10-Q

UNITED STATES SECURITIES AND EXCHANGE

COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2002

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 0-02287

SYMMETRICOM, INC.

(Exact name of registrant as specified in our charter)

Delaware	No. 95-1906306
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2300 Orchard Parkway,

San Jose, California 95131-1017

(Address of principal executive offices)

Registrant’s telephone number: (408) 433-0910

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 ¨

Indicate number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

Class	Outstanding as of January 31, 2003
Common Stock	42,061,759

SYMMETRICOM, INC.

FORM 10-Q

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets-December 31, 2002 and June 30, 2002	3
	Consolidated Statements of Operations-Three and six months ended December 31, 2002 and 2001	4
	Consolidated Statements of Cash Flows-Six months ended December 31, 2002 and 2001	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 2.	Changes in Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Submission of Matters to a Vote of Security Holders	28
Item 5.	Other Information	29
Item 6.	Exhibits and Reports on Form 8-K	29
SIGNATURES		32
CERTIFICATIONS		33

Item 1. Financial Statements

SYMMETRICOM, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	December 31, 2002			June 30, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	46,494		$	52,521
Restricted cash		489			—
Short-term investments		613			1,640
Cash and investments		47,596			54,161
Accounts receivable, net of allowance for doubtful accounts of $865 and $789		25,257			9,399
Inventories		33,657			18,397
Prepaids and other current assets		12,089			5,981
Total current assets		118,599			87,938
Property, plant and equipment, net		34,678			21,877
Goodwill, net		64,595			3,704
Other intangible assets, net		22,723			7,419
Deferred taxes and other assets		20,910			8,872
Note receivable from employee		500			500
Total assets	$	262,005		$	130,310
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,000		$	5,051
Accrued compensation		13,459			4,157
Accrued warranty		5,322			4,950
Other accrued liabilities		7,502			4,310
Current maturities of long-term obligations		733			610
Total current liabilities		41,016			19,078
Long-term obligations		11,527			6,574
Deferred income taxes		97			469
Total liabilities		52,640			26,121
Stockholders’ equity:
Preferred stock, $0.0001 par value; 500 shares authorized, none issued		—			—
Common stock, $0.0001 par value; 70,000 shares authorized, 42,378 shares issued and 42,083 shares outstanding in December 2002; 22,371 shares issued and 22,131 outstanding in June 2002		157,728			29,441
Stockholder note receivable		(555	)		(555	)
Accumulated other comprehensive loss		(278	)		(118	)
Retained earnings		52,470			75,421
Total stockholders’ equity		209,365			104,189
Total liabilities and stockholders’ equity	$	262,005		$	130,310

See notes to the consolidated financial statements.

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SYMMETRICOM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended December 31,						Six Months Ended December 31,
	2002			2001			2002			2001
Net sales	$	40,242		$	19,333		$	58,525		$	37,842
Cost of sales		24,516			11,727			36,395			23,547
Gross profit		15,726			7,606			22,130			14,295
Operating expenses:
Research and development		5,777			2,846			8,970			5,441
Selling, general and administrative		12,671			5,915			19,721			12,393
Amortization of intangibles		1,520			395			1,843			761
Non-recurring and integration expenses		896			—			1,020			409
Impairment of goodwill		15,335			—			15,335			—
Acquired in-process research and development		1,561			—			1,561			—
Operating loss		(22,034	)		(1,550	)		(26,320	)		(4,709	)
Gain (loss) on equity securities		(252	)		—			(450	)		1,771
Interest income		169			340			358			820
Interest expense		(147	)		(173	)		(296	)		(334	)
Loss before income taxes		(22,264	)		(1,383	)		(26,708	)		(2,452	)
Income tax benefit		(2,410	)		(553	)		(3,757	)		(474	)
Net loss	$	(19,854	)	$	(830	)	$	(22,951	)	$	(1,978	)
Loss per share—basic and diluted	$	(0.55	)	$	(0.04	)	$	(0.79	)	$	(0.09	)
Weighted average shares outstanding—basic and diluted		36,213			22,393			29,133			22,886

See notes to the consolidated financial statements.

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SYMMETRICOM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended December 31,
	2002			2001
Cash flows from operating activities:
Net loss	$	(22,951	)	$	(1,978	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Impairment of goodwill		15,335			—
Acquired in-process research and development		1,561			—
Depreciation and amortization		4,932			3,293
Deferred income taxes		(1,765	)		(1,892	)
Loss (gain) on equity securities		450			(1,771	)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable		(3,358	)		13,517
Inventories		4,869			283
Prepaids and other assets		(387	)		(9	)
Accounts payable		588			515
Accrued compensation		1,329			(3,281	)
Other accrued liabilities		(2,679	)		(1,207	)
Net cash provided by (used for) operating activities		(2,076	)		7,470
Cash flows from investing activities:
Purchases of short-term investments		(162	)		(6,658	)
Maturities of short-term investments		104			14,076
Proceeds from sale of equity securities		275			1,771
Purchases of plant and equipment, net		(423	)		(1,491	)
Cash payments for acquisition and related costs, net of cash acquired		(2,730	)		(151	)
Net cash provided by (used for) investing activities		(2,936	)		7,547
Cash flows from financing activities:
Repayment of long-term obligations		(590	)		(236	)
Proceeds from sale of common stock		240			540
Repurchase of common stock		(802	)		(9,523	)
Net cash used for financing activities		(1,152	)		(9,219	)
Effect of exchange rate changes on cash and cash equivalents		137			—
Net increase (decrease) in cash and cash equivalents		(6,027	)		5,798
Cash and cash equivalents at beginning of period		52,521			44,989
Cash and cash equivalents at end of period	$	46,494		$	50,787
Non-cash investing and financing activities:
Unrealized loss on securities, net	$	(297	)	$	(1,539	)
Deferred taxes on unrealized loss		(63	)		(956	)
Issuance of warrants for acquisition		—			819
Cash payments for:
Interest	$	297		$	334
Income taxes		235			1,227

See notes to the consolidated financial statements.

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SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The consolidated financial statements included herein are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of the management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Certain amounts reported in prior periods have been reclassified to conform to the presentation adopted in the current period. Such reclassification did not change the previously reported revenues, operating income or net income amounts. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Symmetricom’s Annual Report on Form 10-K for the year ended June 30, 2002. The results of operations for the three and six months ended December 31, 2002 are not necessarily indicative of the results to be anticipated for the entire fiscal year ending June 30, 2003.

The consolidated balance sheet at June 30, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Note 2. Summary of Significant Accounting Policies

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price is fixed or determinable and collectibility is reasonably assured. Our standard arrangement for the majority of our domestic and international customers includes a signed purchase order, in which we offer payment terms of 30 days, and no right of return of delivered products.

We assess collectibility based on the credit worthiness of the customer and past transaction history. We perform on-going credit evaluations of our customers and do not require collateral from our customers. For many of our international customers, we require an irrevocable letter of credit to be issued by the customer before the purchase order is accepted. If we determine that collection of a fee is not reasonably assured, we recognize the revenue at the time that collection becomes reasonably assured, which is generally upon the receipt of cash. We commonly have transactions that involve sales of both product and services to our customers. Product revenue is generated from the sale of synchronization and timing equipment with embedded software that is essential to product functionality. We account for these transactions in accordance with the rules applicable to software revenue recognition.

Revenue from sales of product and software licenses is recognized when: (1) we enter into a legally binding arrangement with a customer; (2) we deliver the products; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenue from post-sale customer support is deferred and recognized ratably over the term of the support contract. Revenue from consulting and training services is recognized as the services are performed.

Sales to distributors are made under agreements allowing for limited product return. Accordingly, we accrue a product return allowance based on an historical average of distributor returns.

Revenue from major development contracts in excess of $100,000 and a development period of at least 6 months is recognized under the percentage of completion method of accounting, principally based upon the costs incurred relative to the total estimated costs to complete the individual contracts. Revenue from long-term contracts is reviewed periodically, with adjustments recorded in the period in which the revisions are made. Any anticipated losses on contracts are fully charged to operations as soon as they are determinable.

Note 3. Acquisitions

During the second quarter of fiscal 2003, we acquired Datum, Inc. (“Datum”) and TrueTime, Inc. (“TrueTime”) to add complementary products and increase our customer base, among other reasons. We also acquired certain assets from NetMonitor, Ltd. (“NetMonitor”), a wholly owned subsidiary of Kestrel Solutions, Inc. (“Kestrel”).

Acquisition of Datum

On October 29, 2002, we completed our acquisition of Datum. The acquisition was accomplished pursuant to an Agreement and Plan of Merger, dated as of May 22, 2002 and was accounted for as a purchase. As a result of the merger, Datum became a wholly owned subsidiary of Symmetricom. We issued approximately 17.4 million shares of our common stock with a fair value of $97.5 million, converted Datum stock options into options to purchase approximately 2.3 million shares of our common stock with a fair value of $13.1 million, converted Datum warrants into warrants to purchase 477,235 shares of our common stock with

6

an exercise price of $4.53 per share and a fair value of $1.8 million. In addition, we incurred direct acquisition costs of approximately $6.6 million. The purchase price was allocated to Datum’s assets and liabilities as follows (in thousands):

Cash and cash equivalents	$	3,034
Property, plant, and equipment		12,120
Other tangible assets		38,952
Existing technology		13,856
In-process research and development		1,156
Other intangible assets		293
Goodwill		73,096
Assumed liabilities		(23,569	)
Total purchase price	$	118,938

The $1.2 million allocated to in-process research and development represents technology that, as of the date of acquisition, had not yet reached technological feasibility and had no alternative future use. The value of these projects was determined by estimating discounted net cash flows using a risk adjusted after tax discount rate from the sale of the products resulting from the completion of the projects, reduced by the portion of the revenue attributable to developed technology and the percentage of completion of the project.

The nature of the efforts to develop the purchased in-process research and development into commercially viable products principally relates to the completion of all prototyping and testing activities that are necessary to establish that the product can be produced to meet its design specification including function, features and technical performance requirements. Therefore the amount allocated to in-process research and development has been charged to operations during the quarter ended December 31, 2002.

Acquisition of TrueTime

On October 4, 2002, we completed our acquisition of TrueTime. The acquisition was accomplished pursuant to an Agreement and Plan of Merger, dated as of March 27, 2002 and amended as of June 26, 2002 and was accounted for as a purchase. As a result of the merger, TrueTime became a wholly owned subsidiary of Symmetricom. We issued approximately 2.6 million shares of our common stock with a fair value of $16.3 million and $5.0 million in cash, paid $34,000 to cancel TrueTime’s options, converted TrueTime’s warrants into warrants to purchase 87,394 shares of our common stock with an exercise price of $12.59 per share with a fair value of $235,000. In addition, we incurred direct acquisition costs of approximately $1.2 million. The purchase price was allocated to TrueTime’s assets and liabilities as follows (in thousands):

Cash and cash equivalents	$	7,823
Property, plant and equipment		3,321
Other tangible assets		9,606
Existing technology		2,760
In-process research and development		405
Goodwill		3,130
Assumed liabilities		(4,300	)
Total purchase price	$	22,745

The $0.4 million allocated to in-process research and development represents technology that, as of the date of the acquisition, had not yet reached technological feasibility and had no alternative future use. The value of these projects was determined by estimating discounted net cash flows using a risk adjusted after tax discount rate from the sale of the products resulting from the completion of the projects, reduced by the portion of the revenue attributable to developed technology and the percentage of completion of the project.

The nature of the efforts to develop the purchased in-process research and development into commercially viable products principally relates to the completion of all prototyping and testing activities that are necessary to establish that the product can be produced to meet its design specification including function, features and technical performance requirements. Therefore the amount that was allocated to in-process research and development has been charged to operations during the quarter ended December 31, 2002.

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Acquisition of NetMonitor

On October 15, 2002, we acquired certain assets from NetMonitor. The acquisition was accounted for as an asset purchase. We paid $0.23 million in cash for the acquired assets and incurred direct acquisition costs of approximately $0.03 million. The net purchase price was allocated to tangible assets of $0.04 million and existing technology of $0.22 million.

Note 4. Proforma Results of Operations

The following unaudited pro forma information presents a summary of our consolidated results of operations as if the Datum and the TrueTime acquisitions had taken place at the beginning of each period presented. During the three month and six month periods ended December 31, 2002 and 2001, diluted proforma net loss per share excludes common equivalent shares outstanding and warrants, as their effect is antidilutive (in thousands, except per share amounts):

	Three Months Ended December 31,						Six Months Ended December 31,
	2002			2001			2002			2001
Revenue	$	44,570		$	46,459		$	82,936		$	77,555
Net loss	$	(5,837	)	$	(1,341	)	$	(13,862	)	$	(4,611	)
Weighted average shares outstanding—basic and diluted		42,025			42,087			42,030			42,540
Basic and diluted loss per share	$	(0.14	)	$	(0.03	)	$	(0.33	)	$	(0.11	)

The proforma consolidated results of operations include adjustments to give effect to amortization of intangibles acquired and excludes impairment of goodwill and certain other adjustments, including their related income tax effects as they are non-recurring. On a pre-tax basis, the three-month period ended December 31, 2002 includes an adjustment for amortization of intangibles of $0.2 million and excludes acquisition costs incurred by Datum prior to the acquisition date of $2.6 million, acquired in-process research and development of $1.6 million, other non-recurring charges of $1.8 million and a goodwill impairment charge of $15.3 million. On a pre-tax basis, the three month period ended December 31, 2001 includes an adjustment for amortization of intangibles of $0.8 million and excludes goodwill amortization of $0.2 million. On a pre-tax basis, the six-month period ended December 31, 2002 includes an adjustment for amortization of intangibles of $1.0 million and excludes acquisition costs incurred by Datum prior to the acquisition date of $2.6 million, acquired in-process research and development of $1.6 million, other non-recurring charges of $2.1 million and a goodwill impairment charge of $15.3 million. On a pre-tax basis, the six month period ended December 31, 2001 includes an adjustment for amortization of intangibles of $1.6 million and excludes goodwill amortization of $0.5 million, other non-recurring charges of $0.4 million and a gain on the sale of equity securities of $1.8 million.

Note 5. Restructuring Plans

In connection with the recently completed acquisitions of Datum and TrueTime, we have initiated an integration plan to consolidate and restructure certain functions and operations of the pre-acquisition Datum and TrueTime. A majority of our manufacturing will be consolidated into Symmetricom’s Global Operations facility in Aguadilla Puerto Rico. Internally we have reduced staff in the Broadband Networking Division and are reviewing spending levels within the Trusted Time Division. Upon the close of the acquisitions, we accrued approximately $7.6 million of restructuring costs in connection with employee terminations of which approximately $5.8 million was unpaid as of December 31, 2002. These costs have been recognized as a liability assumed in the purchase business combination in accordance with EITF Issue No. 95-3 “Recognition of Liabilities in Connection with Purchase Business Combinations” and reflected as an increase to goodwill. We are still in the process of evaluating and finalizing plans regarding the various aspects of the acquisitions.

Note 6. New Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived-Assets to Be Disposed Of”. SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of SFAS No. 121, the SFAS No.144, significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Under SFAS No. 144, assets held-for-sale are stated at the lower of their fair values or carrying amounts and depreciation is no longer recorded. We adopted SFAS No. 144 during the first quarter of fiscal 2003. There was no impact on our financial statements as a result of adopting SFAS No. 144.

        In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 requires that a liability for the costs associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 also established that fair value is the objective for initial measurement of the liability. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. This Statement is not expected to have a material impact on our financial statements.

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In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. Interpretation No. 45 requires a guarantor to include disclosure of certain obligations, and if applicable, at the inception of the guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The recognition requirement is effective for guarantees issued or modified after December 31, 2002 and did not have a material impact on the Company. We adopted Interpretation No. 45 effective for the quarter ended December 31, 2002 and the applicable disclosures have been made.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. SFAS No. 148 amends certain provisions of SFAS No. 123 and is effective for financial statements for fiscal years ending after December 15, 2002. We adopted the disclosure provisions of SFAS No. 148 for the quarter ended December 31, 2002 and the applicable disclosures have been made.

Note 7. Net Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options using the treasury method except when antidilutive. During the three and six month periods ended December 31, 2002 and 2001, diluted net loss per share excludes common equivalent shares outstanding and warrants, as their effect is antidilutive. The following table reconciles the number of shares utilized in the loss per share calculations.

	Three Months Ended December 31,						Six Months Ended December 31,
	2002			2001			2002			2001
	(in thousands, except per share amounts)
Net loss	$	(19,854	)	$	(830	)	$	(22,951	)	$	(1,978	)
Weighted average shares outstanding—basic and diluted		36,213			22,393			29,133			22,886
Basic and diluted loss per share	$	(0.55	)	$	(0.04	)	$	(0.79	)	$	(0.09	)

Note 8. Investments

Currently our short-term investment portfolio consists only of our investment in the assets of a deferred compensation plan. Historically, however, our current short-term investments consisted of marketable debt and equity securities, which mature between three and twelve months. 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 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 stockholders’ equity.

The following table summarizes our available-for-sale securities recorded as cash and cash equivalents or short-term investments:

	Amortized Cost			Gross Unrealized Gain/(Loss)			Fair Value
	(in thousands)
December 31, 2002
Total short term investments—deferred compensation plan assets	$	1,028		$	(415	)	$	613
June 30, 2002
Commercial paper	$	5,201		$	—		$	5,201
Corporate equity securities		726			156			882
Total available-for-sale investments		5,927			156			6,083
Less amounts classified as cash equivalents		(5,201	)		—			(5,201	)
Deferred compensation plan assets		970			(212	)		758
Total short term investments	$	1,696		$	(56	)	$	1,640

Note 9. Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist of:

	December 31, 2002		June 30, 2002
	(in thousands)
Raw materials	$	23,379	$	12,415
Work-in-process		5,523		3,574
Finished goods		4,755		2,408
Total	$	33,657	$	18,397

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Note 10. Goodwill and Intangible Assets

Intangible assets are recorded at cost, less accumulated amortization. Intangible assets as of December 31, 2002 consist of:

	Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets
	(in thousands)
Technology	$	24,422	$	4,259	$	20,163
Customer lists, trademarks, other		4,247		1,687		2,560
Total	$	28,669	$	5,946	$	22,723

The estimated future amortization expense is as follows:

Fiscal year:	(in thousands)
2003 (remaining six months)	$	2,781
2004		4,785
2005		4,566
2006		4,271
2007		2,709
2008		1,328
2009		946
2010		664
2011		448
2012		225
Total amortization	$	22,723

Intangible assets associated with the acquisition of Datum resulted in $13.9 million in purchased technology and other intangible assets of $0.3 million. Amortization is computed using the straight-line method over a weighted-average period of 6 years for purchased technology and 1 year for other intangible assets.

Intangible assets associated with the acquisition of TrueTime resulted in $1.8 million in purchased technology, customer lists of $0.4 million, trademarks of $0.3 million and other intangible assets of $0.2 million. Amortization is computed using the straight-line method over a weighted-average period of 4 years for purchased technology, 5 years for customer lists, 2 years for trademarks and 1 year for other intangible assets.

Intangible assets associated with the acquisition of NetMonitor resulted in $0.2 million in purchased technology, which will be amortized using the straight-line method over a period of 5 years.

Intangible assets that were acquired from Telmax Communications Corporation (“Telmax”) during the second quarter of fiscal 2002 resulted in $0.9 million in purchased technology. Amortization of technology acquired from Telmax is computed using the straight-line method over a life of 5 years.

Intangible assets associated with the acquisition of the Hewlett-Packard Company’s Communications Synchronization Business in fiscal 2000, includes customer lists of $1.3 million, SMARTCLOCK trademark of $0.9 million, current product technology of $7.6 million and other intangible assets of $0.8 million. Amortization is computed using the straight-line method over a life of 10 years for customer lists, 7 years for SMARTCLOCK trademark and current product technology. The other intangible assets are amortized over 5 years.

