-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RaVaxyWsKz8QaX0oCbhApBYPKuJ1tJUhgVW4Hz6BrVpNSt2pJcDaeGRn2BE1ON1f XEAmKtTYpp5t9lWL4XSXMA== 0001012870-97-001849.txt : 19970925 0001012870-97-001849.hdr.sgml : 19970925 ACCESSION NUMBER: 0001012870-97-001849 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970924 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMMETRICOM INC CENTRAL INDEX KEY: 0000082628 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 951906306 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-02287 FILM NUMBER: 97684852 BUSINESS ADDRESS: STREET 1: 85 W TASMAN DR CITY: SAN JOSE STATE: CA ZIP: 95134-1703 BUSINESS PHONE: 4089439403 MAIL ADDRESS: STREET 1: 85 WEST TASMAN DRIVE CITY: SAN JOSE STATE: CA ZIP: 95134-1703 FORMER COMPANY: FORMER CONFORMED NAME: SILICON GENERAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: REDCOR CORP DATE OF NAME CHANGE: 19820720 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-2287 ---------------- SYMMETRICOM, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA NO. 95-1906306 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION 2300 ORCHARD PARKWAY, NO.) SAN JOSE, CALIFORNIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 95131-1017 (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 943-9403 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR VALUE (TITLE OF CLASS) ---------------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K ((S)29.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant at September 10, 1997 was approximately $266,320,762. The number of shares outstanding of the registrant's Common Stock at September 10, 1997 was 15,899,747. DOCUMENTS INCORPORATED BY REFERENCE Portions of the SymmetriCom, Inc. Proxy Statement for the 1997 Annual Meeting of Shareholders filed with the Commission on or about September 24, 1997 are incorporated by reference into Part III of this Annual Report on Form 10-K. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS SymmetriCom, Inc. (the "Company") was incorporated in California in 1956. The Company conducts its business through two separate operations, each of which operates in a different industry segment. Telecom Solutions, a division of the Company, designs, manufactures and markets advanced network synchronization systems and intelligent access systems for the telecommunications industry. Linfinity Microelectronics Inc. (Linfinity), a subsidiary of the Company, designs, manufactures and markets linear and mixed signal integrated circuits, and modules for use in desktop power system, portable power system and data communications applications in commercial, industrial, and defense and space markets. TELECOM SOLUTIONS Telecom Solutions offers a broad range of time reference, or synchronization, systems and intelligent access, or transmission, systems for the worldwide telecommunications industry. Synchronization Reliable synchronization is fundamental to telecommunications services, as it ensures error free transmission of data. Synchronization allows digital switching and transmission systems to minimize signal degradation and operate at a common, or synchronized, clock rate. High quality synchronization is an essential requirement for telecommunications service providers as they move to high capacity, high speed digital transmission technologies such as the Synchronous Optical Network (SONET) and the Synchronous Digital Hierarchy (SDH) network. Synchronization degradation can cause digital signal impairments such as jitter, wander and phase transients, resulting in loss of data, decreased network efficiency and increased costs for the network operator. The Company's core synchronization products consist principally of quartz and rubidium based Digital Clock Distributors (DCDs), which provide highly accurate and uninterruptible timing that meet the synchronization requirements of digital networks. Telecom Solutions has established itself as a leader in telephone network synchronization and has introduced a series of DCDs and related products. These products provide the critical timing which enables telecommunications service providers to synchronize precisely such diverse telephone network elements as digital switches, digital cross-connect systems and multiplexers for customers who are dependent upon high quality data transmission. Telecom Solutions has two key product platforms that are fundamental to the DCD product family, the DCD 500 Series and the DCD Local Primary Reference (LPR) Series. The DCD 500 Series is a third generation synchronization and timing distribution platform that provides the accurate clock references needed throughout a network to ensure reliable synchronization. The DCD filters the input timing signal to virtually eliminate digital signal impairments. If the input timing reference is lost or out of tolerance, the clock provides highly stable backup timing, or "holdover," to allow the network to operate error-free for several hours or days, depending on the accuracy of the installed clock. The platform can be equipped with additional cards to provide interfaces for a variety of applications, including network management, synchronization performance monitoring, and status and control measurement, which are becoming increasingly important for network maintenance and revenue protection. The Maintenance Interface System (MIS) card provides a communications gateway for both local maintenance personnel and remote network management systems, gathering all system alarm information in real time. The Precision Synchronization Monitor (PSM) card provides synchronization and performance monitoring, detecting early indications of network degradation and related troubles in network elements. In addition, the DCD 500 platform is designed to provide maximum flexibility and meet both domestic and international standards. The DCD-LPR Series provides the capability to effectively use either Global Positioning System (GPS) or Long Range Navigation version C (LORAN-C) to provide direct Stratum 1 traceable synchronization to network sites equipped with DCD systems. The DCD-LPR employs an integrated, roof-mounted GPS antenna and Timing 2 Receiver (GTR) to receive precision Universal Coordinated Time (UTC) timing signals from GPS satellites at virtually