2001, we had approximately $7.0 million of unused credit available under our bank line of credit. Accounts receivable at March 31, 2001 increased by $3.3 million (or 16.9%) to $22.9 million from $19.6 million at 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. Days' sales outstanding in receivables increased to 53 days at March 31, 2001, compared to 52 days at June 30, 2000, primarily due to higher sales to international customers who have longer payment terms. Inventory levels at March 31, 2001 increased by $7.6 million from $22.4 million at June 30, 2000, to $30.0 million at March 31, 2001. The inventory turnover was 2.8 turns for the quarter ended March 31, 2001 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 for the newly acquired HP Product Line business. The Company anticipates that inventory turnover will also increase in the fourth quarter of the fiscal year 2001. During the three months ended March 31, 2001 and March 31, 2000, the Company made investments totaling $28.3 million and $21.0 million, respectively, in commercial paper. During the nine months ended March 31, 2001 and March 31,2000, proceeds from maturities and sales of commercial paper were $40.6 million and $34.7 million, respectively. The proceeds from the sales of equity investments totaled $12.9 million for the nine months ended March 31, 2001. 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 committed to implementing a new ERP system, which we anticipate to be completed by December 2001 at a total projected cost of approximately $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 obtain sufficient supplies of GPS products from SSL; (b) the ability to obtain sufficient supplies of sole or limited source components; (c) changes in the product or customer mix of sales; (d) the ability to manage fluctuations in manufacturing yields and other factors; (e) increases in the prices of the components the we purchase; (f) the ability to manage the level and value of inventories; -13- (g) the ability to accurately anticipate both the volume and timing of customer orders, including current and planned Communications Synchronization products; (h) the cancellation or rescheduling of customer orders; (i) the gain or loss of significant customers; (j) the ability to introduce new products on a timely and cost- effective basis; (k) the timing of new product introductions and that of our competitors; (l) customer delays in qualification of new products; (m) the ability to manage increased competition and competitive pricing pressures; (n) the ability to manage fluctuations, especially declines, in the average selling prices of products; (o) market acceptance of new or enhanced versions of our products and our competitors' products; (p) the ability to manage the long sales cycle associated with our products; (q) the ability to manage cyclical conditions in the telecommunications industry; (r) the ability to maintain quality levels for the product's, and (s) 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 of 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 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. -14- 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 Acterna accounted for 15% of our net sales in the third 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; (d) the timely development or acquisition of new or enhanced products and -15- (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. 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; -16- (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. Power Interruptions and Pricing. The shortage of energy supplies in California could have a negative impact on the Company's future operating activities. California is currently experiencing prolonged energy alerts caused by the shortage and substantially increased costs of electricity and natural gas supplies. Although the majority of the Company's manufacturing operations are located outside of California, the Company conducts research and development activities as well as some pilot manufacturing and testing at its headquarters in San Jose, California. Future interruptions in our power supplies or further increases in our power costs could have a material adverse affect on our operations and our financial results. We do not presently have back-up power generating capacity at our San Jose, California facility. 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 31% of net sales in the third quarter of fiscal 2001 and 21% of net sales in the corresponding third quarter of fiscal 2000, respectively. International sales subject us to increased risks including: (a) foreign currency fluctuations; (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; -17- (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 $12.7 million as of March 31, 2001. 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 March 31, 2001, 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 March 31, 2001, 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. Not Applicable Item 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1(1) Symmetricom, Inc. Senior Executive Loan Program as adopted January 19, 2001. 10.2(1) Full Recourse Promissory Note of Thomas Steipp dated February 1, 2001. 10.3(1) Security Agreement by Thomas Steipp dated February 1, 2001. 10.4(1) Symmetricom, Inc. Deferred Compensation Plan effective October 1, 1999. 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 March 31, 2001. -20- 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: May 14, 2001 By: /s/ William Slater ------------------------------------------ William Slater Chief Financial Officer (for Registrant and as Principal Financial and Accounting Officer) -21- Exhibit Index ------------- Exhibit No. Description - ---------- ----------- 10.1 Symmetricom, Inc. Senior Executive Loan Program as adopted January 19, 2001. 10.2 Full Recourse Promissory Note of Thomas Steipp dated February 1, 2001. 10.3 Security Agreement by Thomas Steipp dated February 1, 2001. 10.4 Symmetricom, Inc. Deferred Compensation Plan effective October 1, 1999. -22- EX-10.1 2 dex101.txt SENIOR EXECUTIVE LOAN PLAN Exhibit 10.1 SYMMETRICOM, INC. SENIOR EXECUTIVE LOAN PLAN This memorandum memorializes the executive loan plan as adopted by the Board of Directors (the "Board") of Symmetricom, Inc. (the "Company") on January 19, 2001. 1. Purpose The Company has determined that in order to attract and retain qualified senior executive management, and to encourage their retention of Company stock, it is appropriate to adopt an executive loan plan to provide loans from lawfully available Company funds to assist certain key senior executives with the exercise of their Company stock options and the payment of taxes arising from such exercise. While the Company's 1990 Employee Stock Plan and 1999 Employee Stock Plan (each as amended and approved by the Company's stockholders) authorize the Company's accepting a promissory note as one method for an optionee's payment of the option exercise price, some of the option agreements entered into with certain senior executives under the 1990 Employee Stock Plan do not incorporate a promissory note as a permitted payment method for the option's exercise. This has, in some instances, hindered certain optionees' ability to realize the full intended benefit from their options. 2. Authority This executive loan plan is adopted pursuant to California Corporations Code sections 408 and 315(f), and is in furtherance of the Company's 1990 Employee Stock Plan and 1999 Employee Stock Plan, each as amended and approved by the Company's stockholders. It is further intended to comply with Regulation U as codified at 12 Code of Federal Regulations Part 221. 3. Program Duration The executive loan plan is subject to annual review by the Board which shall determine whether such plan continues to benefit the Company. 4. Eligible Participants Persons potentially eligible to participate in the loan plan include such officers and key employees as may be determined from time to time by the Company's Board. The Board has determined initially to restrict participation to the Company's CEO and his direct reports. 5. Secured Recourse Promissory Note A borrower under the Plan shall execute and deliver to the Company a full recourse promissory note for the purchase of his shares. To provide security for payment of the note, the certificate for shares so purchased shall be held by the Company, and the borrower shall deliver the certificate to the Company together with an executed security agreement and blank stock assignment transferring all or some of the shares to the Company if, as, and when required by the -1- security agreement. The security agreement shall substantially conform to that attached hereto as Exhibit 1. --------- 6. Term of Note The principal balance, together with interest accrued and unpaid, shall be due no later than five (5) years from the date of the promissory note's making, and shall otherwise become due in full upon the occurrence of an Event of Acceleration. Principal and interest may be prepaid at any time without penalty. 