The changes in the carrying value of goodwill for the six months ended December 31, 2002 are as follows for the different segments of the company:

	Wireline		Wireless			Trusted Time		Timing, Test and Measurement			Total
	(in thousands)
Balances as of July 1, 2002	$	1,482	$	2,222		$	—	$	—		$	3,704
Purchased goodwill		28,108		15,550			12,047		20,521			76,226
Impairment loss		—		(7,318	)		—		(8,017	)		(15,335	)
Balances as of December 31, 2002	$	29,590	$	10,454		$	12,047	$	12,504		$	64,595

We completed the acquisitions of Datum and TrueTime in the first month of the second quarter of fiscal 2003. In connection with these purchases, we recorded an additional $76.2 million of goodwill. This goodwill was based upon the values assigned to the transactions at the time they were announced: March 2002 for TrueTime and May 2002 for Datum. During the

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second quarter of fiscal 2003, management determined that these amounts were likely impaired as forecasts for anticipated revenue growth for the telecommunications industry had declined since the transactions were valued.

We compared the fair values of the reporting units to their respective carrying values and determined that two of the reporting units were impaired. The fair values of the reporting units were estimated using a present value of estimated future cash flows. To determine the amount of impairment we compared the implied fair value of the reporting units goodwill with the goodwill’s carrying value and recorded the excess of the carrying value of the reporting units goodwill over its implied fair value as an impairment loss in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets”. Management has recorded an estimate of the impairment loss for the quarter ended December 31, 2002 of $15.3 million. Adjustments, if any, to that estimate will be recorded as purchase price allocations are finalized and the measurement of the impairment is complete.

Note 11. Comprehensive Loss

Comprehensive loss is comprised of two components: net loss and other comprehensive loss. Other comprehensive loss refers to revenue, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of stockholders’ equity but are excluded from net loss. Other comprehensive loss is comprised of unrealized gains and losses, net of taxes, on marketable securities categorized as available-for-sale and foreign currency translation adjustments. The components of comprehensive loss, net of tax, are as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
	2002			2001			2002			2001
	(in thousands)
Net loss	$	(19,854	)	$	(830	)	$	(22,951	)	$	(1,978	)
Other comprehensive loss:
Foreign currency translation adjustments		137			—			137			—
Unrealized losses on investments, net of taxes		(28	)		(521	)		(297	)		(1,539	)
Other comprehensive loss		109			(521	)		(160	)		(1,539	)
Total comprehensive loss	$	(19,745	)	$	(1,351	)	$	(23,111	)	$	(3,517	)

Note 12. Stock-Based Compensation

We account for employee stock-based compensation using the intrinsic value based method of accounting as defined under Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees”, and its related interpretations. Therefore we recognize no compensation expense in our statement of operations with respect to stock-based awards to our employees.

The following table illustrates the effect on net loss and loss per share if we had applied the fair value recognition provisions of FASB Statement No. 123 “Accounting for Stock-Based Compensation” to stock-based employee compensation.

	Three Months Ended December 31,						Six Months Ended December 31,
	2002			2001			2002			2001
	(in thousands, except for earnings per share)
Net loss, as reported under APB 25	$	(19,854	)	$	(830	)	$	(22,951	)	$	(1,978	)
Less: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,315	)		(628	)		(2,834	)		(1,375	)
Pro forma under SFAS No. 123	$	(22,169	)	$	(1,458	)	$	(25,785	)	$	(3,353	)
Loss per share—basic and diluted
As reported under APB 25	$	(0.55	)	$	(0.04	)	$	(0.79	)	$	(0.09	)
Pro forma under SFAS No. 123	$	(0.61	)	$	(0.07	)	$	(0.89	)	$	(0.15	)

Note 13. Stock Repurchase Program

Our Board of Directors has authorized programs to repurchase our common stock. During the six months ended December 31, 2002, we repurchased 0.2 million shares for an aggregate price of approximately $0.8 million. As of December 31, 2002, we have the authorization to repurchase 0.9 million additional shares of common stock.

Note 14. Debt

On January 15, 2003, we amended Datum’s credit facility with Wells Fargo Bank. The credit facility expires March 15, 2003. The credit facility includes a line of credit for $2.9 million to be used as a back up for letters of credit.

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In connection with the Datum acquisition, we assumed the $2.7 million industrial development bond that was issued by the Massachusetts Development Finance Agency on June 1, 2001, to Datum to finance the expansion of its manufacturing facility in Beverly, Massachusetts. The bond matures on May 1, 2021. Interest on the bond is payable monthly at an adjustable rate of interest as determined by the remarketing agent for each rate period to be the lowest rate which in its judgment would permit the sale of the bonds at par. The bond is collateralized by a letter of credit issued under our credit facility with Wells Fargo Bank. As of December 31, 2002, we had $0.5 million of restricted cash, representing the remaining proceeds of the Massachusetts industrial development bond. No amounts were outstanding under the line of credit as of December 31, 2002.

Note 15. Contingencies

In late 1996, Datum (which we acquired in October 2002) received notice of potential environmental contamination from the owner of premises in Austin, Texas that had previously been occupied by Austron, Inc., its wireline operation (“Austron”), prior to Datum’s acquisition of Austron in 1988. Although Austron had remediated the site pursuant to then-existing environmental regulations in connection with vacating the site in 1983, the applicable environmental regulations were modified after 1983, providing the basis for the property owner’s claim that the soil at the site contains the same contaminants that were the focus of Austron’s previous remediation efforts. In compliance with current law, Datum had established the extent of the site contamination, which extends to adjoining properties owned by third parties. We believe that we will continue to incur monitoring costs for the next several years in connection with the site contamination and may be subject to claims from adjoining landowners in addition to the claim for remediation discussed above, and the amount of such costs and the extent of the our exposure to such claims cannot be determined at this time. Although there can be no assurance that the remediation efforts, the property owners’ claims or any related governmental action will not singly or in the aggregate have a material adverse effect on our business, financial condition and results of operations, we do not believe the aggregated potential liability will have such an effect.

We are also party to certain claims in the normal course of our operations. While the results of these claims cannot be predicted with any certainty, we believe that the final outcome of these matters will not have a material adverse effect on our financial position and results of operations.

Note 16. Business Segment Information

Subsequent to the acquisitions of Datum and TrueTime, our executive management reviewed and revised our segments. We now have a total of seven reportable segments. There are four segments within the Telecom Solutions Division: Wireline Products, Wireless Products, Contract Manufacturing, and Global Services. The other three segments are Timing, Test and Measurement Division, Broadband Networking Division and the Trusted Time Division. Wireline Products consist principally of Digital Clock Distributors, or DCDs, based on quartz, rubidium and Global Positioning System (“GPS”) technologies. Our Wireline 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 stations through a GPS receiver to capture cesium-based time signals produced by GPS satellites. Contract Manufacturing involves the utilization of our production facilities to manufacture third-party products. We generate revenue by fabricating finished goods inventory of other companies’ products on a contract basis. Through our Global Services division we offer a broad portfolio of services for our customers around the world. The services we offer include system planning, network audits, network monitoring, maintenance, logistics, and installation. Since we do not manufacture or support the Transmission Products any more, we do not have any reportable revenues for the current fiscal year.

The Timing Test and Measurement products are precision time and frequency systems that are important to expanding communications systems of wireline, wireless, satellite and computer network technologies, for government, power utilities, aerospace, defense, and enterprise markets. Our Broadband Networking products include GoWide, a product that provides a low-cost, high-bandwidth solution for medium-sized businesses without access to optical networks. The Trusted Time products provide secure and auditable time management solutions for e-commerce transactions. They enable any electronic transaction to have a certifiable, traceable, and verifiable time stamp. Financial service companies, banks, insurance companies and government institutions currently use these products.

For each of these seven segments, we have separate financial information, including gross profit amounts, which are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. We do not allocate assets or specific operating expenses to these individual operating segments. Therefore, the segment information reported here includes only net sales and gross profit.

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	Three Months Ended December 31,						Six Months Ended December 31,
	2002			2001			2002			2001
	(in thousands, except percentages)
Net sales:
Telecom Solutions Division:
Wireline Products	$	18,079		$	15,877		$	29,427		$	31,202
Wireless Products		9,436			2,134			13,977			4,115
Contract Manufacturing		1,117			755			2,901			1,151
Global Services		999			269			1,480			880
Transmission Products		—			290			15			477
Timing Test and Measurement Division		9,854			—			9,854			—
Broadband Networking Division		176			8			290			17
Trusted Time Division		581			—			581			—
Total net sales	$	40,242		$	19,333		$	58,525		$	37,842
Cost of sales:
Telecom Solutions Division:
Wireline Products	$	10,969		$	9,535		$	18,035		$	19,594
Wireless Products		6,071			1,466			9,266			2,501
Contract Manufacturing		971			533			2,357			873
Global Services		307			76			435			321
Transmission Products		—			82			5			216
Timing Test and Measurement Division		5,243			—			5,243			—
Broadband Networking Division		720			35			819			42
Trusted Time Division		235			—			235			—
Total cost of sales	$	24,516		$	11,727		$	36,395		$	23,547
Gross profit:
Telecom Solutions Division:
Wireline Products	$	7,110		$	6,342		$	11,392		$	11,608
Wireless Products		3,365			668			4,711			1,614
Contract Manufacturing Services		146			222			544			278
Global Services		692			193			1,045			559
Transmission Products		—			208			10			261
Timing Test and Measurement Division		4,611			—			4,611			—
Broadband Networking Division		(544	)		(27	)		(529	)		(25	)
Trusted Time Division		346			—			346			—
Total gross profit	$	15,726		$	7,606		$	22,130		$	14,295
Gross margin:
Telecom Solutions Division:
Wireline Products		39.3	%		39.9	%		38.7	%		37.2	%
Wireless Products		35.7	%		31.3	%		33.7	%		39.2	%
Contract Manufacturing		13.1	%		29.4	%		18.8	%		24.2	%
Global Services		69.3	%		71.7	%		70.6	%		63.5	%
Transmission Products		—			71.7	%		66.7	%		54.7	%
Timing Test and Measurement Division		46.8	%		—			46.8	%		—
Broadband Networking Division		(309.1	)%		(337.5	)%		(182.4	)%		(147.1	)%
Trusted Time Division		59.6	%		—			59.6	%		—
Total gross margin		39.1	%		39.3	%		37.8	%		37.8	%

Note 17. Warranties

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others”. We adopted Interpretation No. 45 effective for the quarter ended December 31, 2002. Our standard warranty agreement is one year upon shipment. However, our warranty agreements are contract and component specific. Although we are in the process of amending existing customer contracts to adhere to our standard warranty agreement, there are customer contracts that still have a three or five-year warranty period. On the cesium tube, which is a component of the wireline product, there is a special warranty of twelve years.

We offer extended warranty contracts to our customers. The extended warranty is offered on products that are less than eight years old. The extended warranty contract is applicable for a maximum of six years after the expiration of the standard one year warranty.

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We accrue for anticipated warranty costs upon shipment. Our warranty reserve is based on the number of installed units, historical analysis of the volume of product returned to us under the warranty program, management’s judgment regarding anticipated rates of warranty claims and associated repair costs. Warranty accruals, are charged to the warranty reserve. We assess the adequacy of our recorded warranty liabilities based on our historical data and make adjustments to the liability if necessary. This analysis is updated on a quarterly basis.

Changes in our accrued warranty liability (which is a separate line item on our balance sheet) during the period is as follows:

	(In thousands)
Balance as of June 30, 2002	$	4,950
Balance for TrueTime as of October 4, 2002		44
Balance for Datum as of October 29, 2002		1,703
Total accrued warranty		6,697
Provision for warranty liability made for the two quarters ended December 31, 2002		1,035
Less: Actual warranty costs		(2,410	)
Balance as of December 31, 2002	$	5,322

Note 18. Non-recurring Expense

During the second quarter of fiscal 2003, and the first six months of fiscal 2003, we recorded non-recurring expenses of $0.9 and $1.0 million in acquisition-related costs. These include merger related costs incurred for proxy solicitation, employee travel, consulting services, legal, financial advisory fees and severance costs in connection with workforce reduction in the Broadband Networking Division.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and related notes included elsewhere in this report.

When used in this discussion, the words “expects,” “anticipates,” “estimates,” “believes,” “plans,” “will,” “intend,” “can” and similar expressions are intended to identify forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These risks and uncertainties include, but are not limited to, those risks discussed below, as well as risks relating to general economic conditions in the markets we address and the telecommunications market in general, risks related to the development of our new products and services including our entry into the Broadband Access market and the Professional Services market, the effects of competition and competitive pricing pressure, uncertainties associated with changing intellectual property laws, developments in and expenses related to litigation, increased competition in our markets, inability to obtain sufficient amounts of key components, the rescheduling or cancellations of a key customer order, the loss of a key customer, the effects of new and emerging technologies, the risk that excess inventory may result in write-offs, price erosion and decreased demand, fluctuations in the rate of exchange of foreign currency, changes in our effective tax rate, market acceptance of our new products and services, technological advancements, undetected errors or defects in our products, the risks associated with our international sales, the risks associated with attempting to integrate companies we acquire, and the matters discussed in “Factors That May Affect Results.” These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview

Symmetricom is the leading supplier of precise timing standards to industry, government, utilities, research centers, aerospace and enterprise. We supply scientific and business solutions for customers who demand reliable products and engineering expertise in a variety of applications including timing, testing, verification and/or the measurement of a time and frequency-based signal. We are the recognized technology and market leader for rubidium clocks, cesium clocks and hydrogen masers. Our products and services also include timing elements and innovative business broadband access devices for wireline and wireless networks as well as professional services. Our products play an important role in the operation, bandwidth optimization, and quality of service of wireline, wireless and broadband communications networks. Our products enable our customers to increase performance and efficiency in today’s evolving communications environment.

Our customers include worldwide public network providers, incumbent local exchange carriers, or ILECs, post telephone and telegraph companies, or PTTs, competitive local exchange carriers, or CLECs, other telephone companies, wireless service providers, cable television operators, distributors and systems integrators, internet service providers, or ISPs, and communications original equipment manufacturers, or OEMs. With the addition of customers from TrueTime and Datum we have successfully entered into the governmental, financial, pharmaceutical, legal and defense sectors.

Critical Accounting Policies, Significant Judgments and Estimates

Business Combinations:

We allocated the purchase price of acquired companies to the tangible and intangible assets acquired, liabilities assumed, as well as in-process research and development based on their estimated fair values. We engaged an independent third-party appraisal firm to assist us in determining the fair values of the assets acquired and the liabilities assumed. Such valuations require management to make significant estimations and assumptions, especially with respect to intangible assets.

Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from customer contracts, customer lists, distribution agreements, acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimating cash flows from the projects when completed; also the brand awareness and the market position of the acquired products and assumptions about the period of time the brand will continue to be used in the combined company’s product portfolio. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate and unanticipated events and circumstances may occur.

Other estimates associated with the accounting for these acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. In particular, liabilities to restructure the pre-acquisition TrueTime and Datum organizations are subject to change as management completes its assessment of the pre-merger operations and begins to execute the approved plan.

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Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price is fixed or determinable and collectibility is reasonably assured. Our standard arrangement for the majority of our domestic and international customers includes a signed purchase order, in which we offer payment terms of 30 days, and no right of return of delivered products.

We assess collectibility based on the credit worthiness of the customer and past transaction history. We perform on-going credit evaluations of our customers and do not require collateral from our customers. For many of our international customers, we require an irrevocable letter of credit to be issued by the customer before the purchase order is accepted. If we determine that collection of a fee is not reasonably assured, we recognize the revenue at the time that collection becomes reasonably assured, which is generally upon the receipt of cash. We commonly have transactions that involve sales of both product and services to our customers. Product revenue is generated from the sale of synchronization and timing equipment with embedded software that is essential to product functionality. We account for these transactions in accordance with the rules applicable to software revenue recognition.

Revenue from sales of product and software licenses is recognized when: (1) we enter into a legally binding arrangement with a customer; (2) we deliver the products; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenue from post-sale customer support is deferred and recognized ratably over the term of the support contract. Revenue from consulting and training services is recognized as the services are performed.

Sales to distributors are made under agreements allowing for limited product return. Accordingly, we accrue a product return allowance based on an historical average of distributor returns.

Revenue from major development contracts in excess of $100,000 and a development period of at least 6 months is recognized under the percentage of completion method of accounting, principally based upon the costs incurred relative to the total estimated costs to complete the individual contracts. Revenue from long-term contracts is reviewed periodically, with adjustments recorded in the period in which the revisions are made. Any anticipated losses on contracts are fully charged to operations as soon as they are determinable.

Inventory Valuation

Inventories are valued at the lower of cost or market, cost being determined on a first-in, first-out basis. We assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a monthly basis. Obsolete inventory or inventory in excess of management’s estimated usage is written-down to its estimated market value less costs to sell, if less than its cost. Inherent in the estimates of market value are management’s estimates related to current economic trends, future demand, and technological obsolescence. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. If the inventory value is written down to its net realizable value, and subsequently there is an increased demand for the inventory at a higher value, the increased value of the inventory is not realized until the inventory is sold.

Valuation of Intangible Assets and Goodwill

We periodically evaluate our intangible assets and goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We compared the fair values of the reporting units to their respective carrying values and determined that two of the reporting units were impaired. The fair values of the reporting units were estimated using a present value of estimated future cash flows. To determine the amount of impairment we compared the implied fair value of the reporting units goodwill with the goodwill’s carrying value and recorded the excess of the carrying value of the reporting units goodwill over its implied fair value as an impairment loss in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets”. Management has recorded an estimate of the impairment loss for the quarter ended December 31, 2002 of $15.3 million. Adjustments, if any, to that estimate will be recorded as purchase price allocations are finalized and the measurement of the impairment is complete. Further decline in the telecommunications industry could precipitate a write down of intangible assets and goodwill.

Accounting for Income Taxes

The determination of our tax provision is subject to judgments and estimates due to operations outside the United States, primarily in Puerto Rico. Net earnings of our Puerto Rico subsidiary are taxed under Internal Revenue Code Section 936, which exempts qualified Puerto Rico earnings from federal income tax. Section 936 limits the amount of qualified Puerto Rico earnings and expires in fiscal year 2006. The change in tax law may affect our future tax rate.

The carrying value of our net deferred tax assets, which is made up primarily of tax deductions and net operating loss carryforwards, assumes we will be able to generate sufficient future income to fully realize these deductions. We evaluate the weight of all available evidence in determining whether it is more likely than not that some portion of the deferred tax assets will not be realized. If we do not generate sufficient future income, the realization of these deferred tax assets may be impaired,

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resulting in an additional income tax expense. All of our tax credits, which are related to stock options, have valuation allowances because of uncertainty regarding their realization. If these tax credits are realized, the benefit will be credited to common stock.

Acquisition of Datum, TrueTime and NetMonitor

On October 29, 2002, we completed our acquisition of Datum. Each share of Datum common stock outstanding was converted into the right to receive 2.7609 shares of Symmetricom common stock. The aggregate consideration was approximately 17.4 million shares of our common stock in exchange for all of Datum’s outstanding equity interests. The acquisition of Datum is intended to qualify as a tax-free reorganization within the meaning of Section 368(a) of Internal Revenue code and is accounted for as a purchase.

On October 4, 2002, we completed our acquisition of TrueTime. Each outstanding common share of TrueTime was converted into the right to receive 0.43697 of a share of Symmetricom common stock and cash of $0.84. All vested and unvested outstanding options to purchase TrueTime’s common stock were cancelled and surrendered in exchange for cash payment, which totaled $34,000 in the aggregate. The aggregate consideration was approximately 2.6 million shares of our common stock and $5.0 million in cash.

On October 15, 2002, we acquired certain assets from NetMonitor. The acquisition was accounted for as an asset purchase. We paid $0.23 million in cash for the acquired assets and incurred direct acquisition costs of approximately $0.03 million. The net purchase price was allocated to tangible assets of $0.04 million and existing technology of $0.22 million.