any location in the world or from LORAN-C radio stations in a number of locations in the world. The Company's ability to provide network management is essential as Telecommunications Management Network (TMN) standards, established by the International Telecommunications Union (ITU), have gained acceptance among major telecommunications service providers. Telecom Solutions has introduced both TIMESCAN/TMN, a TMN and Q3 compliant full element management system for synchronization networks, and TIMESCAN/NMS, a Windows NT based proprietary network management system. The TIMESCAN/TMN graphical user interface presents status at the network level and at the element level, providing real-time representations of configuration and status of both logical and physical properties of the network. The TIMESCAN/NMS graphical user interface presents network status using hierarchical overviews of both logical and geographical network topologies. Both products feature tools for identifying customer troubles before they affect service. In addition to its DCD products, which are primarily used for wireline network office synchronization, Telecom Solutions offers a product, CellSync(TM), for use in wireless cell site synchronization. CellSync is a compact synchronization device which combines GPS technology with a feature called BESTIME(TM) for use with applications in both conventional mobile phone cellular sites and in Personal Communication Systems (PCS) cellular sites. BESTIME is a Multiple Input Frequency Lock Loop (MIFLL) designed to combine a variety of frequency sources and generate an output with optimal frequency stability. In August 1993, the Company acquired Navstar Limited, a United Kingdom company, and its U.S. affiliate (collectively "Navstar"). Navstar designs, manufactures and markets GPS receivers and systems that use global positioning technology to provide very accurate timing and precise geographic location. A significant percentage of Navstar's GPS receivers is purchased by Telecom Solutions for incorporation in its sychronization products. Telecom Solutions synchronization systems are typically priced from $3,000 to $40,000. Navstar products are typically priced from $300 to $5,000. Transmission Products Telecom Solutions transmission products include Secure7(R), Secure7 Lite and the Integrated Digital Services Terminal (IDST). Secure7 is a multi-bandwidth, intelligent, fault-tolerant, digital transmission terminal that automatically reroutes disrupted high priority telephone data links such as those used in the Signaling System Seven (SS7) network and the 911 emergency network. Secure7 is designed to provide nearly 100% availability for these critical data applications. Secure7 Lite is designed to protect SS7 networks from switch isolations and simplex events and may be used as a standard replacement for channel banks in SS7 applications. Both Secure7 and Secure7 Lite make use of the Company's BestPath(TM) technology to take advantage of the existing SS7 network architecture to automatically route around problem areas and maintain links between network elements. The IDST is a network access system designed for use in telephone company central and end offices which has principally been deployed as a transmission, monitoring and test access vehicle for SS7 networks. The IDST provides maintenance personnel with flexible, centralized remote access to SS7 links for troubleshooting and performance verification, resulting in a comprehensive solution to the monitoring and transport of links requiring increased reliability. The IDST can also be deployed as an intelligent digital terminal, an intelligent network element providing connectivity between the transport network and customer-serving side of the network. The IDST enhances the network with distributed digital cross-connect functionality and provides subrate, multipoint, test and surveillance capabilities to the subscriber loop. Transmission products are typically priced at less than $5,000 for a small system to more than $300,000 for a large system. 3 The Company supplies its synchronization systems and transmission products predominantly to the Regional Bell Operating Companies (RBOCs), interexchange carriers, independent telephone companies, private network operators, wireless service providers and international telecommunications service providers. Navstar predominantly sells its products to Telecom Solutions, the U.S. Government and original equipment manufacturers (OEMs). LINFINITY MICROELECTRONICS INC. In June 1993, substantially all of the assets and liabilities of the Company's Semiconductor Group were transferred to Linfinity, a newly-formed subsidiary of the Company. Linfinity products principally include linear and mixed signal, standard and custom integrated circuits (ICs) as well as modules primarily for use in power management and communication applications in commercial, industrial, and defense and space markets. ICs are generally divided into three categories: digital, linear (also referred to as analog) and mixed signal circuits. Digital circuits, such as memory devices and microprocessors, process and compute information in the form of "on-off" electronic signals represented by binary digits "1" or "0". Linear circuits process, monitor, measure or control continuous analog signals associated with physical functions such as temperature, pressure, sound, weight, light and speed, and play an important role in bridging real world phenomena and a variety of electronic systems. Analog devices are used in virtually all electronic systems, of which the largest markets for such circuits are computers, data communications, telecommunications, industrial equipment, and military, consumer and automotive electronics. For each application, users often have unique requirements for circuits with specific speed, power, resolution and signal amplitude capabilities. Therefore, due to numerous applications, the demand for analog devices designed to manage real world functionality continues to grow and has resulted in a high degree of market fragmentation, which has provided an opportunity for smaller companies to compete against larger suppliers in certain market segments. Mixed signal ICs are circuits that combine both analog and digital signal