7. Rate and Payment of Interest The interest rate on borrowed funds shall be at the borrower's market rate for a similarly secured loan from a commercial lender. Accrued interest shall be due and payable on the anniversary of the loan's making for each year during the note's term. 8. Events of Acceleration (a) The entire unpaid principal sum and unpaid interest under amounts borrowed shall become immediately due and payable upon the earliest to occur of the following (each of which constitutes an "Event of Acceleration"): (i) The date when the borrower ceases to provide services to the Company as an employee; (ii) The insolvency of the borrower, the commission of an act of bankruptcy by the borrower, the execution by the borrower of a general assignment for the benefit of creditors, or the filing by or against the borrower of a petition in bankruptcy or a petition for relief under the provisions of the federal bankruptcy act or another state or federal law for the relief of debtors and the continuation of such petition without dismissal for a period of 90 days or more; or (iii) The failure of the borrower to perform a material obligation imposed upon the borrower under his secured promissory note or security agreement. (b) Notwithstanding the absence of a triggering event under section 8(a) above, such portion of the unpaid principal balance and unpaid interest under amounts borrowed shall become immediately due and payable on a pro rata basis concurrently with the borrower's sale of shares acquired through the exercise of options. For example, if one-third of the shares initially acquired by the borrower [after adjustment for any stock splits and stock dividends] were sold, one-third of the unpaid principal balance plus one-third of the accrued interest not previously discharged shall be paid to the Company concurrently with borrower's receipt, or right to receive, any sale proceeds from the sale of shares. -2- 9. Additional Terms The Company shall adopt such additional executive loan plan terms as may be recommended by the Company's Chief Financial Officer as necessary to effectuate the plan upon concurrence by Company counsel that such terms comply with applicable law. [remainder of page intentionally left blank] -3- EXHIBIT 1 SECURITY AGREEMENT THIS SECURITY AGREEMENT is made as of _____________, 200__ between Symmetricom, Inc., a California corporation ("Pledgee"), and ________________ ("Pledgor"), with reference to the following facts: Pursuant to a Stock Option Agreement entered into under the [Symmetricom, Inc. Amended and Restated 1999 Employee Stock Plan / Amended 1990 Employee Stock Plan] (the "Plan") Pledgor has purchased ________ shares of Pledgee's Common Stock (the "Shares") at a price of $________ per share, for a total purchase price of $_____________. Pledgor has delivered to Pledgee a Full Recourse Promissory Note (the "Note") for the purchase price of the Shares. Pledgee desires to obtain security for payment of the Note in the form of a pledge of the Shares, as set forth herein. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. To provide security for payment of the Note, Pledgor, pursuant to the California Commercial Code, hereby pledges all of the Shares (herein sometimes referred to as the "Collateral") represented by Certificate No. _____, duly endorsed in blank or with executed stock powers, and herewith delivers the certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold the certificate subject to the terms and conditions of this Security Agreement. The Shares (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. Pledgee's Covenants. At all times while Pledgee is holding the Shares as security under this Security Agreement, Pledgee shall: (a) Collect any dividends that may be declared on the Shares and credit such dividends against any accrued interest or unpaid principal under the Note, as part payment; and (b) Collect and hold any shares that may be issued upon conversion of the Shares; and (c) Collect and hold any other securities or other property that may be distributed with respect to the Shares; and (d) Any such shares and other securities or property shall be subject to the security interest granted in Section 1 of this Security Agreement and shall be held by Pledgee under this Security Agreement. EXHIBIT 1-1 3. Pledgor's Representations and Covenants. To induce Pledgee to enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: (a) Pledgor will pay the principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. (b) The Shares are free of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. (c) In the event that Pledgee's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 221 of Title 12 of the Code of Federal Regulations ("Regulation U"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 4. Voting Rights. During the term of this Security Agreement and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 5. Stock Adjustments. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other change is declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 6. Options and Rights. In the event that, during the term of this Security Agreement, subscription options or other rights or options shall be issued in connection with the pledged Shares, such options and other rights and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 7. Default. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event either of the following occurs: (a) Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or (b) Pledgor fails to perform any of the covenants set forth in the Stock Option Agreement entered into under the Plan pursuant to which the Shares were acquired or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. EXHIBIT 1-2 7.1 In the event of a default, Pledgee shall have all of the rights and remedies of a creditor and secured party at law and in equity, including (without limitation) the rights and remedies provided under the California Commercial Code. Without limiting the foregoing, Pledgee may, after giving 10 days' prior written notice to the Pledgor by certified mail at his residence or business address, sell any or all of the Shares in such manner and for such price as Pledgee may determine, including (without limitation) through a public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery. Pledgee is authorized at any such sale, if it deems it advisable to do so, to restrict the prospective bidders or purchasers of any of the Shares to persons who will represent and agree that they are purchasing for their own account for investment, and not with a view to the distribution or sale of any of the Shares, to restrict the prospective bidders or purchasers and the use any purchaser may make of the Shares and impose any other restriction or condition that Pledgee deems necessary or advisable under the federal and state securities laws. 7.2 Upon any sale described in Section 7.1, Pledgee shall have the right to deliver, assign and transfer to the purchaser thereof the Shares so sold. Each purchaser at any such sale shall hold the Shares so sold absolute, free from any claim or right of any kind. In case of any sale of any or all of the Shares on credit or for future delivery, the Shares so sold may be retained by Pledgee until the selling price is paid by the purchaser thereof, but Pledgee shall not incur any liability in case of the failure of such purchaser to take up and pay for the Shares so sold and, in case of any such failure, such Shares may again be sold under the terms of Section 7.1. 7.3 Pledgor hereby agrees that any disposition of any or all of the Shares by way of a private placement or other method, which in the opinion of Pledgee is required or advisable under federal and state securities laws, is commercially reasonable. At any public sale, Pledgee may (if it is the highest bidder) purchase all or any part of the Shares at such price as Pledgee deems proper. Out of the proceeds of any sale, Pledgee may retain an amount sufficient to pay all amounts then due under the Note, together with the expenses of the sale and reasonable attorneys' fees. Pledgee shall pay the balance of such proceeds, if any, to Pledgor. Pledgor shall be liable for any deficiency that remains after Pledgee has exercised its rights under this Security Agreement. 8. Release of Collateral. Upon payment in full of the outstanding principal balance of the Note and all interest and other charges due under the Note, Pledgee shall release from pledge and deliver to Pledgor the Collateral pledged hereunder. 9. Withdrawal or Substitution of Collateral. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 10. Term. This Security Agreement and the pledge of Shares effected hereunder, shall continue until the payment of all indebtedness secured hereby, at which time the remaining pledged Shares shall be promptly delivered to Pledgor. 11. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall Exhibit 1-3 become immediately due and payable, and Pledgee may proceed as provided in the case of default. 12. Pledgeholder Liability. In the absence of willful or gross negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 13. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 14. Successors or Assigns. Pledgor and Pledgee agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees; successors, assigns, heirs, executors and administrators. 