Results of Operations

The following table presents selected items in our consolidated statements of operations as a percentage of total revenues for the three and six months ended December 31, 2002 and December 31, 2001. These results include TrueTime’s results of operations from October 4, 2002 (the acquisition date) and Datum’s results of operations from October 29, 2002 (the acquisition date).

	Three Months Ended December 31,				Six Months Ended December 31,
	2002		2001		2002		2001
Net sales	100	%	100	%	100	%	100	%
Gross profit	39.1	%	39.3	%	37.8	%	37.8	%
Operating expenses:
Research and development	14.4	%	14.7	%	15.3	%	14.4	%
Selling, general and administrative, including amortization of intangibles	35.3	%	32.6	%	36.8	%	34.8	%
Impairment of goodwill	38.1	%	—		26.2	%	—
Operating loss	(54.8	)%	(8.0	)%	(45.0	)%	(12.4	)%
Gain (loss) on equity securities	(0.6	)%	—		(0.8	)%	4.7	%
Interest income	0.4	%	1.8	%	0.6	%	2.2	%
Interest expense	(0.4	)%	(0.9	)%	(0.5	)%	(0.9	)%
Net loss	(49.3	)%	(4.3	)%	(39.2	)%	(5.2	)%

Net Sales:

	Three Months Ended December 31,				Percentage Change		Six Months Ended December 31,				Percentage Change
	2002		2001				2002		2001
Net Sales (in thousands)	$	40,242	$	19,333	108.2	%	$	58,525	$	37,842	54.7	%

Net sales consist of sales of product, software licenses and services. Net sales increased by $20.9 million to $40.2 million in the second quarter of fiscal 2003 from $19.3 million in the corresponding quarter of fiscal 2002. The second quarter’s revenue of $40.2 million in fiscal 2003 is comprised of $20.4 million in revenue from heritage Symmetricom, $13.3 million in revenue from Datum and $6.5 million in revenue from TrueTime.

Segmenting the $40.2 million in revenue, $29.6 million was from our Telecom Solutions Division of which $18.1 million is from our wireline products, $9.4 million from our wireless products, $1.1 million from contract manufacturing and $0.9 million from our global services. It also includes $9.9 million in sales from our recently acquired products in the Timing, Test and Measurement Division and $0.6 million in sales from products in the Trusted Time Division. Sales of our wireless products more than doubled in the current quarter compared to our previous quarter in fiscal 2003 due to the acquisitions. The increase in revenue during the second quarter of fiscal 2003 is primarily due to the acquisitions of TrueTime and Datum. The increase in overall net sales during the second quarter of fiscal 2003 is also the result of higher than expected orders and reduction of backlog across the Telecom Solutions Division and the Timing, Test and Measurement Division.

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In the first six months of fiscal 2003 net sales increased 54.7% to $58.5 million from $37.8 million. The increase in net revenue for both the quarter and fiscal year to date periods is primarily attributable to our acquisitions of TrueTime and Datum in October 2002.

Gross Margin:

Gross margin as a percentage of net sales was 39.1% in the second quarter of fiscal 2003 compared to 39.3% in the same period of the prior year and was a flat 37.8% in the first six months of fiscal 2003 and 2002. The increase in the gross margin for the quarter is due to a higher margin on Datum’s products. This is principally due to the exclusion of Datum’s results from October 1, 2002 through October 29, 2002, which historically represents a low volume, low margin period. Additionally, a higher proportion of domestic sales in the quarter supported a favorable margin mix, which was partially offset by a write-down of $0.6 million in prepaid royalties for the Telmax products. During the second quarter of fiscal 2002 we had acquired certain products and key technologies from Telmax Communications Corporation for $1.0 million in cash and $0.6 million in prepaid royalties to use the technology. During the second quarter of fiscal 2003, we determined that the technology acquired had significantly changed such that the asset is no longer recoverable. We recorded the charge against our cost of sales.

Operating Expenses

Research and development:

	Three Months Ended December 31,				Percentage Change		Six Months Ended December 31,				Percentage Change
	2002		2001				2002		2001
Research and development expense (in thousands)	$	5,777	$	2,846	103.0	%	$	8,970	$	5,441	64.9	%

Research and development expenses consist primarily of salaries and benefits, prototype expenses and fees paid to outside consultants. Research and development expenses were $5.8 million during the second quarter of fiscal 2003 compared to $2.8 million for the corresponding period of fiscal 2002. The overall increase in absolute dollars in the research and development expense with the addition of TrueTime and Datum resulted principally from the increase in headcount as a result of the acquisitions. Research and development expenses for Symmetricom without Datum and TrueTime were $3.2 million for the second quarter of fiscal 2003, compared to $2.8 in the corresponding quarter of fiscal 2002. This small increase of $0.4 million in expenditures consists principally of increases in compensation related expense in the Broadband Networking Division. As a percentage of net sales, research and development decreased to 14.4% in the second quarter of fiscal 2003 compared to 14.7% in the corresponding period of fiscal 2002. This decrease is due to an increase in net sales in the second quarter of fiscal 2003.

Research and development expenses were $9.0 million in the first six months of fiscal 2003 or 15.3% of net sales when compared to $5.4 million or 14.4% of net sales in the corresponding period of fiscal 2002. The overall increase is attributable to our acquisitions in October 2002. Symmetricom’s research and development expense without Datum and TrueTime was $6.4 million for the six months of fiscal 2003 compared to $5.4 million in the prior period.

We believe that a significant level of research and development is required to remain competitive in the long-term and we expect to continue to commit substantial resources to product development in future periods, despite the current difficult economic environment.

Selling, general and administrative, including amortization of intangible assets:

	Three Months Ended December 31,				Percentage Change		Six Months Ended December 31,				Percentage Change
	2002		2001				2002		2001
Selling, general and administrative, including amortization of intangible assets (in thousands)	$	14,191	$	6,310	124.9	%	$	21,564	$	13,154	63.9	%

Selling, general and administrative expense including the amortization of intangibles consists primarily of salaries, benefits, sales commissions and travel related expenses for our sales and services, finance, human resources, information technology and facilities department and the amortization expenses of our intangible assets. These expenses increased 124.9% to $14.2 million for the second quarter of fiscal 2003 compared to $6.3 million for the second quarter of fiscal 2002. As a percentage of net sales these expenses were 35.3% in the second quarter of fiscal 2003 compared to 32.6% for the corresponding quarter of fiscal 2002. The increase is due primarily to our acquisitions in October 2002. Symmetricom’s selling, general and administrative expenses without Datum and TrueTime increased to $7.5 million in the second quarter of fiscal 2003 compared to $6.3 million in the corresponding quarter of fiscal 2002. The increase is attributable to increased commission expenses due to our higher sales volume during the second quarter of fiscal 2003.

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Selling, general and administrative expenses including the amortization of intangibles increased 63.9% to $21.6 million for the first six months of fiscal 2003 compared to $13.1 million for the corresponding period in fiscal 2002. As a percentage of net sales these expenses were 36.8% for the first six months of fiscal 2003 compared to 34.8% for the first six months of fiscal 2002.

The amortization of intangible assets relates to certain assets and products that were acquired from Datum, TrueTime, NetMonitor, the Hewlett-Packard Company’s Communications Synchronization Business and Telmax. Amortization of intangibles increased to $1.5 million in the second quarter of fiscal 2003 from $0.4 million in the corresponding quarter of fiscal 2002.

Non-recurring and integration expenses:

	Three Months Ended December 31,			Six Months Ended December 31,
	2002		2001	2002		2001
Non-recurring and integration expense (in thousands)	$	896	—	$	1,020	$	409

During the second quarter and the first six months of fiscal 2003, we recorded a non-recurring expense of $0.9 and $1.0 million respectively in acquisition-related costs and other restructuring expenses. These include merger related costs incurred for proxy solicitation, employee travel, consulting services, legal, financial advisory fees and severance costs in connection workforce reduction in our Broadband Networking Division. During our first quarter of fiscal 2002 we recorded a non-recurring loss of $0.4 million in connection with a reduction of our workforce. All of the expenses related to the termination of the employees were paid out during the first quarter of fiscal 2002.

Impairment of goodwill:

	Three Months Ended December 31,			Six Months Ended December 31,
	2002		2001	2002		2001
Impairment of goodwill (in thousands)	$	15,335	—	$	15,335	—

We completed the acquisition of TrueTime and Datum during the second quarter of fiscal 2003. In connection with these acquisitions, we recorded an additional $76.2 million of goodwill. This goodwill was based upon the values assigned to the transactions at the time they were announced: March 2002 for TrueTime and May 2002 for Datum. During the second quarter of fiscal 2003, management determined that these amounts were likely impaired as forecasts for anticipated revenue growth for the telecommunications industry had declined since the transactions were valued.

We compared the fair values of the reporting units to their respective carrying value and determined that two of the reporting units were likely impaired. The fair values of the reporting units were estimated using a present value of estimated future cash flows. To determine the amount of impairment we compared the implied fair value of the reporting units goodwill with the goodwill’s carrying value and recorded the excess of the carrying value of the reporting units goodwill over its implied fair value as an impairment loss in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.” Management has recorded an estimate of the impairment loss for the quarter ended December 31, 2002 of $15.3 million. Adjustments, if any, to that estimate will be recorded as purchase price allocations are finalized and the measurement of the impairment is complete.

Acquired in-process research and development expenses:

	Three Months Ended December 31,			Six Months Ended December 31,
	2002		2001	2002		2001
Acquired in-process research and development expenses (in thousands)	$	1,561	—	$	1,561	—

During the second quarter and the first six months of fiscal 2003 we allocated $1.6 million to purchased in-process research and development expense. Projects that qualify as in-process research and development represent those that have not yet reached technological feasibility and have no alternative future use. Technological feasibility is defined as being equivalent to a beta-phase working prototype in which there is no remaining risk relating to the development. The $1.6 million represents $1.2 million from Datum and $0.4 million from TrueTime. The value of these projects was determined by estimating the discounted net cash flows from the sale of the products resulting from the completion of the projects, reduced by the portion of the revenue attributable to developed technology and the percentage of completion of the project.

The nature of the efforts to develop the purchased in-process research and development into commercially viable products principally relates to the completion of all prototyping and testing activities that are necessary to establish that the product can meet its design specification including function, features and technical performance requirements. Therefore the amount allocated to in-process research and development has been charged to operations.

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Gain (loss) on equity securities:

	Three Months Ended December 31,				Percentage Change	Six Months Ended December 31,					Percentage Change
	2002			2001		2002			2001
Gain (loss) on equity securities (in thousands)	$	(252	)	—	—	$	(450	)	$	1,771	(125.4	)%

During the second quarter and first six months of fiscal 2003 we recorded a non-recurring loss of $0.3 and $0.5 million, respectively, from the sale of all our investments in the common stock of Brocade, Inc., and Parthus, Inc. We no longer have corporate equity securities. During the first six months of fiscal 2002, we had recorded a gain of $1.8 million on the sale of stock of Brocade, Inc.

Interest Income:

	Three Months Ended December 31,				Percentage Change		Six Months Ended December 31,				Percentage Change
	2002		2001				2002		2001
Interest Income (in thousands)	$	169	$	340	(50.3	)%	$	358	$	820	(56.3	)%

Interest income decreased 50.3% to $0.2 million during the second quarter of fiscal 2003, compared to $0.3 million during the second quarter of fiscal 2002. The decrease in interest income was primarily the result of a decrease in our short-term investments as well as lower average interest rates during the second quarter of fiscal 2003 compared to the corresponding period during fiscal 2002. At the end of fiscal 2002 we had approximately $6.0 million in short-term investments. Currently we have approximately $0.6 million in short-term investments. Our short-term investment portfolio had previously consisted of equity securities and other short-term marketable securities. We sold all our equity securities at the end of December 2002, which resulted in cash that was utilized for the acquisitions. Interest income for the six months of fiscal 2003 decreased 56.3% to $0.4 million compared to $0.8 million in the six months of fiscal 2002.

Interest Expense:

Interest expense consists primarily of interest on our capital lease for our headquarters building in San Jose, California. Interest expense remained constant at $0.2 and at $0.3 million in the second quarter and first six months of fiscal 2003 and in the corresponding period of fiscal 2002.

Income Taxes:

Our income tax benefit was $2.4 million and $3.8 million in the second quarter and first half of fiscal 2003, respectively, compared to a tax benefit of $0.6 million and $0.5 million during the corresponding periods of fiscal 2002. Our effective tax rate for fiscal 2003 is estimated to be approximately 20%. The expected rate has been reduced by the impact of the goodwill impairment loss of $15.3 million, for which we received no tax benefit. Without the goodwill impairment loss, the full year effective rate is estimated to be approximately 34%. Our fiscal 2003 effective tax is also affected by the percentage of qualified Puerto Rico earnings. A significant portion of our Puerto Rico earnings is taxed under Section 936 of the U.S. Internal Revenue Code, which exempts qualified Puerto Rico earnings from regular federal income taxes. The federal 936 exemption is subject to various limitations and is scheduled to expire at the end of fiscal 2006.

As a result of the factors discussed above, we incurred a net loss of $19.9 million, or $0.55 per share, in the second quarter of fiscal 2003 compared to net loss of $0.8 million, or $0.04 per share, during the same period of fiscal 2002. For the six months ending December 31, 2002 we incurred a net loss of $23.0 million or $0.79 per share. During the six months ended December 31, 2001 we incurred a net loss of $2.0 million or $0.09 per share.

Liquidity and Capital Resources

As of December 31, 2002, we had a combined cash balance of cash and cash equivalents and short-term investments of $47.6 million, a decrease of $6.6 million from June 30, 2002. Our cash and cash equivalents includes $0.5 million of restricted cash representing the remaining proceeds of the Massachusetts industrial development bond. Our total capital commitments outstanding at the end of December 31, 2002 were $0.3 million. Days sales outstanding in accounts receivable was 52 days at the end of December 31, 2002 down from 55 days at June 30, 2002. This slight decrease is due to our increased collection efforts at the end of the quarter.

We believe that cash, cash equivalents and funds generated from operations, investments and financing activities will be sufficient to satisfy our working capital requirements and capital expenditures in fiscal 2003.

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On January 15, 2003, we amended Datum’s credit facility with Wells Fargo Bank. The credit facility expires March 15, 2003. The credit facility includes a line of credit for $2.9 million to be used as a back up for letters of credit.

On June 1, 2001, the Massachusetts Development Finance Agency issued a $2.7 million industrial development bond on Datum’s behalf to finance the expansion of Datum’s manufacturing facility in Beverly, Massachusetts. The bond matures on May 1, 2021. Interest on the bond is payable monthly at an adjustable rate of interest. The remarketing agent determines the interest rate for each rate period to be the lowest rate, which in its judgment would permit the sale of the bonds at par. The bond is collateralized by the letter of credit issued under Symmetricom’s credit facility with Wells Fargo Bank.

As part of the merger with Datum, we converted a warrant to purchase common stock of Datum that was held by UBS Warburg into a warrant to purchase 477,235 shares of our common stock at an exercise price of $4.53 per share. The warrant expires in September 2003; and as of December 31, 2002 had not been exercised.

As part of the merger with TrueTime we converted a warrant to purchase common stock of TrueTime that was held by C.E. Unterberg, Towbin into a warrant to purchase 87,394 shares of our common stock at an exercise price of $12.59 per share. This warrant expires in December 22, 2004; and as of December 31, 2002 had not been exercised.

During the second quarter of fiscal 2002, we issued warrants to Telmax Communications Corporation in connection with the acquisition of certain assets and key products to purchase 300,000 shares of our common stock at an exercise price of $7.00 per share. The fair value of the warrants issued in this transaction that was recorded as a part of the purchase price was $0.8 million and was calculated using the Black-Scholes option-pricing model. These warrants expire October 3, 2006, and as of December 31, 2002 had not been exercised.

Recent Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived-Assets to Be Disposed Of”. SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of SFAS No. 121, the Statement significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Under SFAS No. 144, assets held-for-sale are stated at the lower of their fair values or carrying amounts and depreciation is no longer recorded. The Company adopted SFAS No. 144 during the first quarter of fiscal 2003. There was no impact on the Company’s financial statements as a result of adopting SFAS No. 144.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 requires that a liability for the cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 also established that fair value is the objective for initial measurement of the liability. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. This Statement is not expected to have a material impact on the Company’s financial statements.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. Interpretation No. 45 requires a guarantor to include disclosure of certain obligations, and if applicable, at the inception of the guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The recognition requirement is effective for guarantees issued or modified after December 31, 2002 and did not have a material impact on the Company. The Company adopted Interpretation No. 45 effective for the quarter ended December 31, 2002 and the applicable disclosures have been made.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. SFAS No. 148 amends certain provisions of SFAS No. 123 and is effective for financial statements for fiscal years ending after December 15, 2002. The Company adopted the disclosure provisions of SFAS No. 148 for the quarter ended December 31, 2002 and the applicable disclosures have been made.

Factors That May Affect Results

Our quarterly and annual operating results have fluctuated in the past and may continue to fluctuate in the future, which could cause our stock price to decline and result in losses to our investors

We believe that period-to-period comparisons of our operating results are not a good indication of its future performance. Our quarterly and annual operating results have fluctuated in the past and may continue to fluctuate in the future. Some of the factors that could cause our operating results to fluctuate include:

• the continuation of recent adverse economic conditions, particularly within the telecommunications equipment industry, which may result in further revenue shortfalls;

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• goodwill impairment charges related to the acquisitions;

• the effects of terrorist activity and armed conflict which may disrupt general economic activity and result in revenue shortfalls;

• our ability to obtain sufficient supplies of sole or limited source components at commercially reasonable prices;

• changes in our products or mix of sales to customers;

• our ability to manage fluctuations in manufacturing yields;

• our ability to manage the level and value of our inventories;

• our ability to accurately anticipate the volume and timing of customer orders or customer cancellations;

• our ability to collect receivables from our customers in the telecommunications industry;

• the gain or loss of significant customers;

• our ability to introduce new products on a timely and cost-effective basis;

• customer delays in qualification of new products;

• market acceptance of new or enhanced versions of our products and our competitors’ products;

• our ability to manage increased competition and competitive pricing pressures;

• our ability to manage fluctuations, especially declines, in the average selling prices of our products;

• our ability to manage the long sales cycle associated with our products;

• our ability to manage cyclical conditions in the telecommunications industry; and

• 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, our operating results will be negatively impacted. 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. Significant decreases in demand for our products or reduction in our average selling prices, or any material delay in customer orders may negatively harm our business, financial condition and results of operations. 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 changes in general economic conditions; conditions related 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 decline significantly.

We experienced net operating losses in the past and may experience net operating losses again in the future

We had a net loss of $19.9 million for the quarter ended December 31, 2002. We cannot assure you that we will be able to achieve operating profitability. If we are unable to achieve operating profitability or if we incur future losses and negative cash flow, our stock price will likely decline.

If we continue to incur net operating losses, a valuation allowance may be necessary for some or all of our deferred tax assets, which would harm our operating results

If we continue to sustain operating losses, we may be unable to utilize our deferred tax assets. In addition, our ability to realize a tax benefit with regard to future losses may be limited which may require an additional valuation allowance. A valuation allowance would increase future tax expenses and be harmful to our future operating results.

The economic downturn in the telecommunications industry has negatively impacted the demand for our products and may impair our customers’ ability to pay us

The telecommunications industry, from which we derive a significant portion of our revenue, is experiencing a general economic downturn. We do not know when or if the telecommunications markets will recover. This downturn has negatively

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affected many of our customers and has significantly weakened the financial condition of others. Some customers have filed for bankruptcy protection and others may do so as well. A customer’s seeking bankruptcy protection can result in our not receiving payment for products delivered, the cancellation of one or more contracts and the loss of a customer. In addition, the continued decline of demand in the telecommunications industry could delay decisions by some of our customers to renew their agreements or relationships with us or could delay decisions by prospective customers to make initial evaluations of our products. Reductions or delays in expenditures for our products, nonpayment for products delivered and the cancellation of contracts and the loss of customers could have a material adverse effect on our business and results of operations.