processing techniques. Linfinity's marketing strategy has been one of shifting to high-volume commercial products from low-volume custom and military programs and focusing on value-added standard "off-the-shelf" products. Linfinity now offers approximately 450 standard catalog products. However, the market for new products sold by Linfinity has been very competitive and characterized by pricing pressures. Linfinity derived the majority of its net sales in fiscal 1997 from desktop power management products, predominantly standard linear ICs which control, regulate, monitor, convert or route voltage and current. These products are used in computer and data storage, lighting, automotive, telecommunications, test, instrumentation, and defense and space equipment. These products include pulse width modulators which shape and manage the characteristics of voltage, low dropout regulators which convert unregulated input voltage to regulated output voltage with a minimum amount of overhead voltage, linear voltage regulators which control the power supply output levels, supervisory circuits which monitor power supply, and power factor correction ICs which reduce energy consumption in fluorescent lighting and other power management product applications. Newer power management products include the portable power management product, backlight inverter modules and switching regulators for desktop power management. The backlight inverters incorporate Linfinity's proprietary technology and are single-stage cold cathode fluorescent lamp inverter modules that provide dimmable backlighting for Liquid Crystal Display (LCD) products. Switching regulators efficiently convert power by managing voltage and current, and are used to power advanced microprocessors. Additionally, communication systems ICs are relatively new and include Small Computer Systems Interface (SCSI) products; high speed, parallel communications buses which permit high data transfer rates between computers and various peripheral devices such as hard disk drives, host adapter cards, motherboards, bus extenders, cables and connectors. Linfinity has developed a range of bipolar wafer fabrication processes in its in-house manufacturing facility which provide a high-voltage and high- power process for certain power management applications. In addition, Linfinity has developed bipolar complementary metal oxide semiconductor (BiCMOS) wafer fabrication processes. The BiCMOS process combines the high- performance, low-voltage bipolar process with a CMOS 4 process for mixed signal applications such as certain power management and communication ICs. However, as Linfinity's BiCMOS in-house wafer fabrication is limited, the Company expects to utilize IMP, Inc., an outside semiconductor fabrication facility, for most of its BiCMOS wafer requirements. Reliance on outside fabrication facilities minimizes fixed costs and capital expenditures but increases certain operational risks, including the lack of an assured wafer supply, limited control over delivery schedules and manufacturing yields. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Outlook and Risk Factors--Dependence on Foundries, Assembly and Test Services." Linfinity products are generally priced from $0.20 to $5.00 for commercial and industrial applications, $2.50 to $22.00 for defense applications and $200 to $500 for high reliability defense and space applications. Linfinity sells its products in the commercial, industrial, and defense and space markets to OEMs and distributors. INDUSTRY SEGMENT INFORMATION Information as to net sales, operating income and identifiable assets attributable to each of the Company's two industry segments for each year in the three-year period ended June 30, 1997, is contained in Note J of the Notes to Consolidated Financial Statements. See Part II, Item 8. "Financial Statements and Supplementary Data." MARKETING In the United States, Telecom Solutions markets and sells most of its products through its own sales force to the RBOCs, major interexchange carriers, independent telephone companies, private network operators and wireless service providers. Internationally, Telecom Solutions markets and sells its products through its own sales force in the United Kingdom and independent sales representatives and distributors elsewhere. In the United States and internationally, Linfinity sells its products through its own sales force and independent sales representatives to OEMs and distributors. LICENSING AND PATENTS The Company incorporates a combination of trademark, copyright and patent registration, contractual restrictions and internal security to establish and protect its proprietary rights. The Company has United States patents and patent applications pending covering certain technology used by its Telecom Solutions and Linfinity operations. In addition, both operations use technology licensed from others. However, while the Company believes that its patents have value, the Company relies primarily on innovation, technological expertise and marketing competence to maintain its competitive advantage. The telecommunications and semiconductor industries are both characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. The Company intends to continue its efforts to obtain patents, whenever possible, but there can be no assurance that patents will be issued or that any existing patents or patents that are obtained will not be challenged, invalidated or circumvented or that the rights granted will provide any commercial benefit to the Company. Additionally, if any of the Company's processes or designs are identified as infringing upon patents held by others, there can be no assurances that a license will be available or that the terms of obtaining any such license will be acceptable to the Company. MANUFACTURING The Telecom Solutions manufacturing process consists primarily of in-house electrical assembly and test performed by the Company's subsidiary in Aguada, Puerto Rico. Additionally, the Company's subsidiary, Navstar, in England performs in-house electrical assembly and test of its GPS receivers and products. 