15. Governing Law. This Security Agreement shall be interpreted and governed under the laws of the State of California. [Signature Page Follows] Exhibit 1-4 IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the day and year first above written. PLEDGOR ------- ---------------------------------- Print Name Address: ------------------------- ---------------------------------- ---------------------------------- PLEDGEE ------- SYMMETRICOM, INC. a California corporation By -------------------------------- Title ----------------------------- PLEDGEHOLDER ------------ ---------------------------------- Secretary of SYMMETRICOM, INC. Exhibit 1-5 EX-10.2 3 dex102.txt FULL-RECOURSE PROMISSORY NOTE Exhibit 10.2 FULL-RECOURSE PROMISSORY NOTE $555,000.00 February 1, 2001 San Jose, California FOR VALUE RECEIVED, the undersigned Borrower promises to pay to Symmetricom, Inc., a California corporation (the "Company"), at its principal offices at 2300 Orchard Parkway, San Jose, CA 95131-1017 the principal sum of Five Hundred Fifty-Five Thousand Dollars ($555,000.00), together with interest from the date of this Note on the unpaid principal balance, upon the terms and conditions specified below. 1. Term. The principal balance of this Note, together with interest accrued and unpaid or unforgiven to date, shall be due and payable at the close of business on January 31, 2006, or on the occurrence of an Event of Acceleration as provided under Section 5 below. 2. Rate of Interest. Interest shall accrue under the Note on any unpaid principal balance at the rate of 7.75%, compounded annually. 3. Time of Payment. Accrued interest shall be due and payable on the thirty-first (31/st/) day of January of each year during the term of this Note, as described in Section 1 above. 4. Prepayment. Prepayment of principal and interest may be made at any time without penalty. 5. Events of Acceleration. The entire unpaid principal sum and unpaid interest under this Note shall become immediately due and payable upon the earliest to occur of the following (each of which constitutes an "Event of Acceleration"): (a) The date when the Borrower ceases to provide services to the Company as an employee or as a consultant pursuant to a written consulting agreement; (b) The insolvency of the Borrower, the commission of an act of bankruptcy by the Borrower, the execution by the Borrower of a general assignment for the benefit of creditors, or the filing by or against the Borrower of a petition in bankruptcy or a petition for relief under the provisions of the federal bankruptcy act or another state or federal law for the relief of debtors and the continuation of such petition without dismissal for a period of 90 days or more; or (c) The failure of the Borrower to perform a material obligation imposed upon the Borrower by reason of this Note. 6. Notice. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon the earliest of personal delivery, receipt, or the third full day following deposit in the United States Post Office with postage and fees prepaid, addressed to the other party hereto at the address last known or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. -1- 7. Recourse. Borrower shall be personally liable for payment of this Note. 8. Collection. If action is instituted to collect this Note, the Borrower promises to pay all reasonable costs and expenses (including reasonable attorney fees) incurred in connection with such action. 9. Waiver. No previous waiver and no failure or delay by the Company or the Borrower in acting with respect to the terms of this Note shall constitute a waiver of any breach, default or failure of condition under this Note or the obligations secured thereby. A waiver of any term of this Note or of any of the obligations secured thereby must be made in writing and signed by a duly authorized officer of the Company and shall be limited to the express terms of such waiver. The Borrower hereby expressly waives notice, presentment and demand for payment at such time as any payments are due under this Note. 10. Conflicting Agreements. In the event of any inconsistencies between the terms of this Note and the terms of any other document related to the loan evidenced by the Note, the terms of this Note shall prevail. 11. Governing Law. This Note shall be construed in accordance with the laws of the State of California. /S/ Thomas Steipp -------------------------------------- Thomas Steipp Address: --------------------------- --------------------------- -2- EX-10.3 4 dex103.txt SECURITY AGREEMENT Exhibit 10.3 SECURITY AGREEMENT THIS SECURITY AGREEMENT is made as of February 1, 2001, between Symmetricom, Inc., a California corporation ("Pledgee"), and Thomas Steipp ("Pledgor"), with reference to the following facts: Pursuant to a Stock Option Agreement entered into under the Symmetricom, Inc. Amended and Restated 1999 Stock Plan (the "Plan") Pledgor has purchased fifty thousand (50,000) shares of Pledgee's Common Stock (the "Shares") at a price of $4.75 per share plus taxes, for a total purchase price of five hundred fifty five thousand dollars ($555,000). Pledgor has delivered to Pledgee a Full Recourse Promissory Note (the "Note") for the purchase price of the Shares. Pledgee desires to obtain security for payment of the Note in the form of a pledge of the Shares, as set forth herein. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. To provide security for payment of the Note, Pledgor, pursuant to the California Commercial Code, hereby pledges all of the Shares (herein sometimes referred to as the "Collateral") represented by Certificate No. _____, duly endorsed in blank or with executed stock powers, and herewith delivers the certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold the certificate subject to the terms and conditions of this Security Agreement. The Shares (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, and the Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. Pledgee's Covenants. At all times while Pledgee is holding the Shares as security under this Security Agreement, Pledgee shall: (a) Collect any dividends that may be declared on the Shares and credit such dividends against any accrued interest or unpaid principal under the Note, as part payment; and (b) Collect and hold any shares that may be issued upon conversion of the Shares; and (c) Collect and hold any other securities or other property that may be distributed with respect to the Shares; and (d) Any such shares and other securities or property shall be subject to the security interest granted in Section 1 of this Security Agreement and shall be held by Pledgee under this Security Agreement. 3. Pledgor's Representations and Covenants. To induce Pledgee to enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: -1- (a) Pledgor will pay the principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. (b) The Shares are free of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. (c) In the event that Pledgee's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 221 of Title 12 of the Code of Federal Regulations ("Regulation U"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 4. Voting Rights. During the term of this Security Agreement and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 5. Stock Adjustments. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other change is declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 6. Options and Rights. In the event that, during the term of this Security Agreement, subscription options or other rights or options shall be issued in connection with the pledged Shares, such options and other rights and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 7. Default. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event either of the following occurs: (a) Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or (b) Pledgor fails to perform any of the covenants set forth in the Stock Option Agreement entered into under the Plan pursuant to which the Shares were acquired or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. 7.1 In the event of a default, Pledgee shall have all of the rights and remedies of a creditor and secured party at law and in equity, including (without limitation) the rights and remedies provided under the California Commercial Code. Without limiting the foregoing, Pledgee may, after giving 10 days' prior written notice to the Pledgor by certified mail at his residence or business address, sell any or all of the Shares in such manner and for such price as -2- Pledgee may determine, including (without limitation) through a public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery. Pledgee is authorized at any such sale, if it deems it advisable to do so, to restrict the prospective bidders or purchasers of any of the Shares to persons who will represent and agree that they are purchasing for their own account for investment, and not with a view to the distribution or sale of any of the Shares, to restrict the prospective bidders or purchasers and the use any purchaser may make of the Shares and impose any other restriction or condition that Pledgee deems necessary or advisable under the federal and state securities laws. 7.2 Upon any sale described in Section 7.1, Pledgee shall have the right to deliver, assign and transfer to the purchaser thereof the Shares so sold. Each purchaser at any such sale shall hold the Shares so sold absolute, free from any claim or right of any kind. In case of any sale of any or all of the Shares on credit or for future delivery, the Shares so sold may be retained by Pledgee until the selling price is paid by the purchaser thereof, but Pledgee shall not incur any liability in case of the failure of such purchaser to take up and pay for the Shares so sold and, in case of any such failure, such Shares may again be sold under the terms of Section 7.1. 