We purchase certain key components of our synchronization and timing equipment from single or limited sources and could lose sales if these sources fail to fulfill our needs

We have limited suppliers for a number of our components, including our rubidium and quartz oscillators, which are key components of our synchronization and timing equipment, and several components used by our Datum and TrueTime subsidiaries. If single source components were to become unavailable on satisfactory terms, we would be required to purchase comparable components from other sources. If for any reason we could not obtain comparable replacement components from other sources in a timely manner, our business results of operations and financial condition could be harmed. In addition, some of our suppliers require long lead-times to deliver requested quantities of components. If we are unable to obtain sufficient quantities of components, we could experience delays or reductions in product shipments, which could also have a material adverse effect on our business, result of operations and financial condition. Due to rapid changes in semiconductor and other technology, on occasion, one or more of the electronic components used in Datum’s products have become unavailable, resulting in unanticipated redesign and related delays in shipments. We cannot assure you that similar delays will not occur in the future.

We have relied and continue to rely on a limited number of customers for a significant portion of our net sales, and our revenue could decline due to the delay of customer orders or cancellation of existing orders

A relatively small number of customers have historically accounted for a significant portion of our net sales. No single customer accounted for 10% or more of our net sales during the second quarter of fiscal 2003, whereas two customers accounted for 14.8% and 12.6% of our net sales during the second quarter of fiscal 2002. We expect that we will continue to depend on a relatively small number of customers for a substantial portion of our net sales for the foreseeable future. The timing and level of sales to our largest customers have fluctuated significantly in the past and are expected to continue to fluctuate significantly in the future. For example, our sales to Samsung were $2.3 million in second fiscal quarter of fiscal 2003 compared to $0.9 million in the corresponding quarter of fiscal 2002. A relatively small number of customers has also historically accounted for, and is expected to account for, a significant portion of the net sales in any given fiscal period. 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 customer, may harm our business and operating results. Major customers also have significant leverage and may attempt to change the terms, including pricing, upon which we do business, which could also harm our business and operating results.

We have direct or indirect sales pursuant to contracts with United States government agencies, which can be terminated at the convenience of the government, and our revenue would decline if the government terminated these contracts

Approximately 13% of our net sales for the six months ended December 31, 2002 were made either to United States government agencies or indirectly to United States government agencies through subcontracts. Government-related contracts and subcontracts are subject to standard provisions for termination at the convenience of the government. In such event, however, we are generally entitled to reimbursement of costs incurred on the basis of work completed plus other amounts specified in each individual contract. These contracts and subcontracts are either fixed price or cost reimbursable contracts. Fixed-price contracts provide fixed compensation for specified work. Under cost reimbursable contracts, we agree to perform specified work in return for reimbursement of costs (to the extent allowable under government regulations) and a specified fee. In general, while the risk of loss is greater under fixed-price contracts than under cost reimbursable contracts, the potential for profit under fixed-price contracts is greater than under cost reimbursable contracts.

If we are unable to develop new products, or we are delayed in production startup, sales of our products could decline, which could reduce our revenue

The markets for our products are characterized by:

• rapidly changing technology;

• evolving industry standards;

• changes in end-user requirements; and

• frequent new product introductions.

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Technological advancements could render our products obsolete and unmarketable. Our success will depend on our ability to respond to changing technologies and customer requirements and our ability to develop and introduce new and enhanced products, in a cost-effective and timely manner. 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 attempt to develop certain new products that we may not successfully develop. Delays in new product development or delays in production startup could reduce sales of our products, which would negatively impact our revenue.

Our products are complex and may contain errors or design flaws, which could be costly to correct

Our products are complex and often use state-of-the-art components, processes and techniques. When we release new products, or new versions of existing products, they may contain undetected or unresolved errors or defects. Despite testing, errors or defects may be found in new products or upgrades after the commencement of commercial shipments. Undetected errors and design flaws have occurred in the past and could occur in the future. These errors could result in delays, loss of market acceptance and sales, diversion of development resources, damage to our reputation, legal action by our customers, failure to attract new customers, and increased service and warranty costs. The occurrence of any of these factors could cause our net sales to decline.

The telecommunications market is highly competitive, and if we are unable to compete successfully in our markets, our revenue could decline

Competition in the telecommunications industry in general, and in the markets we serve, is intense and likely to increase substantially. We face competition in all of our markets. Competitors in the Telecom Solutions Division include Frequency Electronics, Inc., Larus, Inc., Oscilloquartz SA, and Trimble Navigation, Ltd. Our primary competitors in our Broadband Networking Division are Adtran, Inc, Cisco Systems, Inc., Efficient Networks, Inc., and Thompson Multimedia S.A. Principal competitors of our Timing Test and Measurement Division include Agilent Technologies, Inc., and Zyfer a subsidiary of Odetics, Inc. In addition, the Telecommunications Act of 1996 permits ILECs to manufacture telecommunications equipment, which may result in increased competition. Our ability to compete successfully in the future will depend on many factors including:

• the cost-effectiveness, quality, price, service and market acceptance of our products;

• our response to the entry of new competitors into our markets or the introduction of new products by our competitors;

• the average selling prices received for our products;

• our ability to keep pace with changing technology and customer requirements;

• our continued improvement of existing products;

• the timely development or acquisition of new or enhanced products;

• the timing of new product introductions by our competitors or us; and

• changes in worldwide market and economic conditions.

Many of our competitors or potential competitors are more established than we are and have greater financial, manufacturing, technical and marketing resources. These competitors may be able to respond more quickly to new and emerging technologies and changes in customer requirements, to devote greater resources to the development, promotion and sale of products, or to deliver competitive products at lower prices. We expect to continue to experience pricing pressures from our competitors in all of its markets and continued price erosion in several of our product lines. If we are unable to compete by delivering new products or by delivering competitive products at lower prices, we could lose market share and our revenue could decline.

Our failure to achieve and sustain profitability with respect to our emerging businesses could negatively impact our operating results and our cash resources.

Our Broadband Networking Division and Trusted Time Division have limited histories of operation. Both these divisions have incurred operating losses since their inception. The Broadband Networking Division and the Trusted Time Division are developing products for emerging markets, and will require further cash investments to reach profitability. If we fail to achieve and sustain profitability in these divisions in a reasonable time period, or if the losses in the divisions are larger than anticipated, our operating results and cash resources will suffer.

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If we fail to protect our intellectual property, our competitive position could be weakened and our revenues may decline

We believe our success will depend in a large part 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. These measures may not provide sufficient 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. 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 us with any commercial benefit.

Third parties may assert intellectual property infringement claims, which would be difficult to defend, costly and may result in our loss of significant rights

The telecommunications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. We are 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. We cannot assure you 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.

If we acquire other companies and are unable to smoothly integrate the businesses we acquire, our operations and financial results could be harmed

As part of our business strategy we have engaged in acquisitions in the past, including the recently completed acquisitions of TrueTime and Datum, and continue to evaluate other acquisition opportunities that could provide additional product or service offerings, technologies or additional industry expertise. Our recent acquisitions of TrueTime and Datum, and our future acquisitions, involve risks, which include the following:

• we may be exposed to unknown liabilities of the acquired business;

• we may incur significant (one-time) write-offs;

• we may experience problems in combining the acquired operations, technologies or products;

• we may overestimate the revenue and profits that we expect the acquired businesses to generate;

• we may overestimate the cost savings to be obtained from combining the acquired operations with ours;

• we may experience regulatory difficulties and unbudgeted expenses in attempting to complete an acquisition;

• we may encounter unanticipated acquisition or integration costs that could cause our quarterly or annual operating results to fluctuate;

• our management’s attention may be diverted from our core business;

• our existing business relationships with suppliers and customers may be impaired;

• we may encounter difficulties in entering markets in which we have no or limited prior experience;

• we may be unable to retain key employees of the purchased organizations;

• our stockholders may be diluted if we pay for the acquisition with equity securities;

• our stock price may suffer if the former stockholders of Datum, TrueTime or any of the other acquired companies dispose of significant numbers of shares of our common stock that they receive in the acquisition within a short period of time; and

• third parties who have decided against pursuing legal claims against us or an acquired entity prior to the acquisition may, in light of our increased revenues and size of operations resulting from the acquisition, revise their assessments and decide to pursue their claims.

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We cannot assure you that we will be able to successfully integrate any business, products, technologies or personnel from any recent or future acquisitions. If we fail to successfully integrate acquisitions or to achieve any anticipated benefits of an acquisition, our operations and business could be harmed. Additionally, we may experience difficulty integrating and managing the acquired business’ operations. For these reasons, we cannot be certain what effect acquisitions may have on our business, financial condition and results of operations.

We are subject to environmental regulations that could result in costly environmental liability that could exceed our resources

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, changes in these regulations may require additional capital expenditures 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, these reviews are necessarily limited in scope and frequency and may not reveal all potential instances of noncompliance, possible injury or possible contamination. The liabilities arising from any noncompliance with environmental regulations, or liability resulting from accidental contamination or injury from toxic or hazardous chemicals could result in liability that exceeds our resources. The risk of liabilities increases as we acquire other companies, such as Datum, which use, or have used, hazardous substances at various current or former facilities.

A manufacturing facility previously operated by Datum in Austin, Texas is undergoing remediation for known subsurface contamination at that facility and adjoining properties. We believe that we will incur monitoring costs for years to come in connection with this subsurface contamination. Further, we may be subject to claims from adjoining landowners, in addition to claims for remediation, and the amount of these costs and the extent of our exposure to these claims cannot be determined at this time. The determination of the existence and cost of any additional contamination caused by Datum could involve costly and time-consuming negotiations and litigation. Remediation activities and subsurface contamination may require us to incur unreimbursed costs and could harm on-site operations and the future use and value of the property. The remediation efforts, the property owners claims and any related governmental action may expose us to material liability and could significantly harm our business.

We are subject to various rules and regulations, which may cause us to incur significant compliance costs

Symmetricom and its customers are subject to various governmental regulations, compliance with which may cause us to incur significant expenses. If we fail to maintain satisfactory compliance with these regulations, we may be forced to recall products and cease their manufacture and distribution, and Symmetricom could be subject to civil or criminal penalties.

Symmetricom’s business is subject to various other significant international, federal, state and local, health and safety, packaging, product content and labor regulations. These regulations are complex, change frequently and have become more stringent over time. We may be required to incur significant expenses to comply with these regulations or to remedy past violations of these regulations. Any failure by Symmetricom to comply with applicable government regulations could also result in cessation of its operations or portions of its operations, product recalls or impositions of fines and restrictions on its ability to carry on or expand its operations. In addition, because many of its products are regulated or sold into regulated industries, we must comply with additional regulations in marketing its products. Our products and operations are also often subject to the rules of industrial standards bodies, like the International Standards Organization, as well as regulation of other agencies such as the United States Federal Communications Commission. If we fail to adequately address any of these regulations, our business may suffer.

Our customers may be subject to governmental regulations, which, if changed, could negatively impact our business results

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. While we are not directly affected by this legislation, such regulation of our customers may negatively 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 changed by the various governmental agencies. Changes in current or future laws or regulations, in the United States or elsewhere, could negatively impact our business results.

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Sales of a significant portion of our products to customers outside of the United States subjects us to business, economic and political risks

Our export sales, which are primarily to Western Europe, Latin America, the Far East and Canada, accounted for 30% of net sales during the second quarter of fiscal 2003 compared to 29% of net sales during the corresponding quarter of fiscal 2002. We anticipate that sales to customers located outside of the United States will continue to be a significant part of our net sales for the foreseeable future. Because significant portions of our sales are to customers outside of the United States we are subject to risks, including:

• foreign currency fluctuations;

• export restrictions;

• longer payment cycles;

• unexpected changes in regulatory requirements or tariffs;

• protectionist laws and business practices that favor local competition;

• dependence on local vendors; and

• reduced or limited protection of intellectual property rights and political and economic instability.

To date, very few of our international revenue and cost obligations have been denominated in foreign currencies. As a result, an increase in the value of the United States 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.

If we have significant inventories that become obsolete or cannot be sold at acceptable prices, our results may be negatively impacted

Although we believe that we currently have made adequate adjustments for inventory that has declined in value, become obsolete, or is in excess of anticipated demand, there can be no assurance that such adjustments will be adequate. If significant inventories of our products become obsolete, or are otherwise not able to be sold at favorable prices, our business could be materially affected.

Increases in our effective tax rate will negatively impact our cash flow

Our effective tax rate is affected by the percentage of qualified Puerto Rican earnings compared to our total earnings. Most of our Puerto Rican earnings are taxed under Section 936 of the United States Internal Revenue Code, which exempts qualified Puerto Rican earnings from federal taxes when calculating our effective tax rate. Historically, using this exemption has reduced our effective tax rate. Our overall effective tax rate could increase during fiscal years 2003 through 2006, as the exemption will become subject to additional limitations before it expires at the end of fiscal 2006. Any increase in our effective tax rate will increase our federal income taxes and negatively impact our cash flow.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Exposure

As of December 31, 2002, we had short-term investments of $0.6 million. Currently our short-term investment portfolio consists only of deferred compensation plan assets. Historically however our investment portfolio has consisted of debt and equity securities. Our exposure to market risk due to fluctuations in interest rates relates primarily to our debt and equity securities, which are subject to interest rate risk inasmuch as their fair value will fall if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from the levels prevailing at December 31, 2002, 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. We do not use derivative financial instruments to mitigate the risks inherent in these securities. However, we do attempt to reduce these risks by typically limiting the maturity date of such securities to no more than nine months, placing our investments with high credit quality issuers and limiting the amount of credit exposure with any one issuer. In addition, we normally have the ability to hold these investments until maturity, and therefore, believe that reductions in the value of these securities attributable to short-term fluctuations in interest rates would not materially harm our business.

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Foreign Currency Exchange Rate Exposure

Our exposure to market risk due to fluctuations in currency exchange rates relates primarily to the intercompany balances with our subsidiaries in the United Kingdom and Germany. Although we transact business with various countries, settlement amounts are usually based on United States currency. Transaction gains or losses have not been significant in the past and we do not presently engage in hedging activity on sterling, euro or other currencies. Based on the intercompany balances of $0.6 million with the United Kingdom and $2.6 million with Germany at December 31, 2002, a hypothetical 10% adverse change in sterling and euro against United States dollars would not result in a material foreign exchange loss. Consequently, we do 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 our business.

Notwithstanding the foregoing analysis of the direct effects of interest rate and currency exchange rate fluctuations on the value of certain of our investments and accounts, the indirect effects of such fluctuations could have a materially harmful effect on our business. For example, international demand for our products is affected by foreign currency exchange rates. In addition, interest rate fluctuations may affect the buying patterns of our customers. Furthermore, interest rate and currency exchange rate fluctuations have broad influence on the general condition of the United States, foreign and global economies which could materially harm our business.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation.

Part 2. OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this item is disclosed in Note 15 of Notes to the Consolidated Financial Statements set forth in Item 1 of Part 1, above. The text of such note is incorporated by reference.

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

On October 29, 2002, the Company held its annual meeting of stockholders. The following summarizes the matters submitted to a vote of our stockholders.

1.    To approve the issuance of shares of the Company’s common stock to stockholders of Datum in connection with the merger between Datum and a wholly owned subsidiary of Symmetricom.

For	Against	Abstain
13,332,956	193,854	47,303

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2.    The ratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the current 2003 fiscal year.

For	Against	Abstain
19,081,029	589,217	46,229

3.    The election of the following nominees to serve on the Board of Directors:

Nominee	For	Withheld
Robert T. Clarkson	19,109,921	606,554
Robert M. Neumeister	19,103,025	613,450
Krish A. Prabhu	19,547,647	168,828
Richard N. Snyder	19,109,531	606,944
Thomas W. Steipp	17,616,823	2,009,652
Richard W. Oliver	50,000	0

Item 5. Other Information

Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit Number	Description of Exhibits
4.1	Form of Warrant Agreement and Warrant, dated as of December 16, 1999, by and between TrueTime Inc. and C.E. Unterberg, Towbin (incorporated by reference from Exhibit 1.2 to TrueTime Inc.’s Registration Statement on Form S-1, File No. 333-90269).
4.2	Common Stock Purchase Warrant, dated September 27, 1996, issued by Datum. Inc. (incorporated herein by reference from Exhibit 10.37 to Datum Inc.’s Quarterly Report of Form 10-Q for the quarterly period ended September 30, 1996, File No. 000-02287).
10.20	Standard Industrial Lease between Manor Development Co. and TrueTime, Inc. (incorporated herein by reference from Exhibit 10.9 to TrueTime Inc.’s Registration Statement on Form S-1, File No. 333-90269).
10.21	Standard Industrial/Commercial Single-Tenant Lease – Net, dated as of January 24, 2000, by and between Cooperhill Development Corporation and TrueTime, Inc. (incorporated by reference from Exhibit 10.1 to TrueTime Inc.’s Quarterly Report on Form 10-Q, File No. 000-28473, filed on May 15, 2000).
10.22	Amendment to the Standard Industrial/Commercial Single-Tenant Lease – Net, dated as of January 24, 2000, by and between Cooperhill Development Corporation and TrueTime Inc. (incorporated by reference from Exhibit 10.7 to TrueTime Inc.’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, File No. 000-28473, filed on December 20, 2000).
10.23	Standard Industrial Sublease dated as of December 11, 2000 by and between Innovadyne Technologies, Inc. and TrueTime, Inc. (incorporated by reference from Exhibit 10.1 to TrueTime Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2000, File No. 000-28473, filed on February 14, 2001).
10.24	Lease Intended as Security dated as of April 30, 2001 by and between Bank of America and TrueTime, Inc. (incorporated by reference from Exhibit 10.1 to TrueTime Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001, File No. 000-28473, filed on August 10, 2001).
10.25	Datum Inc.’s 1984 Stock Option Plan, as amended to date (incorporated by reference from Datum Inc.’s Registration Statement on Form S-8, File Nos. 2-96564, 33-10035 and 33-41709).
10.26	Datum Inc.’s Savings and Retirement Plan, as amended to date (incorporated by reference from Exhibit 10.19 to Datum Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991).
10.27	Datum Inc.’s 1994 Stock Incentive Plan (incorporated by reference from Datum Inc.’s Registration Statement on Form S-8, File No. 33-79772).
10.28	Amendment to Datum Inc.’s 1994 Stock Incentive Plan, effective March 17, 1995 (incorporated by reference from Exhibit 10.29.1 to Datum Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
10.29	Second Amendment to Datum Inc.’s 1994 Stock Incentive Plan, effective June 5, 1997 (incorporated by reference to Datum Inc.’s Registration Statement on Form S-8, File No. 33-79772).