5 The Linfinity's manufacturing process consists primarily of bipolar wafer fabrication, component assembly and final test. Its bipolar ICs are principally fabricated in the Company's wafer fabrication facility in Garden Grove, California. Linfinity also utilizes outside services to perform certain operations during the fabrication process. In addition, Linfinity expects to utilize IMP, Inc., an outside semiconductor fabrication facility, for most of its BiCMOS wafer requirements. Component assembly and final test are performed in Southeast Asia by independent subcontract manufacturers or in Garden Grove by employees. Reliance on independent assembly and test subcontractors can lengthen manufacturing cycle times, especially if the Company is required to compete against other manufacturers for these contractors' services. The manufacturing of Linfinity's ICs is a highly precise and complex process. Minute impurities, contaminants, errors or difficulties in the manufacturing process, defects in the masks used to print circuits on a wafer, or equipment failure among other factors can cause a substantial number of wafers to be rejected or numerous die on each wafer to be nonfunctional. There can be no assurance that current manufacturing yields can be maintained or better yields will be achieved in the future. The Company primarily uses standard parts and components as well as standard subcontract assembly and test, which are generally available from multiple sources. The Company, to date, has not experienced any significant delays in obtaining needed standard parts, single source components or services from its suppliers but there can be no assurance that such problems will not develop in the future. However, the Company maintains a reserve of certain ICs, certain single source components and seeks alternative suppliers where possible. The Company believes that a lack of availability of ICs or single source components would have an adverse effect on the Company's operating results. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Outlook and Risk Factors-- Dependence on Foundries, Assembly and Testing Services." BACKLOG The Company's backlog was approximately $26.2 million at June 30, 1997 compared to approximately $26.6 million at June 30, 1996. Backlog consists of customer orders which are expected to be shipped within the next twelve months. The Company does not believe that current or future backlog levels are meaningful indicators of future net sales. Most orders included in backlog can be rescheduled or canceled by customers without significant penalty. Telecom Solutions' backlog was approximately $7.3 million and $9.8 million at June 30, 1997 and 1996, respectively. Historically, a substantial portion of Telecom Solutions' net sales in any fiscal period has been derived from orders received during that period. Linfinity's backlog was approximately $18.9 million and $16.8 million at June 30, 1997 and 1996, respectively. Linfinity's backlog may be affected by the cancelation or delay of customer orders, the overall condition of the semiconductor industry and the cyclical nature of customer demand in each of its markets. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Business Outlook and Risk Factors." KEY CUSTOMERS AND EXPORT SALES In fiscal 1997, one of Telecom Solutions' customers, AT&T Corporation, accounted for 16% of the Company's net sales. In fiscal 1995, SBC Communications Inc., another Telecom Solutions' customer accounted for 11% of the Company's net sales. No other single customer accounted for 10% or more of net sales in fiscal years 1997, 1996 or 1995. The Company's export sales, which were primarily to the Far East, Canada and Western Europe, accounted for 26%, 28% and 24% of the Company's net sales in fiscal years 1997, 1996 and 1995, respectively. Export sales to the Far East accounted for 16%, 13% and 11% of net sales in fiscal years 1997, 1996 and 1995, respectively. International sales may be subject to certain risks, including but not limited to, foreign currency fluctuations, export restrictions, longer payment cycles and unexpected changes in regulatory requirements or tariffs. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Outlook and Risk Factors--Risks Associated with International Sales." Gains and losses on the conversion to 6 U.S. dollars of foreign currency accounts receivable and accounts payable arising from international operations may in the future contribute to fluctuations in the Company's business and operating results. Sales and purchase obligations denominated in foreign currencies have not been significant. Accordingly, the Company does not currently engage in foreign currency hedging activities or derivative arrangements but may do so in the future to the extent that such obligations become more significant. Additionally, currency fluctuations could have an adverse effect on the demand for the Company's products in foreign markets. COMPETITION The telecommunications and semiconductor industries and the markets which they serve are highly competitive. Many of the Company's competitors or potential competitors are more established than the Company and have greater financial, manufacturing, technical and marketing resources. In the telecommunications market, Telecom Solutions' primary competitors are Datum Inc. and Hewlett-Packard Company. In addition, the enactment of The Telecommunications Act of 1996, which permits RBOCs, under certain conditions, to manufacture telecommunications equipment may result in competition from these customers of the Company. In the semiconductor market, Linfinity competes with a number of large multinational companies and smaller niche companies. Telecom Solutions competes primarily on product reliability and performance, product features, adherence to standards, customer service and price. Linfinity competes primarily on price, product reliability and performance, delivery time, and customer service. The Company believes that both Telecom Solutions and Linfinity generally compete favorably with respect to their respective competitive factors. There can be no assurance that either Telecom Solutions or Linfinity will be able to compete successfully in the future. The Company's ability to compete successfully is dependent upon its response to the entry of new competitors, changing technology and customer requirements, development or acquisition of new products, the timing of new