7.3 Pledgor hereby agrees that any disposition of any or all of the Shares by way of a private placement or other method, which in the opinion of Pledgee is required or advisable under federal and state securities laws, is commercially reasonable. At any public sale, Pledgee may (if it is the highest bidder) purchase all or any part of the Shares at such price as Pledgee deems proper. Out of the proceeds of any sale, Pledgee may retain an amount sufficient to pay all amounts then due under the Note, together with the expenses of the sale and reasonable attorneys' fees. Pledgee shall pay the balance of such proceeds, if any, to Pledgor. Pledgor shall be liable for any deficiency that remains after Pledgee has exercised its rights under this Security Agreement. 8. Release of Collateral. Upon payment in full of the outstanding principal balance of the Note and all interest and other charges due under the Note, Pledgee shall release from pledge and deliver to Pledgor the Collateral pledged hereunder. 9. Withdrawal or Substitution of Collateral. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 10. Term. This Security Agreement and the pledge of Shares effected hereunder, shall continue until the payment of all indebtedness secured hereby, at which time the remaining pledged Shares shall be promptly delivered to Pledgor. 11. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. -3- 12. Pledgeholder Liability. In the absence of willful or gross negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 13. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 14. Successors or Assigns. Pledgor and Pledgee agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees; successors, assigns, heirs, executors and administrators. 15. Governing Law. This Security Agreement shall be interpreted and governed under the laws of the State of California. [Signature Page Follows] IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement as of the day and year first above written. PLEDGOR /S/ Thomas Steipp ----------------------------------------- Thomas Steipp ----------------------------------------- Print Name Address: ___________________________ ___________________________ PLEDGEE SYMMETRICOM, INC. a California corporation By: /S/ William Slater ---------------------------------- Title: CFO ---------------------------------- PLEDGEHOLDER /S/ William Slater ----------------------------------------- CFO of SYMMETRICOM, INC. -4- EX-10.4 5 dex104.txt DEFERRED COMPENSATION PLAN Exhibit 10.4 SYMMETRICOM, INC. DEFERRED COMPENSATION PLAN Effective as of October 1, 1999 TABLE OF CONTENTS Page ---- ARTICLE I TITLE AND DEFINITIONS.................................. 2 ARTICLE II PARTICIPATION.......................................... 4 ARTICLE III DEFERRAL ELECTIONS..................................... 5 ARTICLE IV ACCOUNTS............................................... 8 ARTICLE V VESTING................................................ 9 ARTICLE VI GENERAL DUTIES......................................... 9 ARTICLE VII DISTRIBUTIONS................................... ...... 10 ARTICLE VIII ADMINISTRATION......................................... 14 ARTICLE IX MISCELLANEOUS.......................................... 16 -i- SYMMETRICOM, INC. DEFERRED COMPENSATION PLAN This Plan, effective as of October 1, 1999 (the "Effective Date"), is adopted by Symmetricom, Inc. (the "Company"), acting on behalf of itself and its designated subsidiaries. Throughout, the term "Company" shall include wherever relevant any entity that is directly or indirectly controlled by the Company, any entity in which the Company has a significant equity or investment interest, or any subsidiary of the Company, as determined by the Committee. RECITALS 1. The Company wishes to establish a supplemental retirement plan for the benefit of the non-employee members of the Company's Board of Directors, and for a select group of management or highly compensated employees of the Company. 2. The Company wishes to provide that the supplemental retirement plan to be established shall be designated the Symmetricom, Inc. Deferred Compensation Plan (the "Plan"). 3. The Company wishes to provide under the Plan for the payment of accrued vested benefits to Plan participants and their beneficiaries. 4. Under the Plan, the Company is obligated to pay vested accrued benefits to the Plan participants and their beneficiaries from the Company's general assets. 5. The Company intends to enter into an agreement (the "Trust Agreement!) with to be appointed as trustee (the "Trustee") under an irrevocable trust (the "Trust") to be used in connection with the Plan. 6. The Company intends to make contributions to the Trust so that such contributions will be held by the Trustee and invested, reinvested and distributed, all in accordance with the provisions of this Plan and the Trust Agreement. 7. The Company intends that amounts contributed to the Trust and the earnings thereon shall be used by the Trustee to satisfy the liabilities of the Company under the Plan with respect to each Plan participant for whom an Account has been established and such utilization shall be in accordance with the procedures set forth herein. 8. The Company intends that the Trust be a "grantor trust" with the principal and income of the Trust treated as assets and income of the Company for federal and state income tax purposes. 9. The Company intends that the assets of the Trust shall at all times be subject to the claims of the general creditors of the Company as provided in the Trust Agreement. 10. The Company intends that the existence of the Trust shall not alter the characterization of the Plan as "unfunded" for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and shall not be construed to provide income to Plan participants under the Plan prior to actual payment of the vested accrued benefits thereunder. NOW THEREFORE, the Company hereby establishes the Plan as follows: ARTICLE I TITLE AND DEFINITIONS I.1 Title. ----- This Plan shall be known as the Symmetricom, Inc. Deferred Compensation Plan. I.2 Definitions. ----------- Whenever the following words and phrases are used in this Plan, with the first letter capitalized, they shall have the meanings specified below: "Account" means, for each Participant, the bookkeeping account maintained by the Committee that is credited with amounts equal to (a) the portion of the Participant's Salary that he or she elects to defer, (b) the portion of the Participant's Commissions that he or she elects to defer, (c) the portion of the Participant's Bonus that he or she elects to defer, (d) Company Contributions, if any, made to the Plan for the Participant's benefit, and (e) adjustments to reflect deemed earnings pursuant to Section 4.1 (d). "Beneficiary" or "Beneficiaries" means the beneficiary last designated in writing by a Participant in accordance with procedures established by the Committee from time to time to receive the benefits specified hereunder in the event of the Participant's death. No Beneficiary designation shall become effective until it is filed with the Committee during the Participant's lifetime. "Board of Directors"' or "Board" means the Board of Directors of the Company. "Bonus" means any cash-based incentive compensation payable (other than Commissions) to a Participant in addition to the Participant's Salary, "Code" means the Internal Revenue Code of 1986, as amended. Reference to a section of the Code includes such section and any comparable section or sections of any future legislation that amends, supplements or supersedes such section. "Commissions" means any cash-based commission compensation payable to a Participant. "Committee" means the Committee appointed by the Board to administer the Plan in accordance with Article VIII. 2 "Company" means Symmetricom, Inc. ("Symmetricom"), any successor corporation, any entity that is directly or indirectly controlled by the Company, or any entity in which the Company has a significant equity or investment interest, as determined by the Committee. "Company Contributions" is defined in Section 3.2 "Compensation" means the Bonus, Commissions, Salary and/or Directors Fees that the Participant earns for services rendered to the Company. "Director" means a non-employee member of the Board of Directors. "Directors Fees" means the annual cash fees paid by the Company, including retainer fees, committee fees and meeting fees, paid by the Company to non- employee members of the Board as compensation for serving on the Board. "Disability" means total and permanent disability within the meaning of the Company's long-term disability plan. "Distributable Amount" means the amount credited to a Participant's Account. Such amount shall be valued on the first day of the month following the calendar quarter in which the Participant is to receive a distribution under Article VII or as soon as administratively practicable thereafter, as determined in the sole and absolute discretion of the Committee. "Distribution Event" means, with respect to each Participant, (a) the Participant's termination of employment with the Company (or service on the Board, in the case of a Director) for any reason, including Retirement, death or Disability, or (b) a specific date, if specified by the Participant pursuant to Article VII. A Participant's Distribution Event election shall be made in writing at such time, on such form and subject to such procedures as the Committee may, in its sole and absolute discretion, specify from time to time. "Eligible Employee" means an Employee who is in a select group of management or highly-compensated Employees as determined by the Committee. "Employee" means a common law employee of the Company regularly-performing services in the United States. "Fund" or "Funds" means one or more of the investment funds selected by the Committee pursuant to Section 3.3. "Initial Election Period" means (a) for Employees who are Eligible Employees or Directors as of October 1, 1999, the period ending September 15, 1999; otherwise (b) the 30-day period following the Eligible Employee's date of hire (or appointment to the Board, as applicable) or, if later, upon first becoming an Eligible Employee or Director. 