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10.30	Lease Agreement dated September 15, 1986 by and between the Irvine Company and Efratom Division, Ball Corporation, for Efratom Time and Frequency Products, Inc.’s facility at 3 Parker, Irvine, California (incorporated by reference from Exhibit 10.32 to Datum Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
10.31	First Amendment to Lease dated March 15, 1995 between the Irvine Company and Efratom Division, Ball Corporation for Lease Agreement dated September 15, 1986 (incorporated by reference from Exhibit 10.32 to Datum Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
10.32	Amendment to Lease dated May 11, 1995 between the Irvine Company and Datum Inc. (incorporated by reference from Exhibit 10.32 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
10.33	Second Amendment to Lease dated May 11, 1995 for 3 Parker (incorporated by reference from Exhibit 10.32.3 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
10.34	Industrial Lease dated May 11, 1995 between the Irvine Company and Datum Inc. (incorporated by reference from Exhibit 10.34 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
10.35	Non-Qualified Stock Option Agreement dated April 6, 1998, between Datum Inc. and Erik H. van der Kaay (incorporated by reference from Exhibit 10.43 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998).
10.36	Restricted Stock Grant Agreement dated April 6, 1998, between Datum Inc. and Erik H. van der Kaay (incorporated by reference from Exhibit 10.44 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998).
10.37	Agreement with Lucent Technologies, Inc., between Datum Inc. and Lucent Technologies, Inc. signed July 2, 1998 (incorporated by reference to Exhibit 10.45 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, portions of this exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Company’s application requesting confidential treatment under Rule 406 of the Securities Act of 1933).
10.38	Third Amended and Restated Credit Agreement and Assumption Agreement, as amended, dated as of October 1, 2002, by and between Datum Inc. and Wells Fargo Bank, National Association.
10.39	Amendment No. 1 to Third Amended and Restated Credit Agreement, dated as of October 29, 2002, by and between Datum Inc. and Wells Fargo Bank, National Association.
10.40	Loan and Trust Agreement, dated May 1, 2001, among Massachusetts Development Finance Agency, Frequency and Time Systems, Inc. and Wells Fargo Brokerage Services, LLC (incorporated by reference from Exhibit 10.57 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001).
10.41	Bond Purchase Agreement dated May 1, 2001, among Wells Fargo Brokerage Services, LLC, Frequency and Time Systems, Inc. and Wells Fargo Bank Minnesota, National Association, as trustee (incorporated by reference from Exhibit 10.58 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001).
10.42	Remarketing Agreement, dated May 1, 2001, among Wells Fargo Brokerage Services, LLC, Frequency and Time Systems, Inc. and Wells Fargo Bank Minnesota, National Association, as trustee (incorporated by reference to Exhibit 10.59 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001).
99.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

On October 8, 2002, the Company filed a current report on Form 8-K under Items 2 (“Acquisition or Disposition of Assets”) and 7 (“Financial Statements and Exhibits”) reporting that it had completed the acquisition of TrueTime, Inc. and that the financial statements of the business acquired and the pro forma financial statements would be filed within the sixty-day period provided by Item 7(a)(4). In addition, the Company filed under Item 7 the following exhibits (i) the Agreement and Plan of Merger, dated as of March 27, 2002, by and among Symmetricom, TrueTime and ScoTRT Acquisition Inc., and (ii) the First Amendment to the Agreement and Plan of Merger, dated as of June 26, 2002.

On October 30, 2002, the Company filed a current report on Form 8-K under Items 2 (“Acquisition or Disposition of Assets”) and 7 (“Financial Statements and Exhibits”) reporting that it had completed the acquisition of Datum, Inc. and that the financial statements of the business acquired and the pro forma financial statements would be filed within the sixty-day period provided by Item 7(a)(4). In addition, the Company filed under Item 7 as an exhibit the Agreement and Plan of Merger, dated as of May 22, 2002, by and among Symmetricom, Datum and Dublin Acquisition Subsidiary, Inc.

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On November 13, 2002, the Company filed a current report on Form 8-K/A, amending the current report on Form 8-K filed on October 8, 2002, filing under Item 7 (“Financial Statements and Exhibits”) the following exhibits: (i) the historical financial statements of TrueTime, Inc. (A) as of June 30, 2002 and for the nine months ended June 30, 2002 and 2001 and (B) as of September 30, 2001 and 2000 and for each of the three years ended September 30, 2001, 2000 and 1999; and (ii) the unaudited pro forma combined financial statements of Symmetricom, Inc., TrueTime, Inc., and Datum, Inc., as of June 30, 2002 and for the year ended June 30, 2002.

On December 20, 2002, the Company filed a current report on Form 8-K/A, amending the current report on Form 8-K filed on October 30, 2002, filing under Item 7 (“Financial Statements and Exhibits”) the following exhibits: (i) the historical financial statements of Datum Inc. (A) as of June 30, 2002 and for the six months ended June 30, 2002 and 2001 and (B) as of December 31, 2001 and 2000 and for each of the three years ended December 31, 2001, 2000 and 1999 and (ii) Unaudited pro forma combined financial statements of Symmetricom, Inc., TrueTime, Inc., and Datum Inc., as of June 30, 2002 and for the year ended June 30, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

		SYMMETRICOM, INC. (Registrant)
DATE:	February 12, 2003	By:	/s/ Thomas W. Steipp
			Thomas W. Steipp Chief Executive Officer (Principal Executive Officer) and Director
DATE:	February 12, 2003	By:	/s/ William Slater
			William Slater Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

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CERTIFICATION

I, Thomas W. Steipp, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Symmetricom, Inc.:

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 12, 2003

/s/ THOMAS W. STEIPP

Thomas W. Steipp

Chief Executive Officer and Director

33

CERTIFICATION

I, William Slater, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Symmetricom, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 12, 2003

/s/ WILLIAM SLATER

William Slater

Chief Financial Officer and Secretary

34

Exhibit Index

Exhibit Number	Index of Exhibits
4.1	Form of Warrant Agreement and Warrant, dated as of December 16, 1999, by and between TrueTime Inc. and C.E. Unterberg, Towbin (incorporated by reference from Exhibit 1.2 to TrueTime Inc.’s Registration Statement on Form S-1, File No. 333-90269).
4.2	Common Stock Purchase Warrant, dated September 27, 1996, issued by Datum. Inc. (incorporated herein by reference from Exhibit 10.37 to Datum Inc.’s Quarterly Report of Form 10-Q for the quarterly period ended September 30, 1996, File No. 000-02287).
10.20	Standard Industrial Lease between Manor Development Co. and TrueTime, Inc. (incorporated herein by reference from Exhibit 10.9 to TrueTime Inc.’s Registration Statement on Form S-1, File No. 333-90269).
10.21	Standard Industrial/Commercial Single-Tenant Lease – Net, dated as of January 24, 2000, by and between Cooperhill Development Corporation and TrueTime, Inc. (incorporated by reference from Exhibit 10.1 to TrueTime Inc.’s Quarterly Report on Form 10-Q, File No. 000-28473, filed on May 15, 2000).
10.22	Amendment to the Standard Industrial/Commercial Single-Tenant Lease – Net, dated as of January 24, 2000, by and between Cooperhill Development Corporation and TrueTime Inc. (incorporated by reference from Exhibit 10.7 to TrueTime Inc.’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, File No. 000-28473, filed on December 20, 2000).
10.23	Standard Industrial Sublease dated as of December 11, 2000 by and between Innovadyne Technologies, Inc. and TrueTime, Inc. (incorporated by reference from Exhibit 10.1 to TrueTime Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2000, File No. 000-28473, filed on February 14, 2001).
10.24	Lease Intended as Security dated as of April 30, 2001 by and between Bank of America and TrueTime, Inc. (incorporated by reference from Exhibit 10.1 to TrueTime Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001, File No. 000-28473, filed on August 10, 2001).
10.25	Datum Inc.’s 1984 Stock Option Plan, as amended to date (incorporated by reference from Datum Inc.’s Registration Statement on Form S-8, File Nos. 2-96564, 33-10035 and 33-41709).
10.26	Datum Inc.’s Savings and Retirement Plan, as amended to date (incorporated by reference from Exhibit 10.19 to Datum Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991).
10.27	Datum Inc.’s 1994 Stock Incentive Plan (incorporated by reference from Datum Inc.’s Registration Statement on Form S-8, File No. 33-79772).
10.28	Amendment to Datum Inc.’s 1994 Stock Incentive Plan, effective March 17, 1995 (incorporated by reference from Exhibit 10.29.1 to Datum Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
10.29	Second Amendment to Datum Inc.’s 1994 Stock Incentive Plan, effective June 5, 1997 (incorporated by reference to Datum Inc.’s Registration Statement on Form S-8, File No. 33-79772).
10.30	Lease Agreement dated September 15, 1986 by and between the Irvine Company and Efratom Division, Ball Corporation, for Efratom Time and Frequency Products, Inc.’s facility at 3 Parker, Irvine, California (incorporated by reference from Exhibit 10.32 to Datum Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
10.31	First Amendment to Lease dated March 15, 1995 between the Irvine Company and Efratom Division, Ball Corporation for Lease Agreement dated September 15, 1986 (incorporated by reference from Exhibit 10.32 to Datum Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
10.32	Amendment to Lease dated May 11, 1995 between the Irvine Company and Datum Inc. (incorporated by reference from Exhibit 10.32 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
10.33	Second Amendment to Lease dated May 11, 1995 for 3 Parker (incorporated by reference from Exhibit 10.32.3 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
10.34	Industrial Lease dated May 11, 1995 between the Irvine Company and Datum Inc. (incorporated by reference from Exhibit 10.34 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
10.35	Non-Qualified Stock Option Agreement dated April 6, 1998, between Datum Inc. and Erik H. van der Kaay (incorporated by reference from Exhibit 10.43 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998).
10.36	Restricted Stock Grant Agreement dated April 6, 1998, between Datum Inc. and Erik H. van der Kaay (incorporated by reference from Exhibit 10.44 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30,     1998).
10.37	Agreement with Lucent Technologies, Inc., between Datum Inc. and Lucent Technologies, Inc. signed July 2,

	1998 (incorporated by reference to Exhibit 10.45 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, portions of this exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Company’s application requesting confidential treatment under Rule 406 of the Securities Act of 1933).
10.38	Third Amended and Restated Credit Agreement and Assumption Agreement, as amended, dated as of October 1, 2002, by and between Datum Inc. and Wells Fargo Bank, National Association.
10.39	Amendment No. 1 to Third Amended and Restated Credit Agreement, dated as of October 29, 2002, by and between Datum Inc. and Wells Fargo Bank, National Association.
10.40	Loan and Trust Agreement, dated May 1, 2001, among Massachusetts Development Finance Agency, Frequency and Time Systems, Inc. and Wells Fargo Brokerage Services, LLC (incorporated by reference from Exhibit 10.57 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001).
10.41	Bond Purchase Agreement dated May 1, 2001, among Wells Fargo Brokerage Services, LLC, Frequency and Time Systems, Inc. and Wells Fargo Bank Minnesota, National Association, as trustee (incorporated by reference from Exhibit 10.58 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001).
10.42	Remarketing Agreement, dated May 1, 2001, among Wells Fargo Brokerage Services, LLC, Frequency and Time Systems, Inc. and Wells Fargo Bank Minnesota, National Association, as trustee (incorporated by reference to Exhibit 10.59 to Datum Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001).
99.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10.38

Exhibit 10.38

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of October 1, 2002, by and between DATUM INC., a Delaware corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

RECITALS

A. Borrower and Bank have executed and entered into a Second Amended and Restated Credit Agreement dated as of July 7, 2000, which Second Amended and Restated Credit Agreement heretofore has been amended from time to time, including amendments evidenced by (i) that certain Amendment No. 1 to Second Amended and Restated Credit Agreement dated as of May 23, 2001, (ii) that certain Amendment No. 2 to Second Amended and Restated Credit Agreement dated as of May 29, 2001, (iii) that certain Amendment No. 3 to Second Amended and Restated Credit Agreement dated as of February 1, 2002, and (iv) that certain Amendment No. 4 to Second Amended and Restated Credit Agreement dated as of May 10, 2002 (as so amended, the “Existing Credit Agreement”). The Existing Credit Agreement amended and restated that certain Amended and Restated Credit Agreement dated as of September 27, 1996 between Borrower and Bank, which in turn amended and restated that certain Credit Agreement dated as of December 16, 1994 between Borrower and Bank.

B. Pursuant to the Existing Credit Agreement, Borrower has executed and delivered to the order of Bank that certain Fifth Amended and Restated Revolving Line of Credit Note dated May 10, 2002 in the original principal amount of up to $10,000,000.00 (the “Existing Revolving Note”). Pursuant to the Existing Credit Agreement, Borrower has also executed and delivered to the order of Bank that certain First Amended and Restated Term Note dated May 29, 2001 in the original principal amount of $3,500,000 (the “Term Note”). The indebtedness owing by Borrower to Bank evidenced by the Term Note has been repaid in full.

C. In connection with the credit accommodations made by Bank pursuant to the Existing Credit Agreement, Borrower and its Subsidiaries have executed and delivered to Bank numerous other loan and security documents, including the “Existing Collateral Documents” (as defined below), the “Existing Guaranty” (as defined below), letter of credit agreements and the like. Such documents, together with the Existing Credit Agreement and the Existing Revolving Note are collectively referred to herein as the “Existing Loan Documents.”

D. Bank and Borrower have agreed to amend the Existing Credit Agreement and, as applicable, the other Existing Loan Documents to reflect certain modifications agreed to between Borrower and Bank.

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E. This Agreement is intended by Borrower and Bank as an amendment and restatement of the Existing Credit Agreement as of the “Effective Date” (as defined below). To the extent not repaid on the Effective Date, amounts outstanding under the Existing Revolving Note shall be deemed to be outstanding hereunder and evidenced by the “Line of Credit Note” (as defined below).

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows:

ARTICLE 1

DEFINITIONS AND INTERPRETATION

Section 1.1 DEFINED TERMS. The following definitions are in addition to those stated elsewhere in this Agreement:

“Advance” means an advance under the Line of Credit.

“Austin-Datum” means Austin-Datum, LP, a Texas limited partnership.

“Austron” means Austron, Inc., a Texas corporation.

“Borrowing Base” means, as of any date of determination, an amount determined by Bank with reference to the most recent Borrowing Base Certificate to be equal to the Eligible Receivables Component; provided, however, that if on such date the most recent Borrowing Base Certificate is as of a date more than 60 days prior to such date, the Borrowing Base shall mean such amount as may be determined by Bank in its sole discretion.

“Borrowing Base Certificate” means a borrowing base certificate in the form of Exhibit A, properly completed and executed by an officer of Borrower, on behalf of all of the Borrowing Base Parties.

“Borrowing Base Parties” means, for purposes of determining the Borrowing Base and for certain reporting requirements, Borrower, Efratom, Systems, Digital and Austin-Datum.

“Borrowing Base Start Date” means the date immediately subsequent to the first date on which Designated Usage exceeds $2,000,000.

“Collateral” means all property, real or personal, in which Bank is granted a Lien

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in accordance with this Agreement and the other Loan Documents.

“Credit” means the credit accommodation described in Article 2 hereof.

“Datum-Austin I” means Datum-Austin Holdings I, LLC, a California limited liability company.

“Datum-Austin II” means Datum-Austin Holdings II, LLC, a California limited liability company.

“Designated Usage” means, as of any date of determination, the sum of (a) the aggregate principal amount of Advances then outstanding under the Line of Credit Note plus (b) the aggregate Effective Amounts of all Letters of Credit outstanding as of such date, other than the Systems Letter of Credit, the Effective Amount of which shall not be included in the computation of Designated Usage.

“Digital” means Digital Delivery, Inc., a Massachusetts corporation.

“Effective Amount” means, as of any date of determination and with respect to any Letter of Credit then outstanding, the sum of (a) the effective undrawn amount of such Letter of Credit not then paid by Bank plus (b) the aggregate amount paid by Bank under such Letter of Credit not then reimbursed to Bank and not the subject of one or more Advances made pursuant to Section 2.1(d)(ii).

“Efratom” means Efratom Time and Frequency Products, Inc., a Colorado corporation.

“Eligible Receivables” means, as of any date of determination, accounts receivable of the Borrowing Base Parties as to which Bank holds a first priority perfected Lien, provided that such accounts receivable have been created in the ordinary course of business of such Borrowing Base Parties, as applicable, and shall not include:

(a) any account of any Borrowing Base Party other than Datum-Austin which is more than 90 days past due or any account of Datum-Austin which is past due more than 120 days; provided, however, that no account remaining unpaid beyond 120 days (or 150 days with respect to accounts of Datum-Austin) beyond the original invoice date or shipment date (whichever is earlier) shall qualify as an Eligible Receivable;

(b) any account with respect to which payment is or may be contingent or conditional in any respect;

(c) any “contra” account or any other account for which there exists any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim

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has been asserted;

(d) accounts representing obligations of state or municipal governments or of the United States government or political subdivisions thereof unless such accounts represent obligations of the United States government and, if required by Bank, Bank’s forms N-138 and N-139, have been duly executed and acknowledged with respect thereto;

(e) accounts representing obligations of account debtors located in foreign countries, except to the extent any such account, in Bank’s determination, is supported by a letter of credit or is insured under a policy of foreign credit insurance, in each case in form, substance and issued by a party acceptable to Bank;

(f) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, any employee, affiliate, partner, member, parent or Subsidiary of any Borrowing Base Party;

(g) that portion of any account which represents interim or progress billings or retention rights on the part of the account debtor;

(h) any account which represents an obligation of any account debtor when twenty percent (20%) or more of the combined accounts owing from such account debtor to the Borrowing Base Parties are not eligible pursuant to item (a) above;

(i) that portion of any account from an account debtor which represents the amount by which the Borrowing Base Parties’ total accounts from said account debtor on a combined basis exceeds twenty-five percent (25%) of the Borrowing Base Parties’ total accounts on a combined basis;

(j) any account owing from an account debtor where such account debtor has applied or unapplied credit balances outstanding in excess of 90 days beyond the applicable due date and such credit balances exceed the otherwise “eligible” portion of accounts due from such account debtor;

(k) any account deemed ineligible by Bank when Bank, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory.

“Eligible Receivables Component” means, in calculating the Borrowing Base (but subject to Section 2.1(b)), eighty percent (80%) of the aggregate book value of the Borrowing Base Parties’ then existing Eligible Receivables, as determined by Bank upon receipt and review of such collateral reports and other documents as Bank may require.

“Existing Collateral Documents” means, collectively, the Existing Security

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Agreements and Tozer Road Mortgage Documents, in each case as the same may from time to time have been amended, supplemented, restated or otherwise modified.

“Existing Guaranty” means the Second Amended and Restated Guaranty dated as of July 7, 2000 by Austron, Efratom, Systems, Digital, Austin-Datum, Datum-Austin I and Datum-Austin II in favor of Bank for the purpose of guarantying, among other things, Borrower’s obligations under the Existing Credit Agreement and Existing Revolving Note.

“Existing Letters of Credit” means the existing Letters of Credit described in Section 2.1(d).

“Existing Security Agreements” means, collectively, the security agreements, pledge agreements, assignments, UCC-1 financing statements, fixture filings, consents and other collateral security documents heretofore executed and delivered to Bank in connection with the Existing Credit Agreement granting Liens to Bank, or perfecting, effecting, facilitating, consenting to, providing notice of, or otherwise evidencing such Liens, in each case as the same may have been amended, supplemented, restated or otherwise modified.

“Guarantors” means, collectively, Austron, Efratom, Systems, Digital, Austin-Datum, Datum-Austin I, Datum-Austin II and any other person or entity which at any time furnishes Bank with a guaranty in accordance with this Agreement.

“Letter of Credit” or “Letters of Credit” means any one or more of the standby letters of credit described in Section 2.1(d).

“Leverage Ratio” shall have the meaning specified for such term in Section 5.9(b).

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, affecting any property, including any agreement to grant any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and/or the filing of or agreement to give any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the Uniform Commercial Code or comparable law of any jurisdiction with respect to any property.

“Line of Credit” means the revolving line of credit described in Section 2.1(a).

“Line of Credit Note” means the promissory note described in Section 2.1(a).

“Line of Credit Termination Date” means May 29, 2003.

“Loan and Trust Agreement” means that certain Loan and Trust Agreement dated

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as of May 1, 2001 among Massachusetts Development Finance Agency, Systems and Wells Fargo Bank Minnesota, National Association, as Trustee, concerning the issue of $2,725,000 of Massachusetts Development Finance Agency Variable Rate Demand Revenue Bonds Frequency & Time Systems Issue, Series 2001.

        “Loan Documents” shall have the meaning set forth for such term in Section 3.2.

        “Loan Party” means Borrower, Austron, Efratom, Systems, Digital, Datum-Austin I, Datum-Austin II, Austin-Datum, any other Guarantor, any other person or entity which at any applicable time furnishes Bank with any Collateral and any other person or entity which at any applicable time becomes a party to any of the Loan Documents.