product introductions by the Company or its competitors, continued improvement of existing products, cost effectiveness, quality, price, service and market acceptance of the Company's products. RESEARCH AND DEVELOPMENT The Company has actively pursued the application of new technology in the industries in which it competes and has its own staff of engineers and technicians who are responsible for the design and development of new products. In fiscal years 1997, 1996 and 1995, the Company's overall research and development expenditures were $18,457,000, $15,413,000, and $13,407,000, respectively. All research and development expenditures were expensed as incurred. At June 30, 1997, 89 engineering and engineering support employees were engaged in development activities. Telecom Solutions focused its development efforts in fiscal year 1997 on wireless communications, network management functionality and monitoring products, as well as enhancement of core synchronization and transmission products. Telecom Solutions' research and development expenditures were $12,866,000, $9,581,000 and $8,457,000 in fiscal years 1997, 1996 and 1995, respectively. Linfinity focused its development efforts in fiscal year 1997 on new product development, enhancement of existing products, improvement of its wafer fabrication process technologies and improvement of its design capabilities. New or enhanced products, which are now in production include backlight inverters, switching regulators and SCSI terminators. Further enhancement of these products and additional new products are in the development stage. Linfinity's research and development expenditures were $5,591,000, $5,832,000 and $4,950,000 in fiscal years 1997, 1996 and 1995, respectively. The Company will continue to make significant investments in product development, although there can be no assurance that the Company will be able to successfully develop new products or enhance existing products or that such new or enhanced products will achieve market acceptance. GOVERNMENT REGULATION The telecommunications industry is subject to government regulatory policies regarding pricing, taxation and tariffs which may adversely impact the demand for the Company's telecommunications products. These 7 policies are continuously reviewed and subject to change by the various governmental agencies. The Company is also subject to government regulations which set installation and equipment standards for newly installed hardware. ENVIRONMENTAL REGULATION The Company's operations are subject to numerous federal, state and local environmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing process. Failure to comply with such regulations could result in suspension or cessation of the Company's operations, or could subject the Company to significant future liabilities. EMPLOYEES At June 30, 1997, the Company had 708 employees, including 415 in manufacturing, 112 in engineering and 181 in sales, marketing and administration. At June 30, 1997, Telecom Solutions had 435 employees and Linfinity had 273 employees. The Company believes that its future success is highly dependent on its ability to attract and retain highly qualified management, sales, marketing and technical personnel. Accordingly, the Company maintains employee incentive and stock plans for certain of its employees. Additionally, Linfinity maintains a separate employee stock option plan for certain Linfinity employees. No Company employees are represented by a labor union, and the Company has experienced no work stoppages. The Company believes that its employee relations are good. ITEM 2. PROPERTIES The following are the principal facilities of the Company as of June 30, 1997:
APPROXIMATE OWNED/LEASE FLOOR AREA EXPIRATION LOCATION PRINCIPAL OPERATIONS (SQ. FT.) DATE -------- -------------------- ----------- -------------- San Jose, California..... Corporate Offices and 47,000 July 1997 Telecom Solutions administration, sales, engineering and manufacturing San Jose, California..... Corporate Offices and 118,000 April 2009 Telecom Solutions administration, sales, engineering and manufacturing Aguada, Puerto Rico...... Telecom Solutions 45,000 September 1999 manufacturing Aguada, Puerto Rico...... Telecom Solutions 22,000 September 2000 manufacturing Northampton, England..... Navstar administration, 18,000 April 1999 sales, engineering and manufacturing Garden Grove, California. Linfinity 96,000 Owned administration, sales, engineering and manufacturing Garden Grove, California. Linfinity wafer 9,000 Owned fabrication
During fiscal 1997, the Company leased a newly constructed 118,000 square foot facility in San Jose, California to replace its existing San Jose facility, for which the lease expired in July 1997. The Company has sublet approximately 35,000 square feet of this facility through November 2000. The 96,000 square foot facility located in Garden Grove, California is subject to an encumbrance as described in Note C of the Notes to Consolidated Financial Statements. See Part II, Item 8. "Financial Statements and Supplementary Data." The Company believes that its current facilities are well maintained and generally adequate to meet short-term requirements. 8 ITEM 3. LEGAL PROCEEDINGS In January 1994, a securities class action complaint was filed against the Company and three of its officers in the United States District Court, Northern District of California. The action was filed on behalf of a putative class of purchasers of the Company's stock during the period April 6, 1993 through November 10, 1993. The complaint seeks unspecified money damages and alleges that the Company and certain of its officers violated federal securities laws in connection with various public statements made during the putative class period. The Court dismissed this complaint and the second amended complaints with leave to amend. The plaintiff filed a third amended corrected complaint in August 1997. After consultation with counsel, the Company and its officers believe that the complaint is entirely without merit, and intend to file a motion to dismiss the third amended corrected complaint and continue to defend the action vigorously. The Company is also a party to certain other claims in the normal course of its operations. While the results of such claims cannot be predicted with certainty, management, after consultation with counsel, believes that the final outcome of such matters will not have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the last quarter of the fiscal year ended June 30, 1997. EXECUTIVE OFFICERS OF THE COMPANY Following is a list of the executive officers of the Company as of June 30, 1997 and brief summaries of their business experience. All officers, including executive officers, are elected annually by the Board of Directors at its meeting following the annual meeting of shareholders. The Company is not aware of any officer who was elected to the office pursuant to any arrangement or understanding with another person.