3 "Investment Return" means, for each Fund, an amount equal to the pre-tax rate of gain or loss on the assets of such Fund (net of applicable fund and investment charges) during each valuation period, but not less frequently than monthly. "Participant" means any Eligible Employee or Director who elects to defer Compensation in accordance with Section 3.1. "Payment Commencement Date" means as soon as administratively possible after the first day of the month following the end of the calendar quarter in which the Participant has a Distribution Event. "Plan" means the Symmetricom, Inc. Deferred Compensation Plan set forth herein, now in effect, or as amended from time to time. "Plan Year" means the calendar year; provided, however, for the first short Plan Year only, "Plan Year" means the period beginning October 1, 1999 and ending December 31, 1999. "Retirement" means the Participant's resignation if, at such time, the Participant has attained age fifty (50) and completed five (5) Years of Service. "Salary" means the Employee's base salary for the Plan Year. Salary excludes any other form of compensation such as restricted stock, proceeds from stock options or stock appreciation rights, severance payments, moving expenses, car or other special allowance, or any other amounts included in an Eligible Employee's taxable income that is not compensation for services. "Years of Service" means the Employee's consecutive years of employment with the Company and any predecessor employer, as designated by the Committee. Such years of employment will be measured from the Employee's most recent hire date. ARTICLE II PARTICIPATION II.1 Participation. ------------- An Eligible Employee or Director shall become a Participant in the Plan by electing to defer a portion of his or her Compensation in accordance with Section 3.1. 4 ARTICLE III DEFERRAL ELECTIONS III.1 Elections to Defer Compensation. ------------------------------- (a) Initial Election Period. Each Eligible Employee or Director may elect ----------------------- to defer Compensation by filing an election with the Committee that conforms to the requirements of this Section, on a form approved by the Committee, no later than the last day of his or her Initial Election Period. (b) General Rule. The amount of Compensation that an Eligible Employee or ------------ Director may elect to defer is as follows: (1) Any whole percentage of Salary up to one hundred percent (100%); and/or (2) Any whole percentage of Bonus up to one hundred percent (100%); and/or (3) Any whole percentage of Commissions up to one hundred percent (100%); or (4) Any whole percentage of Directors Fees up to one hundred percent (100%); provided, however, that no election shall be effective to reduce the Compensation paid to an Eligible Employee for a calendar year to an amount that is less than the amount necessary to pay (i) applicable employment taxes (e.g., FICA, hospital insurance) payable with respect to amounts deferred hereunder, (ii) amounts necessary to satisfy any other benefit plan withholding obligations, (iii) any resulting income taxes payable with respect to Compensation that cannot be so deferred, and (iv) any amounts necessary to satisfy any wage garnishment or similar type obligations. (c) Minimum Deferrals. For each Plan Year during which the Eligible ----------------- Employee or Director is a Participant, the minimum Compensation that may be deferred under this Section shall be Five Thousand Dollars ($5,000) (One Thousand Dollars ($1,000) in the case of Directors); provided, however, that for the short first Plan Year, the minimum Compensation amount that may be deferred by Eligible Employees shall be One Thousand Two Hundred Fifty Dollars ($1,250). (d) Effect of Initial Election to Defer Salary and/or Commission. An ------------------------------------------------------------ election to defer Salary and/or Commissions and/or Directors Fees made during an Initial Election Period shall be effective as to Salary and/or Commissions and/or Directors Fees earned beginning (in the case of Salary and/or Commissions) with the first pay period beginning after the Initial Election Period and beginning (in the case of Directors Fees) with any services performed as a Director after the Initial Election Period. (e) Effect of Initial Election to Defer Bonus. An election made on or ----------------------------------------- before September 15, 1999, to defer a Bonus shall be effective as to any Bonus paid for the period ending 5 June 30, 2000. An election to defer any subsequent Bonus made during an Initial Election Period shall be effective as to any Bonus paid in the Plan Year following the Plan Year during which the election is made, provided such election is filed with the Committee on or before December 15 of the immediately preceding year. (f) Duration of Salary and/or Commissions and/or Directors Fees Deferral -------------------------------------------------------------------- Election. A deferral election made under subsection (a) or (h) of this Section - -------- shall remain in effect, notwithstanding any change in the Participant's Salary or Commissions or Directors Fees for the Plan Year for which that election is made. Subject to the minimum deferral requirement of subsection (c) of this Section, the percentage of Salary and/or Commissions and/or Directors Fees designated by the Participant for deferral must be restated, increased, or decreased by filing a new election, in accordance with the terms of this Section, with the Committee no later than December 15 of the year immediately preceding the beginning of the Plan Year for which the election shall be in effect. A Participant's deferral election shall terminate with respect to future Salary and/or Commissions and/or Directors Fees upon the earliest of (i) the Participant ceasing to be an Eligible Employee or Director; (ii) the Participant's election to discontinue all Salary and/or Commissions and/or Directors Fees deferrals for the remainder of that Plan Year; in such case, the election to discontinue contributions shall be irrevocable for that Plan Year and shall become effective as soon as administratively practicable after it is filed with the Committee; or (iii) the end of the Plan Year for which the Participant has a valid election. (g) Duration of Bonus Deferral Election. A Bonus deferral election made ----------------------------------- under subsection (a) or (h) of this Section shall remain in effect for the Plan Year for which that election is made. Subject to the minimum deferral requirement of subsection (c) of this Section, the percentage of Bonus designated by the Participant for deferral must be restated, increased or decreased by filing a new election, in accordance with the terms of this Section, with the Committee no later than December 15 of the year immediately preceding the beginning of the Plan Year for which the election shall be in effect. A Participant's Bonus deferral election shall terminate with respect to future Bonuses upon the Participant ceasing to be an Eligible Employee. (h) Elections Other Than Elections During the Initial Election Period. Any ----------------------------------------------------------------- Eligible Employee or Director who fails to elect to defer Compensation during his or her Initial Election Period may subsequently become a Participant, and any Eligible Employee or Director who has terminated a prior deferral election may again elect to defer Compensation, by filing an election, on a form approved by the Committee, to defer Compensation as described in subsection (b) above. An election to defer Compensation must be filed no later than December 15 (or such other date as the Committee may establish from time to time) and will be effective for Salary and/or Commissions and/or Directors Fees earned beginning (in the case of Salary and/or Commissions) with the first pay period beginning on and after the beginning of the next succeeding Plan Year and as to any Directors Fees or Bonus paid for the fiscal year after the election is made. (i) Termination of Deferral Election. Notwithstanding the foregoing, a -------------------------------- Participant may, at any time, terminate his or her deferral election with respect to Compensation not yet earned or 6 payable. A Participant who so terminates his or her deferral election may again defer Compensation by timely filing an election for a subsequent Plan Year, provided that a Participant may not so terminate his or her deferral election more than twice during the period of his or her Plan participation; and provided further, that a Participant who terminates his or her deferral election for a Plan Year and who has not, with respect to such Plan Year, met the minimum deferral requirement of subsection (c) of this Section, shall be refunded any amounts deferred for