        “Maximum Line of Credit Amount” means, subject to Section 2.9, as of any date of determination, $10,000,000.00.

        “Real Property Collateral” means, as of any date of determination, the real property owned by the Loan Parties in which the Bank has a first priority perfected Lien.

        “Subsidiary” means any corporation or other entity fifty percent (50%) or more of whose securities or other equity interests having ordinary voting power (other than securities having such power only by reason of the happening of a contingency) are at any applicable time owned, directly or indirectly, by Borrower and/or one or more Subsidiaries of Borrower.

        “Systems” means Frequency & Time Systems, Inc., a Delaware corporation.

        “Systems Bonds” means the “Bonds” as defined in the Loan and Trust Agreement.

        “Systems Letter of Credit” means the letter of credit in the amount of $2,758,596 issued in favor of Wells Fargo Bank Minnesota, National Association, as Trustee, as a credit enhancement in support of the Massachusetts Development Finance Agency Variable Rate Demand Revenue Bonds Frequency & Time Systems Issue, Series 2001, the proceeds of which Bonds will be used to finance the acquisition, construction and equipping of manufacturing facilities of Systems located in Beverly, Massachusetts. Notwithstanding that the Systems Letter of Credit was issued for the account of Systems and not Borrower, the Systems Letter of Credit shall for all purposes be a “Letter of Credit” hereunder.

        “Systems Trustee” means Wells Fargo Bank Minnesota, National Association, as Trustee under the Loan and Trust Agreement, and any successor trustee.

        “Tozer Road Mortgage Documents” means, collectively, (a) the Mortgage Deed and Security Agreement dated March 17, 1995, executed by Systems in favor of Bank and recorded April 21, 1995 in Book 12992, Page 70, with the Essex South Registry of Deeds, Essex County, Massachusetts, and filed as Document No. 307740 with the Essex South Registry District of the Land Court, Essex County, Massachusetts and (b) the Collateral Assignment of

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Leases and Rents dated March 17, 1995, executed by Systems in favor of Bank and recorded April 21, 1995, in Book 12992, Page 89, with the Essex South Registry of Deeds, Essex County, Massachusetts, and filed as Document No. 307741 with Essex South Registry District of the Land Court, Essex County, Massachusetts.

        “Tozer Road Real Property” means that certain real property owned by Systems located in the City of Beverly, County of Essex, State of Massachusetts, more particularly described in Exhibit A to the Tozer Road Mortgage.

        Section 1.2 SINGULAR AND PLURAL TERMS. Any defined term used in the plural in any Loan Document shall refer to all members of the relevant class and any defined term used in the singular shall refer to any number of the members of the relevant class.

        Section 1.3 ACCOUNTING PRINCIPLES. Any accounting term used and not specifically defined in any Loan Document shall be construed in conformity with, and all financial data required to be submitted under any Loan Document shall be prepared in conformity with, generally accepted accounting principles applied on a consistent basis.

        Section 1.4 EXHIBITS INCORPORATED. All exhibits to this Agreement, as now existing and as the same may from time to time be modified, are incorporated herein by this reference.

        Section 1.5 REFERENCES. Any reference to any Loan Document or other document shall include such document both as originally executed and as it may from time to time be supplemented, modified, amended, restated or extended. References herein to Articles, Sections and Exhibits shall be construed as references to this Agreement unless a different document is named. References to subparagraphs shall be construed as references to the same Section in which the reference appears.

        Section 1.6 OTHER TERMS. The term “document” is used in its broadest sense and encompasses agreements, certificates, opinions, consents, instruments and other written material of every kind. The terms “including” and “include” mean “including (include) without limitation.” The requirement that any party “deliver” any item to another party shall be construed to require that the first party “deliver or cause to be delivered” such item to the second party. The term “any,” as a modifier to any noun, shall be construed to mean “any and/or all” preceding the same noun in the plural. The terms “modify” and “modification,” when used with reference to any document or obligation, include amendments, supplements, renewals, extensions, waivers, terminations and other modifications of every kind. The terms “law” and “laws,” unless otherwise modified, mean, collectively, all federal, state and local laws, rules, regulations, codes and administrative and judicial precedents. The terms “herein,” “hereunder” and other similar compounds of the word “here” refer to the entire document in which the term appears and not to any particular provision or section of the document. This Section 1.6 shall apply to all of the Loan Documents.

        Section 1.7 HEADINGS. Article and section headings are included in the Loan

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Documents for convenience of reference only and shall not be used in construing the Loan Documents.

ARTICLE 2

THE CREDITS

Section 2.1 LINE OF CREDIT.

        (a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make Advances to, and issue Letters of Credit for the benefit of, Borrower from time to time up to and including the Line of Credit Termination Date, not to exceed at any time the Maximum Line of Credit Amount (“Line of Credit”), the proceeds of which shall be used for general working capital purposes. Borrower’s obligation to repay Advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit B attached hereto (“Line of Credit Note”), all terms of which are incorporated herein by this reference.

        (b) Limitation on Borrowings. Notwithstanding any other provision of this Agreement, Designated Usage shall not at any time subsequent to the Borrowing Base Start Date exceed the lesser of (i) the Borrowing Base, as determined by Bank, as of such date or (ii) the Maximum Line of Credit Amount less the then Effective Amount of the Systems Letter of Credit.

        (c) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided, however, that Designated Usage plus the Effective Amount of the Systems Letter of Credit shall not at any time exceed the Maximum Line of Credit Amount, and Borrower shall immediately repay the amount, if any, by which Designated Usage plus the Effective Amount of the Systems Letter of Credit exceeds the Maximum Line of Credit Amount. Similarly, Borrower shall immediately repay the amount by which Designated Usage at any time exceeds the maximum amount permitted by the terms of Section 2.1(b).

        (d) Letter of Credit Subfeature.

  (i) As a subfeature under the Line of Credit, Bank agrees from time to time up to and including the Line of Credit Termination Date to issue standby letters of credit for the account of Borrower (each, a “Letter of Credit” and collectively, “Letters of Credit”); provided, however, that the form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion, and provided further, that the aggregate undrawn amount of all outstanding Letters of Credit under this subfeature (including, without limitation, the Systems Letter of Credit) shall not at any time exceed Six Million Dollars

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($6,000,000.00). Each Letter of Credit shall be issued for a term not to exceed three hundred sixty-five (365) days, as designated by Borrower; provided, however, that no Letter of Credit under this subfeature shall have an expiration date subsequent to May 29, 2004 unless otherwise approved by Bank.

  (ii) The undrawn amount of all Letters of Credit under this subfeature shall be reserved under the Line of Credit and shall not be available for Advances thereunder. Each Letter of Credit shall be subject to the additional terms and conditions of the Letter of Credit Agreement and related documents, if any, required by Bank in connection with the issuance of such Letter of Credit (each individually, a “Letter of Credit Agreement” and collectively, “Letter of Credit Agreements”). Each draft paid by Bank under a Letter of Credit under this subfeature (including under the “Existing Letters of Credit”, as such term is defined below) shall be deemed an Advance under the Line of Credit and shall repaid in accordance with the terms and conditions of this Agreement applicable to such Advances; provided, however, that if the Line of Credit is not available, for any reason whatsoever, at the time any draft is paid by Bank, or if Advances are not available under the Line of Credit at such time due to any limitation on borrowings set forth herein, then the full amount of such draft shall be immediately due and payable, together with interest thereon, from the date such amount is paid by Bank to the date such amount is fully repaid by Borrower at the rate of interest applicable to Advances under the Line of Credit. In such event Borrower agrees that Bank, in its sole discretion, may debit any demand deposit account maintained by Borrower with Bank for the amount of any draft. As of the Effective Date, the outstanding undrawn amount of the Systems Letter of Credit is $2,698,596, and there are other Letters of Credit outstanding having an aggregate Effective Amount of $333,293.77 (as identified on Schedule 2.1(d) hereto) (collectively, the “Existing Letters of Credit”); however, there are no outstanding drafts or Advances paid under this subfeature by Bank. The face amount of the Existing Letters of Credit shall be deemed to be outstanding under this subfeature subject to all terms and conditions applicable hereto.

  (iii) Borrower agrees that Bank may notify any beneficiary of a Letter of Credit of the occurrence of an Event of Default. In addition, Borrower agrees that upon the occurrence of an Event of Default, Bank may request that the Systems Trustee accelerate the Systems Bonds.

  (iv) (a) Borrower agrees to cause Systems to make an optional redemption of the Systems Bonds under Section 310(d) of the Loan and Trust Agreement on the Interest Payment Date (as defined in the Loan and Trust Agreement) occurring on the first Business Day (as defined in the Loan and Trust Agreement) of each of the following calendar months (provided that the Systems Letter of Credit is outstanding on each such date and provided further that each such optional redemption is permitted under the Loan and Trust Agreement), in

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the principal amounts indicated below:

Calendar Month	Principal Amount
December 2002	$	30,000
June 2003	$	30,000
December 2003	$	30,000
June 2004	$	30,000
December 2004	$	35,000
June 2005	$	35,000
December 2005	$	35,000
June 2006	$	35,000

            (b) With respect to the Systems Letter of Credit, the ‘Bank Rate’ as defined in the Loan and Trust Agreement, as of any date of determination, shall be an amount equal to 50 basis points in excess of the then applicable interest rate payable pursuant to the Loan and Trust Agreement on the Systems Bonds which are not Borrower Bonds (as defined in the Loan and Trust Agreement) or Bank Bonds (as defined in the Loan and Trust Agreement).

Section 2.2 LIMITATION ON BORROWINGS. With respect to Section 2.1(b), Borrower acknowledges that Bank may from time to time subsequent to the Borrowing Base Start Date, in its sole and absolute discretion, (i) establish such reserves against the various components of the Borrowing Base as Bank deems necessary and proper and (ii) increase or decrease the percentage applicable to the Eligible Receivables Component. Without in any way limiting the foregoing, Borrower acknowledges that the advance rate against Eligible Receivables was established by Bank with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of the Borrowing Base Parties’ aggregate gross sales for such period. If dilution of such accounts of the Borrowing Base Parties for the immediately preceding three (3) months at any time exceeds five percent (5%) of the Borrowing Base Parties’ aggregate gross sales for such period, or if there at any time exists any other matter, event, condition or contingency that Bank believes may affect payment of any portion of the Borrowing Base Parties’ accounts, Bank, in its sole discretion, may reduce said advance rate to a percentage appropriate to reflect such additional dilution and/or establish additional reserves against the Borrowing Base Parties’ Eligible Receivables.

Section 2.3 INTEREST/FEES.

        (a) Interest. The outstanding principal balance of the Line of Credit shall bear interest at the rate(s) of interest set forth in the Line of Credit Note.

        (b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and places set forth in

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the Line of Credit Note.

(c) Annual Line of Credit Fee. On the Effective Date and on each anniversary thereof, Borrower shall pay to Bank a nonrefundable line of credit fee equal to Ten Thousand Dollars ($10,000.00).

(d) Unused Commitment Fee. From and after the Effective Date, Borrower shall pay to Bank a commitment fee equal to one half percent (0.50%) per annum times the average daily unused portion of the Line of Credit. Such commitment fee shall be payable quarterly in arrears on the last day of each calendar quarter and on the Line of Credit Termination Date.

(e) Letter of Credit Fees. Borrower shall pay to Bank fees upon the issuance of each Letter of Credit, upon the payment or negotiation by Bank of each draft under any Letter of Credit and upon the occurrence of any other activity with respect to any Letter of Credit (including the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank’s standard fees and charges then in effect for such activity. In addition to the foregoing Borrower shall pay to Bank a standby Letter of Credit fee in connection with (i) standby Letter(s) of Credit issued hereunder (other than the Systems Letter of Credit) equal to two percent (2.0%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the aggregate undrawn amount of such Letter(s) of Credit and (ii) the Systems Letter of Credit equal to one and fifteen hundredths percent (1.15%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the undrawn amount of the Systems Letter of Credit. Such fees shall be payable upon the issuance of each such standby Letter of Credit.

Section 2.4 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all principal, interest and fees due under the Line of Credit by charging Borrower’s demand deposit account number 4643-084544 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower.

Section 2.5 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Any decision by Bank not to require payment of any interest (including default interest), fee, cost or other amount payable under any “Loan Document” (as defined below) upon any occasion shall in no way limit or be deemed a waiver of Bank’s right to require full payment of any interest (including default interest), fee, cost or other amount payable under any Loan Document on any other or subsequent occasion.

Section 2.6 COLLATERAL.

(a) Borrower Collateral. As security for all indebtedness of Borrower to Bank under this Agreement and the other Loan Documents, Borrower has heretofore granted, and hereby confirms its grant to Bank of, Liens of first priority in all of Borrower’s personal property,

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including all accounts, rights to payment, general intangibles (including patents and patent applications), chattel paper, deposit accounts, instruments, documents, inventory, equipment, furniture, fixtures and products and proceeds of all of the foregoing.

(b) Subsidiary Collateral. As further security for all indebtedness of Borrower to Bank under this Agreement and the other Loan Documents, Borrower shall take such steps as Bank may require to cause:

(i) Austron, Efratom, Systems, Digital, Datum-Austin I, Datum-Austin II and Austin-Datum to reaffirm their respective grants to Bank of Liens of first priority in all of their respective personal property including all accounts, rights to payment, general intangibles (including patents and patent applications), chattel paper, deposit accounts, instruments, inventory, equipment, furniture, fixtures and products and proceeds of all of the foregoing; and

(ii) Systems to reaffirm its grant to Bank of a Lien of not less than first priority on the Tozer Road Real Property (which Lien shall secure only Systems’ obligations under its guaranty to Bank).

(c) Documentation; Reimbursement of Costs. All of the foregoing shall be evidenced by and subject to the terms of such deeds of trust, mortgages, security agreements, pledge agreements, assignments, financing statements and other documents (including reaffirmations of any of the foregoing) as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including filing and recording fees and costs of appraisals, audits and title insurance.

Section 2.7 GUARANTIES. All indebtedness of Borrower to Bank under this Agreement and the other Loan Documents, shall be guaranteed by each of the Guarantors, as evidenced by and subject to the terms of one or more guaranties in form and substance satisfactory to Bank.

Section 2.8 LOAN ADMINISTRATION. From and after the Effective Date, Bank may establish certain procedures and administrative requirements to be satisfied from time to time by Borrower in connection with Borrower’s requests for Advances and the issuance of Letters of Credit under the Line of Credit. Such procedures may include the periodic submission of information not otherwise described herein. In connection with the foregoing, Borrower acknowledges that Bank may conduct periodic audits and appraisals of the Collateral, at such intervals as Bank may reasonably require and that such audits and appraisals may be performed by employees of Bank or by independent parties. The costs and expenses of such loan monitoring and administration, including audits and appraisals, shall be reimbursed by Borrower upon demand by Bank.

Section 2.9 INCREASE TO LINE OF CREDIT. Bank agrees that, at Borrower’s written

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request, subsequent to the Effective Date the Maximum Line of Credit Amount shall be increased to $16,000,000, provided that each of the following conditions precedent is satisfied as of the date of such request: (a) EBITDA (determined in accordance with Section 5.9(c)) for the immediately preceding four fiscal quarters (or shorter fiscal period during such four fiscal quarter period) is greater than or equal to $8,000,000; (b) As of such date, no (i) Event of Default shall have occurred and be continuing nor (ii) in the opinion of Bank, shall have any material adverse change in the financial condition, business, operations, properties or prospects of Borrower or any of the Guarantors occurred; and (c) Borrower shall have executed and delivered, or caused to be executed and delivered, such amendments to the Loan Documents and other documentation pertaining to the Loan Documents, the Collateral or otherwise, and shall have obtained such consents and reaffirmations from Loan Parties, in form and substance satisfactory to Bank, as required by Bank in connection with such increase.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement.

Section 3.1 LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the State of Delaware, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. Austron, Austin-Datum, Datum-Austin I, Datum-Austin II, Efratom, Systems and Digital are corporations, duly organized and existing and in good standing under the laws of their state of incorporation, and are qualified or licensed to do business (and are in good standing as foreign corporations, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on any of them.

Section 3.2 AUTHORIZATION AND VALIDITY. This Agreement, the Line of Credit Note, and each other document, contract and instrument required hereby or at any time hereafter delivered to Bank in connection herewith (collectively and, in each case either as originally executed or as the same may from time to time be amended, supplemented, restated or otherwise modified, the “Loan Documents”) have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the other Loan Party which executes the same, enforceable in accordance with their respective terms.

Section 3.3 NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene

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any provision of the Articles of Incorporation or By-Laws or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. The execution, delivery and performance by each other Loan Party of each of the Loan Documents to which it may be a party do not violate any provision of any law or regulation, or contravene any provision of any formation document of any Loan Party, or result in a breach or constitute a default under any contract, obligation, indenture or other instrument to which any Loan Party is a party or by which any Loan Party may be bound.

Section 3.4 LITIGATION. There are no pending, or to the best of Borrower’s knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower or any other Loan Party other than those disclosed by Borrower to Bank in writing prior to the date hereof.

Section 3.5 CORRECTNESS OF FINANCIAL STATEMENT. The consolidated and consolidating financial statement of Borrower and its Subsidiaries dated as of June 30, 2002, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower and its Subsidiaries, (b) discloses all liabilities of Borrower and its Subsidiaries that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower and its Subsidiaries, nor has Borrower or any Subsidiary of Borrower mortgaged, pledged, granted a Lien in or otherwise encumbered any of its assets or properties except (i) in favor of Bank, (ii) pursuant to the Note Agreement or (iii) as otherwise permitted by Bank in writing.

Section 3.6 INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its or any other Loan Party’s income tax payable with respect to any year.

Section 3.7 NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower or any other Loan Party is a party or by which Borrower or any other Loan Party may be bound that requires the subordination in right of payment of any of Borrower’s or such Loan Party’s obligations subject to this Agreement to any other obligation of Borrower or any other Loan Party.

Section 3.8 PERMITS, FRANCHISES. Borrower and each other Loan Party possess, and will hereafter possess, all permits, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable each of them to conduct the business in which they are now engaged in compliance with applicable law, and without conflict with the rights of others.

Section 3.9 ERISA. Borrower and each other Loan Party are in compliance in all

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material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time (“ERISA”); neither Borrower nor any other Loan Party has violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by any of them (each, a “Plan”); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower or any other Loan Party; Borrower and each Loan Party have met their minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles.

Section 3.10 OTHER OBLIGATIONS. Neither Borrower nor any other Loan Party is in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation.

Section 3.11 DIVISIONS, TRADE NAMES, ETC. Schedule 3.11 to this Agreement sets forth all trade names and trade styles (including all so-called “divisions”) used by Borrower or any of its Subsidiaries at any time within the five (5) year period ending on the date of this Agreement.

Section 3.12 ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower and each other Loan Party are in compliance in all material respects with all applicable Federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower’s operations and/or properties, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act and the California Health and Safety Code, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower or any other Loan Party is the subject of any Federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Neither Borrower nor any other Loan Party has any material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment.

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ARTICLE 4

CONDITIONS

Section 4.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to grant any credit contemplated by this Agreement is subject to the fulfillment to Bank’s satisfaction of all of the following conditions (with the date all such conditions are satisfied (or waived by Bank in writing) being the “Effective Date”):

(a) Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank’s counsel.

(b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed:

(i) This Agreement and the Line of Credit Note.

(ii) With respect to Letters of Credit (other than the Existing Letters of Credit), a Letter of Credit Agreement and Fax Agreement.

(iii) From each Loan Party, such amendments to, or reaffirmations of, the Existing Collateral Documents, the Existing Guaranty, and the other Loan Documents, as Bank may require.

(iv) Without limiting the foregoing subsection (iii), amendments of, or reaffirmations of, the Tozer Road Mortgage Documents, in each case in form suitable for recording in the applicable county records if required by Bank.