NAME AGE POSITION ---- --- -------- William D. Rasdal......... 64 Chairman of the Board and Chief Executive Officer and President and Chief Operating Officer, Telecom Solutions J. Scott Kamsler.......... 49 Senior Vice President, Finance, Chief Financial Officer and Secretary Dale A. Pelletier......... 46 Senior Vice President, Operations, Telecom Solutions James J. Peterson......... 42 President and Chief Operating Officer, Linfinity Microelectronics Inc.
Mr. Rasdal has served as Chairman of the Board of the Company since July 1989 and as Chief Executive Officer since joining the Company in November 1985. In addition, Mr. Rasdal has served as President and Chief Operating Officer of Telecom Solutions, a division of the Company, since January 1997. From November 1985 until July 1989, Mr. Rasdal was President and a Director of the Company. Mr. Rasdal has also served as a Director of both Celeritek, Inc. since April 1985 and Advanced Fibre Communications, Inc. since February 1993. From March 1980 until March 1985, Mr. Rasdal was associated with Granger Associates, a manufacturer of telecommunications products. His last position with Granger Associates was President and Chief Operating Officer. From November 1972 to January 1980, Mr. Rasdal was employed by Avantek as Vice President and Division Manager for Avantek's microwave integrated circuit and semiconductor operations. For the thirteen years prior to joining Avantek, he was associated with TRW in various management positions. Mr. Kamsler has served as Chief Financial Officer and Secretary of the Company since joining the Company in October 1989. In addition, Mr. Kamsler has served as Senior Vice President, Finance since April 1997 and served as Vice President, Finance from October 1989 to April 1997. Mr. Kamsler has also served as a Director of DSP Technology Inc., a manufacturer of computer automated measurement and control instrumentation, since November 1988. Prior to October 1989, Mr. Kamsler served as Vice President, Finance and Chief Financial Officer of Solitec, Inc. (January 1984 to September 1989), a manufacturer of semiconductor production 9 equipment, DSP Technology Inc. (April 1984 to September 1989), a former affiliate of Solitec, and E-H International, Inc. (March 1982 to January 1984), a manufacturer of automatic test equipment, disk and tape drive controllers, and printed circuit boards. From November 1977 until January 1982, Mr. Kamsler held various finance positions with Intel Corporation. Mr. Pelletier has served as Senior Vice President, Operations, of Telecom Solutions, a division of the Company, since April 1997 and as Vice President, Operations, of Telecom Solutions from November 1993 to April 1997. From July 1993 until November 1993, Mr. Pelletier served as Vice President and General Manager, Telecom Solutions. From July 1992 until July 1993, Mr. Pelletier served as General Manager, Synchronization Division, Telecom Solutions. From August 1990 until July 1992, he served as Synchronization Division Manager, Telecom Solutions. From August 1989 until August 1990, Mr. Pelletier served as Operations Manager, Telecom and Analog Solutions Divisions. From August 1986, when Mr. Pelletier joined the Company, until August 1989, he held the position of Manufacturing Manager, Telecom Solutions. Previously, Mr. Pelletier served in various finance and manufacturing positions for nine years with several manufacturing companies. Mr. Peterson has served as President and Chief Operating Officer for Linfinity Microelectronics Inc., a subsidiary of the Company, since February 1997. From August 1996 to February 1997, Mr. Peterson served as Vice President, Sales at Linfinity. Prior to joining the Company, from 1983 until August 1996, Mr. Peterson held various positions with Silicon Systems, Inc., a microelectronics company. From March 1992 to August 1996, Mr. Peterson served as Senior Vice President, Worldwide Sales & Corporate Communications. From June 1990 to March 1992, Mr. Peterson was the Vice President, International Sales. From January 1987 to June 1990, Mr. Peterson was the Director, Far East Sales. From January 1983 to January 1987, Mr. Peterson was the Product Marketing Manager, Telecommunications. Previously, Mr. Peterson was the Product Marketing Engineer and Industry Marketing Specialist with Rockwell Corporation and General Instruments Microelectronics Division, respectively. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information is described in Note K of the Notes to Consolidated Financial Statements. See Part II, Item 8. "Financial Statements and Supplementary Data." ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included in Part II, Item 8. "Financial Statements and Supplementary Data," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7.
YEAR ENDED JUNE 30, ------------------------------------------ 1997 1996 1995 1994 1993 -------- -------- -------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Operating Results: Net sales: Telecom Solutions $ 89,718 $ 68,243 $ 62,814 $59,215 $57,031 Linfinity Microelectronics Inc. 54,637 37,795 40,294 39,170 30,882 -------- -------- -------- ------- ------- Total 144,355 106,038 103,108 98,385 87,913 Operating income 15,998 8,263 10,868 8,331 7,940 Earnings before income taxes 17,337 9,476 11,599 8,125 7,724 Net earnings 13,454 7,478 10,346 6,551 6,001 Net earnings per common and common equivalent share .83 .47 .66 .43 .40 Balance Sheet: Cash and investments 41,587 34,270 33,205 21,250 18,232 Working capital 58,325 55,522 50,739 38,503 29,348 Total assets 129,305 93,531 85,326 69,054 58,954 Long-term obligations 8,583 5,709 5,766 5,818 5,865 Shareholders' equity 87,603 70,403 60,125 46,786 38,102