such Plan Year, together with any earnings credited thereon, promptly following termination of his or her deferral election III.2 Company Contributions. --------------------- The Company may, in its sole and absolute discretion, make discretionary contributions to the Accounts of one or more Participants at such times and in such amounts as the Board may determine. III.3 Investment Elections. -------------------- The Committee may, in its sole and absolute discretion, provide each Participant with a list of investment Funds available for hypothetical investment, and the Participant may designate, in a manner specified by the Committee, one or more Funds that his or her Account will be deemed to be invested in for purposes of determining the amount of earnings to be credited to that Account. The Committee may, from time to time, in its sole and absolute discretion, select a commercially-available fund to constitute the Fund actually selected. The Investment Return of each such commercially-available fund shall be used to determine the amount of earnings to be credited to Participants' Accounts under subsection 4.1 (d). In making the designation pursuant to this Section, the Participant may specify that all or any one percent (1%) multiple of his or her Account be deemed to be invested in one or more of the Funds offered by the Committee. Subject to such limitations and conditions as the Committee may specify, a Participant may change the designation made under this Section in such manner and at such time or times as the Committee shall specify. If a Participant fails to elect a Fund under this Section or if the Committee shall not provide such Participant with a list of Funds pursuant to this Section, then the Participant shall be deemed to have elected a money market or similar fund. The Company may, but need not, acquire investments corresponding to those designated by the Participants hereunder, and it is not under any obligation to maintain any investment it may make. Any such investments, if made, shall be Company property in which no Participant shall have any interest. 7 ARTICLE IV ACCOUNTS IV.1 Participant Accounts. -------------------- The Committee shall establish and maintain an Account for each Participant under the Plan. Each Participant's Account may be further divided into separate subaccounts ("investment fund subaccounts"), corresponding to investment Funds elected by the Participant pursuant to Section 3.3 or as otherwise determined by the Committee to be necessary or appropriate for proper Plan administration. A Participant's Account shall be credited as follows: (a) As soon as administratively practicable after the last day of the month during which a payroll withholding is made for a Participant, the Committee shall credit the investment fund subaccounts of that Participant's Account with an amount equal to Salary and/or Commissions and/or Directors Fees deferred by the Participant during each pay period falling in that month in accordance with the Participant's election; that is, the portion of the Participant's deferred Salary and/or Commissions and/or Directors Fees that the Participant has elected to be deemed to be invested in a certain type of investment Fund shall be credited to the investment fund subaccount corresponding to that investment Fund. (b) At the end of the month after each Bonus or partial Bonus would have been paid, or as soon as administratively practicable thereafter, the Committee shall credit the investment fund subaccounts of the Participant's Account with an amount equal to the portion of the Bonus deferred by the Participant's election; that is, the portion of the Participant's deferred Bonus that the Participant has elected to be deemed to be invested in a certain type of investment Fund shall be credited to the investment fund subaccount corresponding to that investment Fund. (c) As soon as administratively practicable after the last day of the Plan Year or such earlier time or times as the Committee may determine, the Committee shall credit the investment fund subaccounts of the Participant's Account with an amount equal to the portion, if any, of any Company Contribution made to or for the Participant's benefit in accordance with Section 3.3; that is, the portion of the Participant's Company Contribution, if any, that the Participant has elected to be deemed to be invested in a certain type of investment Fund shall be credited to the investment fund subaccount corresponding to that investment Fund. (d) At such time or times as the Committee may determine, but not less frequently than monthly, each investment fund subaccount of a Participant's Account shall be credited with earnings in an amount equal to that determined by multiplying the balance credited to such investment fund subaccount as of the last day of the preceding valuation period by the Investment Return for the corresponding Fund selected by the Company. 8 ARTICLE V VESTING V.1 Account. ------- (a) Compensation Deferrals. A Participant's Account attributable to ---------------------- Compensation deferred by a Participant pursuant to the terms of this Plan, together with any amounts credited to the Participant's Account under Section 4.1(d) with respect to such deferrals, shall be one hundred percent (100%) vested at all times. (b) Company Contributions. The value of a Participant's Account --------------------- attributable to any Company Contributions pursuant to Section 3.2 shall vest at such time or times as the Board shall specify in connection with any such contributions. Unless otherwise specified by the Board, Participants shall be one hundred percent (100%) vested in such amounts together with any amounts credited to the Participant's Account under Section 4.1(d) with respect to such amounts. ARTICLE VI GENERAL DUTIES VI.1 Trustee Duties. -------------- The Trustee shall manage, invest and reinvest the Trust Fund as provided in the Trust Agreement. The Trustee shall collect the income on the Trust Fund, and make distributions therefrom, all as provided in this Plan and in the Trust Agreement. VI.2 Company Contributions. --------------------- While the Plan remains in effect, the Company shall make contributions to the Trust Fund at least once each quarter. As soon as administratively practicable after the close of each Plan quarter, the Company shall make an additional contribution to the Trust Fund to the extent that previous contributions to the Trust Fund for the current Plan quarter are less than the total of the Compensation deferrals made by each Participant plus Company Contributions, if any, accrued as of the close of the current Plan quarter. VI.3 Department of Labor Determination. --------------------------------- In the event that any Participants are found to be ineligible, that is, not members of a select group of management or highly compensated employees, according to a determination made by the Department of Labor, the Committee may take whatever steps it deems necessary, in its sole and absolute discretion, to equitably protect the interests of the affected Participants. 9 ARTICLE VII DISTRIBUTIONS VII.1 Distribution of Deferred Compensation - Termination of Employment. ------------------------------------------------------------------ (a) Automatic Form of Distribution. Subject to Section 7.2(b) below, in ------------------------------ the event that a Participant's employment terminates for any reason, then the Participant's Distributable Amount shall automatically be paid to the Participant (and after the Participant's death to his or her Beneficiary) in a cash lump sum payment payable on his or her Payment Commencement Date. (b) Optional Forms of Distribution. ------------------------------ (1) An eligible Participant may, in lieu of a lump sum distribution specified in Section 7.1(a) above, elect any of the following optional forms of distribution based on his or her Years of Service (subject to Section 7.1(c) below): Years of Service Form(s) of Distribution ------------------------- ----------------------- More than 4 but less than 7 20 quarterly installments More than 6 but less than 10 20 or 40 quarterly installments 10 years or more 20, 40, or 60 Quarterly installments In addition, a Participant whose employment terminates due to Disability shall be eligible for the same optional forms of distribution as a Participant with ten (10) or more Years of Service. If a Participant is eligible for and elects installment payments, then the substantially-equal quarterly installments shall begin on the Participant's Payment Commencement Date. (2) Upon a Participant's termination of employment for any reason, all of his or her Plan Year's distribution elections will be cancelled in favor of the most recent termination distribution election, provided that such election was made at least one (1) year prior to the Participant's termination; otherwise, the most recent distribution election made by the Participant one (1) or more years prior to the date of his or her termination shall govern. (c) Distribution Elections. ---------------------- (1) A Participant may make such distribution election by completing a form approved by and filed with the Committee within thirty (30) days (or such other period as the Committee may establish from time to time) of the date the Eligible Employee first becomes a Participant. A Participant may change his or her form of distribution under this Section provided that he or she files the change with