(v) Such UCC-1 financing statements and UCC-2 financing statement amendments as Bank may require.

(vi) A control account agreement executed by Borrower or its Subsidiaries, as applicable, and each financial institution (other than Bank) with whom any Loan Party maintains depository relationships.

(vii) If required by Bank, an endorsement to the existing title insurance policy issued to Bank with respect to Bank’s Lien on the Tozer Road Real Property, insuring the continued priority of such Lien after giving effect to recordation of the assignments and amendments described in subsection (iv) above.

(viii) With respect to each Loan Party, such documentation as Bank may require to establish the due organization, valid existence and good standing of such parties, their qualification to engage in business in each jurisdiction in which they are engaged in business or required to be so qualified, their authority to execute,

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deliver and perform any Loan Documents to which they are a party, and the identity, authority and capacity of each responsible official thereof authorized to act on their behalf, including certified copies of articles of incorporation and amendments thereto, bylaws and amendments thereto, certificates of good standing and/or qualifications to engage in business, certified corporate resolutions, incumbency certificates, certificates of responsible officials, and the like.

(ix) Such other certificates, documents, instruments, consents and opinions as Bank may require.

(c) Delivery of Pledged Collateral. Each applicable Loan Party shall have delivered, or caused to be delivered, to the extent not previously delivered, to Bank, all Collateral pledged to Bank pursuant to the Loan Documents, including any and all capital stock required to be pledged to Bank according to the terms of the Loan Documents, together with executed stock powers (in blank) relating thereto.

(d) Recordation of Assignment Documents. The amendments described in subsection (b)(iv) above (if required by Bank) shall have been recorded in the applicable real estate records where the Real Property Collateral is located and any financing statements or amendments to financing statements shall have been recorded or filed, as appropriate, where required to perfect Bank’s Liens on the Collateral contemplated by the terms hereof and of the other Loan Documents.

(e) Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower or any other Loan Party hereunder, nor any material decline, as determined by Bank, in the market value of any Collateral required hereunder or a substantial or material portion of the assets of Borrower or any such other Loan Party.

(f) Insurance. Borrower shall have delivered to Bank evidence of insurance coverage on all Loan Parties’ property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, with loss payable endorsements (on Form BFU-438) in favor of Bank.

(g) Collateral Audit. Bank shall have completed, at Borrower’s cost, a collateral audit and examination from an auditor acceptable to Bank and in form, substance and reflecting collateral values satisfactory to Bank in its sole discretion.

(h) No Event of Default. No Event of Default, and no event or act which with the giving of notice or the passage of time or both would constitute an Event of Default, shall have occurred hereunder or under the Existing Credit Agreement.

(i) Bank’s Fees. Borrower shall have paid Bank’s costs and expenses as required by this Agreement, including (i) the estimated fees and disbursements (subject to

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adjustment upon final accounting of outside counsel to Bank and the allocated costs of Bank’s in-house counsel), and (ii) costs and expenses incurred by Bank in connection with all diligence, appraisals and audits, as well as recording and filing fees related hereto.

ARTICLE 5

AFFIRMATIVE COVENANTS

Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing:

Section 5.1 PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and places and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance of the Line of Credit at any time exceeds any limitation on borrowings applicable thereto.

Section 5.2 ACCOUNTING RECORDS. Maintain, and cause each other Loan Party to maintain, adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower and of each other Loan Party.

Section 5.3 FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank:

(a) As soon as available, but in no event later than 120 days after and as of the end of each fiscal year, (i) the consolidated balance sheet of Borrower and its Subsidiaries as of the end of such fiscal year and the consolidated statements of income, stockholders’ equity and cash flows of Borrower and its Subsidiaries for such fiscal year, and (ii) consolidating balance sheets and statements of income and cash flows, in each case as at the end of and for such fiscal year, all in reasonable detail, and presented in a manner comparing such financial statements to corresponding figures from the preceding annual financial statements. Such financial statements shall be prepared in accordance with generally accepted accounting principles, consistently applied, and such consolidated balance sheet and consolidated statements shall be accompanied by a report of independent public accountants of recognized standing selected by Borrower and reasonably satisfactory to Bank, which report shall be prepared in accordance with generally accepted auditing standards as at such date, and shall not be subject to any qualifications or exceptions as to the scope of the audit nor to any other qualification or exception determined by Bank to be adverse to the interest of Bank;

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(b) As soon as available, but in no event later than 45 days after and as of the end of each fiscal quarter, (i) the consolidated balance sheet of Borrower and its Subsidiaries as at the end of such fiscal quarter and the consolidated statements of income, stockholders’ equity and cash flows of Borrower and its Subsidiaries for the period from the beginning of the fiscal year to the end of such fiscal quarter, and (ii) the consolidating balance sheets and statements of income and cash flows of Borrower and its Subsidiaries as at the end of such fiscal quarter, all in reasonable detail, and presented in a manner comparing such figures for the corresponding period in the preceding fiscal year, and certified by an authorized financial officer of Borrower as fairly presenting the financial condition, results of operations and cash flows of Borrower and its Subsidiaries in accordance with generally accepted accounting principles, consistently applied, as at such date and for such periods, subject only to normal year-end-accruals and audit adjustments;

(c) Subsequent to the Borrowing Base Start Date, (i) as soon as available, but in no event later than 15 days after and as of the end of each month, a Borrowing Base Certificate, an aged listing of accounts receivable and accounts payable, and a reconciliation of accounts. Notwithstanding the foregoing, at any time an Advance is made under the Line of Credit, Borrower shall immediately provide to Bank in connection with its request for such Advance the foregoing information for the most recently ended month for which such information is available (to the extent such information shall not have been previously provided to Bank) and, regardless of whether such Advance remains outstanding as of any such date, for and as of the last day of the month in which such Advance is made and for any month thereafter during which all or any portion of such Advance remains outstanding, and (ii) not later than 90 days after and as of the end of each fiscal year, a list of the name and addresses of all account debtors of each Borrowing Base Party;

(d) contemporaneously with each annual and quarterly financial statement of Borrower required hereby, a certificate of the president or chief financial officer of Borrower that said financial statements are accurate and that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default;

(e) As soon as available, but in no event later than 30 days after the first day of each fiscal year, a budget and projection by fiscal quarter for that fiscal year including projected consolidated and consolidating balance sheets, statements of income and cash flows of Borrower and its Subsidiaries, all in reasonable detail, and setting forth in each case in comparative form, consolidating and consolidated figures from the corresponding period in the prior fiscal year;

(f) Promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of Borrower, and copies of all annual, regular, periodic and special reports and registration statements which Borrower may file or be required to file with the Securities and Exchange Commission (or any

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other governmental agency or authority succeeding to the function and operations of the Securities and Exchange Commission);

(g) Promptly upon receipt thereof, copies of any audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of Borrower or any Subsidiary by independent accountants in connection with the accounts or books of Borrower of any of its Subsidiaries, or any annual, interim or special audit of any of them; and

(h) from time to time such other information as Bank may reasonably request.

Section 5.4 COMPLIANCE. Preserve and maintain, and cause each other Loan Party to preserve and maintain, all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; conduct, and cause each Guarantor to conduct, its business in an orderly and regular manner; and comply, and cause such Guarantor to comply, with the provisions of all documents pursuant to which it is organized and/or which govern its continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to it and/or its business.

Section 5.5 INSURANCE. Maintain and keep in force, and cause each other Loan Party to maintain and keep in force, insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower and the Guarantors, including but not limited to fire, extended coverage, public liability, flood, property damage and workers’ compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank’s request schedules setting forth all insurance then in effect.

Section 5.6 FACILITIES. Keep, and cause each other Loan Party to keep, all properties useful or necessary to keep its business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained.

Section 5.7 TAXES AND OTHER LIABILITIES. Pay and discharge when due, and cause each other Loan Party to pay and discharge when due, any and all indebtedness, obligations, assessments and taxes, both real or personal, including Federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower or any other Loan Party may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower or any other Loan Party has made provision, to Bank’s satisfaction, for eventual payment thereof in the event Borrower or any other Loan Party is obligated to make such payment.

Section 5.8 LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower or any other Loan Party with a claim in excess of $150,000.00.

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Section 5.9 FINANCIAL CONDITION. Maintain the consolidated financial condition of Borrower and its Subsidiaries as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein):

(a) Quick Ratio at all times greater than 1.5:1.0, with “Quick Ratio” defined as the aggregate of unrestricted domestic cash, unrestricted domestic marketable securities and receivables readily convertible into cash divided by total current liabilities. In calculating the foregoing, outstanding Advances on the Line of Credit shall be deemed current liabilities.

(b) Leverage Ratio not greater than 0.75 to 1.00 at any time, with “Leverage Ratio” defined as Total Liabilities divided by Tangible Net Worth. For purposes of the foregoing, “Total Liabilities” shall mean the aggregate of current liabilities and non-current liabilities less subordinated debt and “Tangible Net Worth” shall mean the aggregate of consolidated stockholders’ equity of Borrower and its Subsidiaries plus subordinated debt less any intangible assets.

(c) EBITDA not less than negative $2,000,000.00 as of the end of the fiscal quarter ending September 30, 2002, not less than $1,200,000.00 as of the end of the fiscal quarter ending December 31, 2002, and not less than $1,100,000.00 as of the end of the fiscal quarter ending March 31, 2003, with “EBITDA” defined as net income plus income tax expense, (or less any income tax benefit), plus interest expense (net of capitalized interest expense), plus depreciation expense, plus amortization expense, plus losses on asset sales, minus gains on asset sales, plus extraordinary losses, minus extraordinary gains.

Section 5.10 NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower or any other Loan Party; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; (d) any termination or cancellation of any insurance policy which Borrower or any other Loan Party is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower’s or any other Loan Party’s property in excess of an aggregate of $100,000.00; or (e) the acquisition by Borrower or any other Loan Party of any other Loan Party or Subsidiary or other affiliate.

ARTICLE 6

NEGATIVE COVENANTS

Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or

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unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank’s prior written consent:

Section 6.1 USE OF FUNDS. Use any of the proceeds of any of the Line of Credit except for the purposes stated in Article 2 hereof.

Section 6.2 CAPITAL EXPENDITURES. Make, or permit any Guarantor to make, any additional investment in fixed assets during the period from June 1, 2001 through and including May 29, 2003 in excess of an aggregate of $6,000,000.00 for Borrower and all Guarantors combined, it being understood that the use of restricted cash associated with the expansion of Borrower’s Beverly, Massachusetts facility shall not be subject to this covenant.

Section 6.3 LEASE EXPENDITURES. Incur, or permit any Guarantor to incur, operating lease expense in any fiscal year which, in the aggregate, exceeds the consolidated operating lease expense of Borrower and all Guarantors for the previous fiscal year by more than $500,000.00.

Section 6.4 OTHER INDEBTEDNESS. Create, incur, assume or permit to exist, or permit any other Loan Party to create, incur, assume or permit to exist, any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank and (b) any other liabilities of Borrower or any other Loan Party existing as of, and disclosed to Bank prior to, the date hereof.

Section 6.5 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with, or permit any other Loan Party to merge into or consolidate with, any other entity; make, or permit any other Loan Party to make, any substantial change in the nature of its business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of its assets except (a) in the ordinary course of its business and (b) any of the foregoing by and among the Loan Parties with one another so long as after giving effect thereto the Liens of Bank on any assets affected thereby shall remain in full force and effect and with the same priority as immediately before such action.

Section 6.6 GUARANTIES. Guarantee or become liable, or permit any other Loan Party to guarantee or become liable, in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank.

Section 6.7 LOANS, ADVANCES, INVESTMENTS. Make, or permit any other Loan Party to make, any loans or advances to or investments in any person or entity, except (i) any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof and (ii) any of the

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foregoing made by Borrower or any other Loan Party not to exceed an aggregate principal amount of $1,000,000 at any time outstanding (with investments for this purpose valued at their original cost or book value, whichever is higher).

Section 6.8 PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist, or permit any other Loan Party to mortgage, pledge, grant or permit to exist, a security interest in, or Lien upon, all or any portion of its assets now owned or hereafter acquired, except any of the foregoing (a) in favor of Bank or (b) which is existing as of, and disclosed to Bank in writing prior to, the date hereof.

Section 6.9 DIVIDENDS: DISTRIBUTIONS. Declare or pay, or permit any other Loan Party to declare or pay, any dividend or distribution either in cash, stock or any other property, on Borrower’s or such Loan Party’s stock now or hereafter outstanding; except for dividends, distributions and redemptions which (a) are made in compliance with applicable law, (b) are made when no Event of Default exists hereunder, and when no condition, event or act exists which, with the giving of notice or the passage of time, or both, would constitute such an Event of Default, and (c) would not result in an Event of Default hereunder.

ARTICLE 7

EVENTS OF DEFAULT

Section 7.1 The occurrence of any of the following shall constitute an “Event of Default” under this Agreement:

(a) Borrower shall fail to pay within five (5) days of when due any principal, interest, fees or other amounts payable under any of the Loan Documents.

(b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other Loan Party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made.

(c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence.

(d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower or any other Loan Party has incurred any debt or other liability to Bank.

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(e) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument pursuant to which Borrower or any other Loan Party has incurred any debt or other liability to any person or entity, whether such debt or other liability shall be for borrowed money, the purchase or lease of property or the guaranty of any present or future indebtedness for borrowed money or the purchase or lease of property, on its part to be paid and the effect of such default is to cause, or to permit such person or entity to cause, such debt or other liability to become due prior to any stated maturity, provided that the aggregate amount of all such debt and other liabilities as to which such a default shall occur and be continuing exceeds $100,000.00.

(f) The filing of a notice of judgment Lien against Borrower or any other Loan Party; or the recording of any abstract of judgment against Borrower or any other Loan Party in any county in which Borrower or such Loan Party has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any other Loan Party; or the entry of a judgment against Borrower or any other Loan Party; provided, however, that such judgments, Liens, levies, writs, executions and other process involve debts of or claims against Borrower or such Loan Party in excess of $100,000.00, individually or in the aggregate, for all such judgments, Liens, levies, writs, executions and other process against Borrower and other Loan Parties combined, and within twenty (20) days after the creation thereof, or at least ten (10) days prior to the date on which any assets could be lawfully sold in satisfaction thereof, such debt or claim is not satisfied but stayed pending appeal and insured against in a manner satisfactory to Bank.

(g) Borrower or any other Loan Party shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any other Loan Party shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time (“Bankruptcy Code”), or under any state or Federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or Federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any other Loan Party, or Borrower or any such Loan Party shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any other Loan Party shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any other Loan Party by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or Federal law relating to bankruptcy, reorganization or other relief for debtors.

(h) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower or any other Loan Party of its respective obligations under any of the Loan Documents.

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(i) The dissolution or liquidation of Borrower or any other Loan Party or any of their directors, stockholders or members shall take action seeking to effect the dissolution or liquidation of Borrower or such Loan Party.

(j) The sale, transfer, hypothecation, assignment or encumbrance, whether voluntary, involuntary or by operation of law, without Bank’s prior written consent, of all or any part of or interest in any Real Property Collateral required hereby.

Section 7.2 REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank’s option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including the right to resort to any or all security for the Line of Credit and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. In addition, Bank shall have no obligation to permit further borrowings hereunder if Borrower fails to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents, notwithstanding that an Event of Default has not yet occurred under Section 6.1(a) above. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.

ARTICLE 8

MISCELLANEOUS

Section 8.1 NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing.

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Section 8.2 NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address:

BORROWER:

DATUM INC.

9975 Toledo Way

Irvine, California 92618

Attention: Robert J. Krist

Vice President/Chief Financial Officer

Telecopier: (949) 598-7555

Telephone: (949) 598-7501

BANK:

WELLS FARGO BANK, NATIONAL ASSOCIATION

2030 Main Street, Suite 900

Irvine, California 92614

Attention: Datum Account Officer

Telecopier: (949) 261-1830

Telephone: (949) 251-4195

or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.

Section 8.3 COSTS, EXPENSES AND ATTORNEYS’ FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys’ fees (to include outside counsel fees and all allocated costs of Bank’s in-house counsel), incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank’s continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank’s rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents and/or the Existing Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents and/or the Existing Loan Documents, including any action for declaratory relief, and including any of the foregoing incurred in connection with any bankruptcy proceeding relating to Borrower or any other Loan Party.

Section 8.4 SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon

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and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank’s prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank’s rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to the Line of Credit, Borrower or its business, any other Loan Party or the business of such Loan Party, or any Collateral required hereunder.

Section 8.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to the Line of Credit and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only by a written instrument executed by each party hereto.

Section 8.6 NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party.

Section 8.7 TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.

Section 8.8 SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement.

Section 8.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement.

Section 8.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

Section 8.11 INDEMNITY BY BORROWER. Borrower agrees to indemnify, save and hold harmless Bank and its directors, officers, agents, attorneys and employees (collectively, the “Indemnitees”) from and against: (a) Any and all claims, demands, actions or causes of action that are asserted against any Indemnitee if the claim, demand, action or cause of action arises out of or relates to the relationship between Borrower and Bank under any of the Loan Documents or the transactions contemplated thereby; (b) Any and all administrative or investigative proceedings by any governmental agency or authority arising out of or related to any claim, demand, action or cause of action described in clause (a) above; and (c) Any and all liabilities,

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losses, costs or expenses (including reasonable attorneys’ fees and disbursements and other professional services) that any Indemnitee suffers or incurs as a result of the assertion of any of the foregoing; provided that no Indemnitee shall be entitled to indemnification for any loss caused by its own or its employees’ or agents’ gross negligence or willful misconduct. Each Indemnitee is authorized to employ counsel in enforcing its rights hereunder and in defending against any claim, demand, action, cause of action or administrative or investigative proceeding covered by this Section 8.11; provided that the Indemnitees as a group may retain only one law firm to represent them with respect to any such matter unless there is, under applicable standards of professional conduct, conflict on any significant issue between the positions of any two or more Indemnitees. Any obligation or liability of Borrower to any Indemnitee under this Section 8.11 shall be and hereby is covered and secured by the Loan Documents and the Collateral referred to in Section 2.7 and shall survive the expiration or termination of this Agreement and the repayment of the Line of Credit and the payment and performance of all other obligations owed to Bank.

Section 8.12 NONLIABILITY OF BANK. Borrower acknowledges and agrees that:

(a) Any inspections of Collateral made by Bank are for purposes of administration of the Line of Credit only and Borrower is not entitled to rely upon the same;

(b) By accepting or approving anything required to be observed, performed, fulfilled or given to Bank pursuant to the Loan Documents, including any certificate, financial statement, insurance policy or other document, Bank shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by Bank;

(c) The relationship between Borrower and Bank in connection with this Agreement and the other Loan Documents is, and shall at all times remain, solely that of a borrower and lender; Bank shall not under any circumstance be construed to be a partner or joint venturer of Borrower; Bank shall not under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrower, or to owe any fiduciary duty to Borrower as a result of the transactions arising under this Agreement and the other Loan Documents; Bank does not undertake or assume any responsibility or duty to Borrower to select, review, inspect, supervise, pass judgment upon or inform Borrower of any matter in connection with its property, any Collateral held by Bank or the operations of Borrower; Borrower shall rely entirely upon its own judgment with respect to such matters; and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by Bank in connection with such matters is solely for the protection of Bank and neither Borrower nor any other person or entity is entitled to rely thereon; and

(d) Bank shall not be responsible or liable to any person or entity for any loss, damage, liability or claim of any kind relating to injury or death to persons or damage to property caused by the actions, inaction or negligence of Borrower and Borrower hereby indemnifies and

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holds Bank harmless from any such loss, damage, liability or claim.