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto. BUSINESS OUTLOOK AND RISK FACTORS Certain trend analysis and other information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations consists of "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor provisions of those Sections. The Company's actual results could differ materially from those discussed in the forward looking statements due to a number of factors including the factors listed below. Fluctuations in Operating Results. The Company's quarterly and annual operating results have fluctuated in the past and may continue to fluctuate in the future due to several factors, including, without limitation, the volume and timing of orders from customers and shipments to customers, the cancelation or rescheduling of customer orders, changes in the product or customer mix of sales, the gain or loss of significant customers, the Company's ability to introduce new products on a timely and cost-effective basis, the timing of new product 11 introductions by the Company and its competitors, customer delays in qualification of new products, increased competition and competitive pricing pressures, market acceptance of new or enhanced versions of the Company's and its competitors' products, the long sales cycles associated with the Company's products, cyclical conditions in the telecommunications and semiconductor industries, fluctuations in manufacturing yields and other factors. The Company's expense levels are based in part on its expectations regarding future net sales and in the short term are to a large extent fixed. If the Company is unable to adjust spending in a timely manner to compensate for any unexpected future sales shortfall, the Company's business, financial condition and results of operations could be materially and adversely affected. The Company's operations entail a high level of fixed costs and require an adequate volume of production and sales to maintain reasonable gross profit margins. Accordingly, any significant decline in demand for the Company's products or reduction in the Company's average selling prices, or any material delay in customer orders would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company's future results depend in large part on growth in the markets for the Company's products. The growth in each of these markets may depend on, among other things, changes in general economic conditions, or conditions which relate specifically to the markets in which the Company competes, changes in regulatory conditions, legislation, export rules or conditions, interest rates and fluctuations in the business cycle for any particular market segment. Uncertainty of Timing of Product Sales. A substantial portion of the Company's quarterly net sales is often dependent upon shipment of orders received during that quarter, of which, a significant portion may be received during the last month or even the last few days of that quarter. Furthermore, most orders in backlog can be rescheduled or canceled without significant penalty. As a result, the timing of the receipt and shipment of an order, and the magnitude of such order, may have a significant impact on the Company's net sales and results of operations for a particular quarter. In addition, the uncertainty in the timing and the receipt of orders, delays in product shipment and unanticipated rescheduling or cancelation of orders may cause quarterly operating results to vary significantly from the Company's expectations. Customer Concentration. A relatively small number of customers has historically accounted for, and is expected to continue to account for, a significant portion of the Company's net sales. In fiscal 1997, AT&T Corporation (AT&T), a Telecom Solutions' customer, accounted for 16% of the Company's net sales. In fiscal 1995, SBC Communications Inc., another Telecom Solutions' customer, accounted for 11% of the Company's net sales. No other single customer accounted for 10% or more of net sales in fiscal years 1997, 1996 or 1995. The loss of one or more of the Company's significant customers, or a significant reduction in sales to any such customer, could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will continue to receive large orders from significant customers. Also, in the past, some of the Company's large customers have significantly reduced or delayed product purchases. The Company's sales to its largest customers have fluctuated in the past and the Company believes such large customer sales will continue to fluctuate significantly from quarter-to-quarter and year-to-year in the future. For example, the Company's sales to AT&T increased to $22.5 million in fiscal 1997 from $2.6 million in fiscal 1996 and are expected to decrease significantly in fiscal 1998. New Product Development. The market for the Company's products is characterized by rapidly changing technologies, frequent new product introductions, evolving industry standards and changes in end-user requirements. Technological advancements could render the Company's products obsolete and unmarketable. The Company's success will depend on its ability to respond to changing technologies and customer requirements and on its ability to develop and introduce, in a cost-effective and timely basis, new and enhanced products. Delays in new product development or delays in production startup could have a material adverse effect on the Company's business, financial condition and results of operations. Such delays have happened in the past, and there can be no assurance that such delays will not recur or that the Company will successfully respond to technological changes and develop and introduce new or enhanced products, or that such new or enhanced products will achieve market acceptance. Product Performance and Reliability. The Company's customers establish demanding specifications for product performance and reliability. The Company's products are complex and use state of the art components, 12 processes and techniques. There can be no assurance that new products or enhancements of existing products will not contain undetected errors, design flaws or other