the Committee at least one (1) year prior to his or her Payment Commencement Date. 10 (2) Notwithstanding the foregoing, if the Participant's Distributable Amount is Fifty Thousand Dollars ($50,000) or less, the Distributable Amount shall automatically be distributed in the form of a cash lump sum on the Participant's Payment Commencement Date. (3) If the Participant's Distributable Amount is paid in installments, the Participant's Account shall continue to be credited monthly with earnings pursuant to Section 4.1(d) and the installment amount shall be adjusted annually to reflect gains and losses until all amounts credited to his or her Account under the Plan have been distributed. (4) Amounts payable pursuant to this Section shall be subject to the limitation on payout under Section 7.4. (d) Death While Receiving Benefits. If the Participant is receiving ------------------------------ installment payments at the time of his or her death, then the Participant's Beneficiary shall be paid the remaining quarterly installments as they come due. Under all other circumstances, if the Participant dies prior to receiving any of his or her Account, such Participant's Distributable Amount shall be paid to his or her Beneficiary in a cash lump sum payment. VII.2 Scheduled and Unscheduled In-Service Withdrawals. ------------------------------------------------ (a) Scheduled In-Service Withdrawal. A Participant may, in connection ------------------------------- with his or her Compensation deferral election for a Plan Year, specify a withdrawal (a "Scheduled In-Service Withdrawal") of all of his or her Account attributable to Compensation deferred for such Plan Year, including any amounts credited with respect to such deferrals pursuant to Section 4.1(d), subject to the following restrictions: (1) A Participant's Scheduled In-Service Withdrawal election must specify a Scheduled In-Service Withdrawal date that is at least two (2) years (or such longer period) from the date the election is received by the Company. A Participant may revoke his or her scheduled withdrawal election or may amend such election consistent with the preceding sentence with at least one year's advance notice thereof, provided that a Participant may not revoke or amend a scheduled withdrawal election (whether or not relating to the same Distributable Amount) more than twice during his or her period of Plan participation. (2) The election to take a Scheduled In-Service Withdrawal shall be made by completing a form approved by and filed with the Committee. (3) The amount payable to a Participant in connection with a Scheduled In-Service Withdrawal shall in all cases be one hundred percent (100%) of the Compensation deferred for the Plan Year with respect to which the election applies, together with any earnings credited to such amount pursuant to Section 4.1(d), determined as of the end of the calendar month preceding the month of the Scheduled In-Service Withdrawal date. 11 (4) Subject to Section 7.4, payment of a Scheduled In-Service Withdrawal shall be made in either a single lump sum or in quarterly installments over a two (2), three (3), four (4) or five (5)-year period (as elected by the Participant). Lump sum distributions shall be paid in January of the year specified on the election form. Quarterly distributions shall commence in January of the year specified on the election form, and shall continue to be paid as soon as practicable following the end of the calendar quarter, for the duration elected on the election form. (5) A Participant's Scheduled In-Service Withdrawal election shall become void and of no effect upon termination of the Participant's employment with the Company for any reason before the Participant's scheduled withdrawal date. In such event, the distribution provisions of Section 7.1 shall apply. (b) Unscheduled In-Service Withdrawals. Participants may request to ---------------------------------- withdraw amounts from their Accounts attributable to Compensation deferrals prior to termination of employment with the Company (an "Unscheduled In-Service Withdrawal"). Upon receiving an Unscheduled In-Service Withdrawal request, the Committee shall authorize such Unscheduled In-Service Withdrawal subject to the following restrictions: (1) The election to take an Unscheduled In-Service Withdrawal shall be made by completing a form approved by and filed with the Committee. (2) The amount payable to a Participant in connection with an Unscheduled In-Service Withdrawal shall equal ninety percent (90%) of the Distributable Amount. Notwithstanding the foregoing, if more than ten percent (10%) of the Distributable Amount consists of Company Contributions (and earnings thereon), then the Unscheduled In-Service Withdrawal amount (the "In- Service Withdrawal Amount") shall not include any amounts attributable to Company Contributions (and earnings thereon). The In-Service Withdrawal Amount shall be calculated as of the end of the calendar month immediately preceding the month in which the Unscheduled In-Service Withdrawal is made. The In-Service Withdrawal Amount (and not the forfeited amount) shall be subject to all applicable Federal and state income taxes. (3) If a Participant receives an Unscheduled In-Service Withdrawal, the remaining portion of the Distributable Amount, as applicable (i.e., ten percent (10%) of such amount), shall be permanently forfeited and the Company shall have no obligation to the Participant or his or her Beneficiary with respect to such forfeited amount. (4) If a Participant receives an Unscheduled In-Service Withdrawal, the Participant shall be ineligible to participate in the Plan for the balance of the Plan Year in which the Unscheduled In-Service Withdrawal occurs and all of the following Plan Year. (5) An Unscheduled In-Service Withdrawal of the Participant's Distributable Amount pursuant to this Section shall be made pro rata from his or her assumed investments according to the balances in such investments. Subject to the foregoing and subject to the -12- Committee's approval payment of any amount with respect to which a Participant has filed a request under this Section shall be made in a single cash lump sum as soon as administratively practicable after the Unscheduled In-Service Withdrawal election is approved. VII.3 Unforeseeable Emergency Withdrawal. ---------------------------------- (a) Triggering an Unforeseeable Emergency Hardship Withdrawal. The ---------------------------------------------------------- Committee may, in its sole and absolute discretion, accelerate the date of distribution of a Participant's Account because of an Unforeseeable Emergency at any time. "Unforeseeable Emergency" shall mean an unforeseeable, severe financial condition resulting from (1) a sudden and unexpected illness or accident of the Participant or his or her dependent (as defined in Section 152(a) of the Code); (2) loss of the Participant's property due to casualty; or (3) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, but which may not be relieved through other available resources of the Participant, as determined by the Committee. If a Participant receives a distribution pursuant to this Section, the Participant shall be ineligible to participate in the Plan for the balance of the Plan Year in which the distribution occurs and all of the following Plan Year. (b) Distribution Attributable to an Unforeseeable Emergency. Unless the ------------------------------------------------------- Committee, in its sole and absolute discretion, determines otherwise, distribution pursuant to this Section of less than the Participant's entire interest in the Plan shall be made pro rata from his or her assumed investments according to the balances in such investments. Subject to the foregoing, payment of any amount with respect to which a Participant has filed a request under this Section shall be made in a single cash lump sum as soon as administratively practicable after the Committee approves the Participant's request. VII.4 Section 162(m) Limitation. ------------------------- If the Committee determines in good faith that there is a reasonable likelihood that all or any portion of any payment of benefits under this Article VII to a Participant would not be deductible for federal income tax purposes by the Company because of a limitation on the total amount of the Participant's deductible compensation from the Company, including any other such compensation already paid to the Participant earlier in the same fiscal year of the Company, the following shall apply: (a) Payment of the non-deductible amount shall be deferred until the first day of the following fiscal year of the Company; (b) If the amount deferred under subsection (a) above would exceed the limitation of the total amount of the Participant's deductible compensation from the Company for the following fiscal year, the excess shall be deferred to the first day of the succeeding fiscal year in which the deductibility of compensation paid or payable to the Participant will not be so limited, subject to subsection (c) below; -13- (c) In no event shall any payment be deferred under this Section more than three (3) years from the date scheduled for payment under this Article VII; and (d) Adjustment for earning shall continue to be applied under Section 4.1(d) duri ng the period of deferral under this Section. VII.5 Inability To Locate Participant. ------------------------------- In the event that the Committee is