Section 8.13 FURTHER ASSURANCES. Borrower shall, at its expense and without expense to Bank, do, execute and deliver such further acts and documents as Bank from time to time reasonably requires for the assuring and confirming unto Bank of the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Document, or for assuring the validity, perfection, priority or enforceability of any Lien under any Loan Document.

Section 8.14 CONFLICTING PROVISIONS. The provisions of this Agreement are not intended to supersede the provisions of the other Loan Documents but shall be construed as supplemental thereto. However, in the event of any actual irreconcilable conflict between the provisions hereof and any provisions of the other Loan Documents, it is intended that the provisions of this Agreement shall control; provided that the inclusion of provisions in such other Loan Documents which are not addressed in this Agreement shall not be deemed a conflict with this Agreement. The foregoing shall apply with respect to all Loan Documents, whether executed and delivered by Borrower or by any third-party.

Section 8.15 CONTINUED EXISTING EFFECTIVENESS OF CERTAIN EXISTING LOAN DOCUMENTS. Each of the Existing Loan Documents (other than the Existing Credit Agreement, Existing Note and any other Existing Loan Document that has been (or will be) expressly superseded, replaced or otherwise restated by a “Loan Document”, either as previously executed in connection with a prior amendment or as executed in connection herewith) shall continue in full force and effect and shall, as of the effective date hereof, be deemed to be a “Loan Document” as such term is used and defined in this Agreement.

Section 8.16 ARBITRATION.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.

(b Governing Rules. Any arbitration proceeding will (i) proceed in a location in Los Angeles, California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures

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for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c No Waiver of Provisional Remedies. The arbitration requirement does not limit the right of any party to obtain provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder.

(d Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final

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determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

        (f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

        (g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

        (h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above.

DATUM INC., a Delaware corporation
By:	/s/ Robert J. Krist
	Name: Robert J. Krist      Title: Vice President Chief Financial Officer
By:	/s/ Erik H. van der Kaay
	Name: Erik H. van der Kaay      Title: President and Chief Executive Officer
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/
	For Stephen M. Amendt, Vice President

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SCHEDULE 2.1(d)

EXISTING LETTERS OF CREDIT

Letter of Credit Number	Amount
Systems Letter of Credit	$2,698,596.00
(L/C #NZS397426)
NZS340416	$     18,069.45
NZS424719	$     69,784.00
NZS434902	$     34,520.00
NZS436398	$       1,107.14
NZS438156	$     14,559.90
NZS438155	$     17,966.26
NZS438164	$   104,567.22
NZS438097	$     77,719.80
TOTAL	$3,036,889.77

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SCHEDULE 3.11

DIVISIONS, TRADE NAMES, ETC.

A. TRADE NAMES AND TRADE STYLES

Datum TT&M

Bancomm

Efratom

Datum—Irvine

Datum—Austin

Datum—Beverly

Datum—San Jose

Datum—Lexington

Datum Trusted Time Division

E—Business Solutions

B. DIVISIONS

Bancomm—Timing Division

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EX-10.39

Exhibit 10.39

AMENDMENT NO. 1 TO

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

This Amendment No. 1 to Third Amended and Restated Credit Agreement (“Amendment”) dated as of October 29, 2002, is made by and between Datum Inc., a Delaware corporation (“Borrower”), and Wells Fargo Bank, National Association (“Bank”).

RECITALS

This Amendment is made with reference to the following facts:

A. Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Third Amended and Restated Credit Agreement between Borrower and Bank dated as of October 1, 2002 (as amended, extended, renewed, supplemented or otherwise modified, the “Credit Agreement”). Capitalized terms used herein and not otherwise defined shall have the meanings set forth for such terms in the Credit Agreement.

B. On May 22, 2002, Borrower entered into a Merger Agreement (the “Merger Agreement”) with Symmetricom, Inc., a Delaware corporation (“Symmetricom”), providing for the merger of a wholly-owned subsidiary of Symmetricom with and into Borrower (the “Merger”). The Merger is scheduled to occur during the fourth quarter of 2002. Following completion of the Merger, should it occur, Borrower will be a wholly-owned subsidiary of Symmetricom.

C. Subject to the terms and conditions set forth herein, Borrower and Bank have agreed to amend the Credit Agreement, and Bank has agreed to waive a provision of the Credit Agreement, in each case as set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and benefits contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower and Bank agree as follows:

1. Section 1.1.

(a) The following existing definitions in Section 1.1 of the Credit Agreement are amended to read in full as set forth below:

“Line of Credit Termination Date” means December 31, 2002.

“Maximum Line of Credit Amount” means, subject to Section 2.9, (a) as of any date of determination prior to the Merger, $10,000,000.00 and (b) as of any date from and after the date of the Merger, $3,500,000.00.

(b) Section 1.1 of the Credit Agreement is amended by adding the following definitions in the appropriate alphabetical locations:

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“Merger” means the merger of Borrower into and with a wholly-owned subsidiary of Symmetricom pursuant to a Merger Agreement dated as of May 22, 2002 between Borrower and Symmetricom.

“Symmetricom” means Symmetricom, Inc., a Delaware corporation.

2. Section 2.1(d). Section 2.1(d) of the Credit Agreement is amended to read in full as follows:

(d) Letter of Credit Subfeature.

(i) As a subfeature under the Line of Credit, Bank agrees from time to time up to and including the Line of Credit Termination Date to issue standby letters of credit for the account of Borrower (each, a “Letter of Credit” and collectively, “Letters of Credit”); provided, however, that the form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion, and provided further, that the aggregate undrawn amount of all outstanding Letters of Credit under this subfeature (including, without limitation, the Systems Letter of Credit) shall not at any time exceed Three Million Five Hundred Thousand Dollars ($3,500,000.00). Each Letter of Credit shall be issued for a term not to exceed three hundred sixty-five (365) days, as designated by Borrower; provided, however, that no Letter of Credit under this subfeature shall have an expiration date subsequent to the Line of Credit Termination Date unless otherwise approved by Bank. In any event, should any Letter of Credit remain outstanding on the Line of Credit Termination Date, Borrower shall either (A) cause a financial institution reasonably acceptable to Bank to issue a back-up irrevocable letter of credit, naming Bank as beneficiary, in form and substance as Bank may require with respect to each such outstanding Letter of Credit or (B) deposit with Bank an amount equal to one hundred ten percent (110%) of the then aggregate outstanding undrawn amount of all such Letters of Credit, such amount to be held as cash collateral for Borrower’s obligations under the Loan Documents.

3. Section 2.9. Section 2.9 of the Credit Agreement is deleted.

4. Exhibit B. Exhibit B attached to the Credit Agreement is replaced in its entirety by Exhibit B attached hereto as Annex 1.

5. Waiver of Section 6.5. Bank hereby waives the limitation in Section 6.5 of the Credit Agreement which provides that Borrower shall not merge into or consolidate with any other entity provided that such waiver shall extend and apply solely to the Merger and shall not apply to any other transaction including without limitation any future merger or consolidation of Borrower into or with Symmetricom or any subsidiary of Symmetricom.

6. Conditions Precedent. The effectiveness of this Amendment and Bank’s agreements set forth herein are subject to the satisfaction of each of the following conditions precedent:

6.1 Documentation. Borrower shall have delivered or caused to be delivered to Bank, at Borrower’s sole cost and expense, the following, each of which shall be in form and substance satisfactory to Bank:

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(a) The executed original of this Amendment;

(b) The executed original of a First Amended and Restated Revolving Line of Credit Note in the form attached hereto as Annex 1;

(c) Written consent of Guarantors attached hereto as Annex 2; and

(d) Such authorization documents with respect to Guarantors as Bank shall reasonably require.

6.2 Representations and Warranties. All of the representations and warranties of Borrower contained herein shall be true and correct on and as of the date of execution hereof and no Event of Default shall have occurred and be continuing under the Credit Agreement or any of the other Loan Documents, as modified hereby.

7. Representations And Warranties. Borrower makes the following representations and warranties to Bank as of the date hereof, which representations and warranties shall survive the execution, termination or expiration of this Amendment and shall continue in full force and effect until the full and final satisfaction and discharge of all obligations of Borrower to Bank under the Credit Agreement and the other Loan Documents:

7.1 Reaffirmation of Prior Representations and Warranties. Borrower hereby reaffirms and restates as of the date hereof, all of the representations and warranties made by Borrower in the Credit Agreement and the other Loan Documents, except to the extent such representations and warranties specifically relate to an earlier date.

7.2 No Default. No Event of Default or other default has occurred and remains continuing under any of the Loan Documents.

7.3 Due Execution. The execution, delivery and performance of this Amendment and any instruments, documents or agreements executed in connection herewith are within the powers of Borrower and the other Loan Parties party thereto, have been duly authorized by all necessary action, and do not contravene any law, the articles of incorporation, bylaws, articles of organization, operating agreement, partnership agreement or other organizational documents of such parties, result in a breach of, or constitute a default under, any contractual restriction, indenture, trust agreement or other instrument or agreement binding upon any of such parties.

7.4 No Further Consent. The execution, delivery and performance of this Amendment and any documents or agreements executed in connection herewith do not require any consent or approval not previously obtained of any governmental agency, equity holder, beneficiary or creditor of Borrower.

7.5 Binding Agreement. This Amendment, and each of the other instruments, documents and agreements executed in connection herewith constitute the legal, valid and binding obligation of Borrower or other Loan Parties party thereto and are enforceable against such parties in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws or equitable principles relating to or limiting creditors’ rights generally.

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7.6 Effect of Merger. After giving effect to the Merger, Borrower will be a wholly-owned subsidiary of Symmetricom.

8. Miscellaneous

8.1 Recitals Incorporated. The Recitals set forth above are incorporated into and are made a part of this Amendment.

8.2 Further Assurances. Borrower, at its sole cost and expense, agrees to execute and deliver all documents and instruments and to take all other actions as may be specifically provided for herein and as may be required in order to consummate the purposes of this Amendment. Borrower shall diligently and in good faith pursue the satisfaction of any conditions or contingencies in this Amendment.

8.3 No Third Parties. Except as specifically provided herein, no third party shall be benefitted by any of the provisions of this Amendment; nor shall any such third party have the right to rely in any manner upon any of the terms hereof, and none of the covenants, representations, warranties or agreements herein contained shall run in favor of any third party.

8.4 Time is of the Essence. Time is of the essence for the performance of all obligations and the satisfaction of all conditions of this Amendment. The parties intend that all time periods specified in this Amendment shall be strictly applied, without any extension (whether or not material) unless specifically agreed to in writing by all parties hereto.

8.5 Costs and Expenses. In addition to the obligations of Borrower under the Credit Agreement, Borrower agrees to pay all costs and expenses (including without limitation reasonable attorneys’ fees) expended or incurred by Bank in connection with the negotiation, documentation and preparation of this Amendment and any other documents executed in connection herewith, and in carrying out the terms of this Amendment, whether incurred before or after the effective date hereof.

8.6 Integration; Interpretation. The Loan Documents, including this Amendment and the documents, instruments and agreements executed in connection herewith, contain or expressly incorporate by reference the entire agreement of the parties with respect to the matters contemplated herein and supersede all prior negotiations, discussions and correspondence. The Loan Documents shall not be modified except by written instrument executed by all parties thereto.

8.7 Counterparts and Execution. This Amendment may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. However, this Amendment shall not be binding on Bank until all parties have executed it.

8.8 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California.

8.9 Non-Impairment of Loan Documents. On the date all conditions precedent set forth herein are satisfied in full, this Amendment shall be a part of the Credit Agreement. Except as expressly provided in this Amendment or in any other document,

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instrument or agreement executed by Bank, all provisions of the Loan Documents shall remain in full force and effect, and Bank shall continue to have all its rights and remedies under the Loan Documents.

8.10 No Waiver. Nothing herein shall be deemed a waiver by Bank of any Event of Default, and nothing herein shall be deemed a waiver by Bank of any other default under the Loan Agreement or any document executed in connection with the Loan Agreement. No delay or omission of Bank to exercise any right, remedy or power under any of the Loan Documents shall impair such right, remedy or power or be construed to be a waiver of any default or an acquiescence therein, and single or partial exercise of any such right, remedy or power shall not preclude other or further exercise thereof or the exercise of any other right, remedy or power. No waiver of any term, covenant, or condition shall be deemed to waive Bank’s right to enforce such term, covenant or condition at any other time.

8.11 Successors and Assigns. The terms of this Amendment shall be binding upon and inure to the benefit of the successors and assigns of the parties to this Amendment.

[signature page follows]

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IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first set forth above.

DATUM INC., a Delaware corporation		WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ Robert J. Krist	By:	/s/ Stephen Amendt
	Name: Robert J. Krist Title: CFO		Name: Stephen Amendt Title: Vice President
By:	/s/ Erik H. van der Kaay
	Name: Erik H. van der Kaay Title: President

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Annex 1

SIXTH AMENDED AND RESTATED REVOLVING LINE OF CREDIT NOTE

$3,500,000.00 Irvine, California October 29, 2002

FOR VALUE RECEIVED, the undersigned DATUM INC., a Delaware corporation (“Borrower”), promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”) at its office at Orange Coast Regional Commercial Banking Office, 2030 Main Street, Suite 900, Irvine, California 92614, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Three Million Five Hundred Thousand Dollars ($3,500,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. This Note amends and restates in its entirety that certain Fifth Amended and Restated Revolving Line of Credit Note dated May 10, 2002 executed and delivered by Borrower to the order of Bank in the original principal amount of up to $10,000,000.00 (the “Prior Note”). Amounts outstanding and committed under the Prior Note shall, upon the effectiveness of this Note be deemed to be outstanding and committed hereunder and evidenced hereby, subject, however, to all terms and conditions hereunder and under the Credit Agreement referred to below. This Note is the “Line of Credit Note” referred to in the Credit Agreement.

DEFINITIONS:

As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined:

(a) “Business Day” means any day except a Saturday, Sunday or any other day on which commercial banks in California are authorized or required by law to close.

(b) “Credit Agreement” means that certain Third Amended and Restated Credit Agreement between Borrower and Bank dated as of October 1, 2002, either as originally executed or as the same may from time to time be supplemented, modified, amended, restated, extended or supplemented.

(c) “Fixed Rate Term” means a period commencing on a Business Day and continuing for (1) one month, (2) months, (3) months or (6) months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than Five Hundred Thousand Dollars ($500,000.00); and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day.

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(d) “LIBOR” means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula:

LIBOR =	Base LIBOR
	100% - LIBOR Reserve Percentage

(i) “Base LIBOR” means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

(ii) “LIBOR Reserve Percentage” means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term.

(e) “Prime Rate” means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank’s base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate.

INTEREST:

(a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be two and one half percent (2.50%) above LIBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank’s books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted.

(b) Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate,

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Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LIBOR selection, (A) if requested by Bank, Borrower provides to Bank written confirmation thereof not later than three (3) Business Days after such notice is given, and (B) such notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate Term, or at a later time during any Business Day if Bank, at it’s sole option but without obligation to do so, accepts Borrower’s notice and quotes a fixed rate to Borrower. If Borrower does not immediately accept a fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request from Borrower shall be subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied.

(c) Limitation on LIBOR Portions. Unless Bank otherwise consents, no more than one (1) portion of the outstanding principal balance of this Note shall bear interest in relation to Bank’s LIBOR at any time.

(d) Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LIBOR to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.

(e) Payment of Interest. Interest accrued on this Note shall be payable on the first day of each month, commencing November 1, 2002.

(f) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note.

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BORROWING AND REPAYMENT:

(a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on December 31, 2002.

(b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) Erik H. van der Kaay or Chris Felfe or Robert Krist, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by Borrower.

(c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first.

PREPAYMENT:

(a) Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty.

(b) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00); provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month:

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(i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto.

(ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid.

(iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above.

Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum four percent (4.00%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank.

EVENTS OF DEFAULT:

This Note is made pursuant to and is subject to the terms and conditions of the Credit Agreement. Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an “Event of Default” under this Note.

MISCELLANEOUS:

(a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder’s option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys’ fees (to include outside counsel fees and all allocated costs of the holder’s in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder’s rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity.

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(b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several.

(c) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California.

IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.

DATUM INC., a Delaware corporation
By:	/s/ Robert J. Krist
	Name: Robert J. Krist Title: CFO
By:	/s/ Erik H. van der Kaay
	Name: Erik H. van der Kaay             Title: President

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Annex 2

Consent of Guarantors

In order to induce Bank to agree to the terms of the Amendment, each undersigned Guarantor (a) acknowledges receipt of a copy of the Amendment, (b) consents to Borrower entering into the Amendment and to Borrower and the other parties thereto entering into all of the other documents, instruments and agreements now or hereafter executed in connection therewith, and (c) agrees that nothing contained in the Amendment, or in any other document, instrument or agreement executed in connection therewith, shall serve to diminish, alter, amend or affect in any way such Guarantor’s obligations under that certain Second Amended and Restated Guaranty dated as of July 7, 2000 by the undersigned Guarantors in favor of Bank (as amended from time to time, the “Guaranty”). Each of the undersigned Guarantors expressly and knowingly reaffirms its liability under the Guaranty and acknowledges that it has no defense, offset or counterclaim against Bank with respect to the Guaranty.

AUSTRON, INC., a Texas corporation		EFRATOM TIME AND FREQUENCY PRODUCTS, INC.,
By:	/s/ Robert J. Krist	By:	/s/ Robert J. Krist
	Name: Robert J. Krist Title: CFO		Name: Robert J. Krist Title: CFO
By:	/s/ Erik H. van der Kaay	By:	/s/ Erik H. van der Kaay
	Name: Erik H. van der Kaay Title: Chairman		Name: Erik H. van der Kaay Title: Chairman
FREQUENCY & TIME SYSTEMS, INC., a Delaware corporation		DIGITAL DELIVERY, INC., a Massachusetts corporation
By:	/s/ Robert J. Krist	By:	/s/ Robert J. Krist
	Name: Robert J. Krist Title: CFO		Name: Robert J. Krist Title: CFO
By:	/s/ Erik H. van der Kaay	By:	/s/ Erik H. van der Kaay
	Name: Erik H. van der Kaay Title: Chairman		Name: Erik H. van der Kaay Title: Chairman

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AUSTIN-DATUM, LP, a Texas limited partnership			DATUM-AUSTIN HOLDINGS I, LLC, a California limited liability company
By:	DATUM-AUSTIN HOLDINGS I, LLC, a California limited liability company, its General Partner
	By:	/s/ Erik H. van der Kaay	By:	/s/ Erik H. van der Kaay
		Name: Erik H. van der Kaay Title: President		Name: Erik H. van der Kaay Title: President
	By:	/s/ Christopher N. Felfe	By:	/s/ Christopher N. Felfe
		Name: Christopher N. Felfe Title: Secretary/CFO		Name: Christopher N. Felfe Title: Secretary/CFO
	DATUM-AUSTIN HOLDINGS II, LLC, a California limited liability company
	By:	/s/ Robert J. Krist
		Name: Robert J. Krist Title: President
	By:	/s/ Michael J. Patrick
		Name: Michael J. Patrick Title: Secretary/CFO

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EX-99.1

Exhibit 99.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I Thomas Walter Steipp, Chief Executive Officer of Symmetricom, Inc. (the “Company”), pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify to my knowledge that:

i. the Quarterly Report on Form 10-Q of the Company for the quarterly period ended December 31, 2002 (the “Report”) fully complies with the requirements of Section 13 (a) or Section 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended; and

ii. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE:	February 12, 2003	By:	/S/ Thomas W. Steipp
			Thomas W. Steipp Chief Executive Officer

EX-99.2

Exhibit 99.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I William Slater, Chief Financial Officer of Symmetricom, Inc. (the “Company”), pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify to my knowledge that:

i. the Quarterly Report on Form 10-Q of the Company for the quarterly period ended December 31, 2002 (the “Report”) fully complies with the requirements of Section 13 (a) or Section 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended; and

ii. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE:	February 12, 2003	By:	/S/ William Slater
			William Slater Chief Financial Officer