unable to locate a Participant or Beneficiary within two (2) years following the Participant's Distribution Event, the amount allocated to the Participant's Deferral Account shall be forfeited. If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit (calculated immediately prior to the forfeiture) shall be reinstated without interest or earnings. ARTICLE VIII ADMINISTRATION VIII.1 Committee. --------- A Committee shall be appointed by, and serve at the pleasure of, the Board. The number of members comprising the Committee shall be determined by the Board, which may from time to time vary the number of members. A member of the Committee may resign by delivering a written notice of resignation to the Board. The Board may remove any member by delivering a certified copy of its resolution of removal to such member. Vacancies in the membership of the Committee shall be filled promptly by the Board. VIII.2 Committee Action. ---------------- The Committee shall act at meetings by affirmative vote of a majority of the members of the Committee. Any action permitted to be taken at a meeting may be taken without a meeting if a written consent to the action is signed by all members of the Committee and such written consent is filed with the minutes of the proceedings of the Committee. A member of the Committee shall not vote or act upon any matter that relates solely to himself or herself as a Participant. The chairman or any other member or members of the Committee designated by the chairman may execute any certificate or other written direction on behalf of the Committee. VIII.3 Powers and Duties of the Committee. ---------------------------------- (a) The Committee, on behalf of the Participants and their Beneficiaries, shall enforce the Plan in accordance with its terms, shall be charged with the general administration of the Plan and shall have all powers necessary to accomplish its purposes, including, but not by way of limitation, the following: 14 (1) To select the funds to be the Funds in accordance with Section 3.3 hereof; (2) To construe and interpret the terms and provisions of this Plan; (3) To amend, modify, suspend or terminate the Plan in accordance with Section 9.4; (4) To compute and certify the amount and kind of benefits payable to Participants and their Beneficiaries and to direct the Trustee as to the distribution of Plan assets; (5) To maintain all records that may be necessary for the administration of the Plan; (6) To provide for the disclosure of all information and the filing or provision of all reports and statements to Participants, Beneficiaries or governmental agencies as shall be required by law; (7) To make and publish such rules for the regulation of the Plan and procedures for the administration of the Plan as are not inconsistent with the terms hereof; (8) To appoint a plan administrator or any other agent, and to delegate to them such powers and duties in connection with the administration of the Plan as the Committee may from time to time prescribe; (9) To designate the subsidiaries that will participate in the Plan; and (10) To determine the entities that constitute predecessor employers for purposes of determining Years of Service. VIII.4 Construction and Interpretation. ------------------------------- The Committee shall have full discretion to construe and interpret the terms and provisions of this Plan, which interpretation or construction shall be final and binding on all parties, including but not limited to the Company and any Participant or Beneficiary. VIII.5 Information. ----------- To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters relating to the Compensation of all Participants, their death or other cause of termination, and such other pertinent facts as the Committee may reasonably require. 15 VIII.6 Compensation, Expenses and Indemnity. ------------------------------------ (a) The members of the Committee shall serve without compensation for their services hereunder. (b) The Committee is authorized at the expense of the Company to employ such legal counsel as it may deem advisable to assist in the performance of its duties hereunder. Expenses and fees in connection with the administration of the Plan shall be paid by the Company. (c) To the extent permitted by applicable state law, the Company shall indemnify and save harmless the Committee and each member thereof, the Board and any delegate of the Committee who is an employee of the Company against any and all expenses, liabilities and claims, including legal fees to defend against such liabilities and claims arising out of their discharge in good faith of responsibilities under or incident to the Plan, other than expenses and liabilities arising out of willful misconduct or gross negligence. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement or otherwise, as such indemnities are permitted under state law. VIII.7 Quarterly Statements. -------------------- Under procedures established by the Committee, a Participant shall receive a statement with respect to such Participant's Account on a quarterly basis. ARTICLE IX MISCELLANEOUS IX.1 Unsecured General Creditor. -------------------------- Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, claims, or interests in any specific property or assets of the Company. No assets of the Company shall be held in any way as collateral security for the fulfilling of the obligations of the Company under this Plan. Any and all of the Company's assets shall be, and remain, the general unpledged, unrestricted assets of the Company. The Company's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future, and the rights of the Participants and Beneficiaries shall be no greater than those of unsecured general creditors. IX.2 Restriction Against Assignment. ------------------------------ The Company shall pay all amounts payable hereunder only to the person or persons designated by the Plan and not to any other person or corporation. No part of a Participant's Account shall be liable for the debts, contracts, or engagements of any Participant, his or her Beneficiary, or successors in interest, nor shall a Participant's Account be subject to execution by 16 levy, attachment, or garnishment or by any other legal or equitable proceeding, nor shall any such person have any right to alienate, anticipate, commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever. If any Participant, Beneficiary or successor in interest is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any distribution or payment from the Plan, voluntarily or involuntarily, the Committee, in its sole and absolute discretion, may cancel such distribution or payment (or any part thereof) to or for the benefit of such Participant, Beneficiary or successor in interest in such manner as the Committee shall direct. IX.3 Withholding. ----------- There shall be deducted from each payment made under the Plan, all taxes that are required to be withheld by the Company in respect to such payment. The Company shall have the right to reduce any payment by the amount of cash sufficient to provide the amount of said taxes. IX.4 Amendment, Modification, Suspension or Termination. -------------------------------------------------- The Committee may amend, modify, suspend or terminate the Plan in whole or in part, except that no amendment, modification, suspension or termination shall have any retroactive effect to reduce any amounts allocated to a Participant's Account, provided that a termination or suspension of the Plan or any Plan amendment or modification that will significantly increase costs to the Company shall be approved by the Board. In the event that this Plan is terminated, the timing of the disposition of the amounts credited to a Participant's Account shall occur in accordance with Section 7.1, subject to earlier distribution at the discretion of the Committee. IX.5 Governing Law. ------------- This Plan shall be construed, governed and administered in accordance with the laws of the State of California. IX.6 Receipt or Release. ------------------ Any payment to a Participant or the Participant's Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Committee and the Company. The Committee may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. IX.7 Payments on Behalf of Persons Under Incapacity. ---------------------------------------------- In the event that any amount becomes payable under the Plan to a person who, in the sole judgment of the Committee, is considered by reason of physical or mental condition to be unable to give a valid receipt therefore, the Committee may direct that such payment be made to any person found by the Committee, in its sole judgment, to have assumed the care of such person. Any payment 17 made pursuant to such determination shall constitute a full release and discharge of the Committee and the Company. IX.8 No Employment Rights. -------------------- Participation in this Plan shall not confer upon any person any right to be employed by the Company or any other right not expressly provided hereunder. IX.9 Headings, etc. Not Part of Agreement. ------------------------------------ Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof. IN WITNESS WHEREOF, the Company has caused this document to be executed by its duly authorized officer on this _____ day of _____________, 1999. SYMMETRICOM INC. By: /s/ ---------------------------------------- Title:______________________________________ 18 -----END PRIVACY-ENHANCED MESSAGE-----