failures due to the complexities of such products. Undetected errors and design flaws have occurred in the past. Any such unforeseen problems could have a material adverse effect on the Company's business, operating results and financial condition. Competition. The telecommunications and semiconductor industries and the markets which they serve are highly competitive. Many of the Company's competitors or potential competitors are more established than the Company and have greater financial, manufacturing, technical and marketing resources. In the telecommunications market, Telecom Solutions' primary competitors are Datum Inc. and Hewlett-Packard Company. In addition, the enactment of The Telecommunications Act of 1996, which permits RBOCs, under certain conditions, to manufacture telecommunications equipment may result in competition from these customers of the Company. In the semiconductor market, Linfinity competes with a number of large multinational companies and smaller niche companies. The Company's ability to compete successfully is dependent on its response to the entry of new competitors or the introduction of new products by the Company's competitors, changing technology and customer requirements, timely development or acquisition of new or enhanced products, the timing of new product introductions by the Company or its competitors, continued improvement of existing products, cost effectiveness, quality, price, service and market acceptance of the Company's products. Operating results may fluctuate as a result of unforeseen actions by competitors, the entry of new competitors and the introduction of new or enhanced competing products. Competition for many of the Company's products continues to increase in existing markets and in the new markets in which the Company has entered. Furthermore, the Company has experienced, and expects to continue to experience, significant pricing pressures in these markets. Dependence on Foundries, Assembly and Test Services. The Company is utilizing IMP, Inc., an independent semiconductor foundry located in San Jose, California, to supply most of its BiCMOS wafer requirements. The Company uses its own semiconductor fabrication facility to manufacture bipolar wafers. Reliance on outside foundries minimizes fixed costs and capital expenditures but increases certain operational risks, including the lack of an assured wafer supply and limited control over delivery schedules and manufacturing yields. Delayed wafer supply or reduced manufacturing yields may materially and adversely affect the Company's business, financial condition and operating results. In addition, any sudden demand for an increased amount of wafers or sudden reduction or elimination of wafers from the Company's outside foundry, whether as a result of financial or operational difficulties at such foundry or otherwise, could result in a material delay in the shipment of the Company's products and have a material adverse effect on the Company's business, financial condition and results of operations. Linfinity also relies on independent contract manufacturers in Southeast Asia to assemble and test a significant percentage of its integrated circuits and most of its electronic modules. Reliance on independent contractors can lengthen manufacturing cycle times, especially if the Company is required, due to capacity constraints, to compete against others for these contractors' services. Any inability to obtain sufficient manufacturing capacity through existing or alternative sources at favorable prices, if and as required, could result in delays or reductions in product shipments which, in turn, could have a material adverse effect on the Company's customer relationships and operating results. Proprietary Technology. The Company's success will depend, in part, on its ability to protect trade secrets, obtain or license patents and operate without infringing on the rights of others. The Company relies on a combination of trademark, copyright and patent registration, contractual restrictions and internal security to establish and protect its proprietary rights. There can be no assurance that such measures will provide meaningful protection for the Company's trade secrets or other proprietary information. The Company has United States patents and patent applications pending covering certain technology used by its Telecom Solutions and Linfinity operations. However, while the Company believes that its patents have value, the Company relies primarily on innovation, technological expertise and marketing competence to maintain its competitive advantage. The telecommunications and semiconductor industries are both characterized by the existence of a large number of 13 patents and frequent litigation based on allegations of patent infringement. The Company intends to continue its efforts to obtain patents, whenever possible, but there can be no assurance that patents will be issued or that any existing patents or patents that are obtained will not be challenged, invalidated or circumvented or that the rights granted will provide any commercial benefit to the Company. The Company is also subject to the risk of adverse claims and litigation alleging infringement of the intellectual property rights of others. From time to time the Company has received claims from other parties asserting that their proprietary rights had been infringed, although the Company is not a party to any intellectual property litigation. There can be no assurance that third parties will not assert infringement claims against the Company in the future or that any such claims will not result in costly litigation or require the Company 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. Environmental Matters. The Company's operations are subject to numerous federal, state and local environmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing process. While the Company has not experienced any materially adverse effects on its operations from environmental regulations, there can be no assurance that changes in such regulations will not impose the need for additional capital equipment or other requirements or restrict the Company's ability to expand its operations. Failure to comply with such regulations could result in suspension or cessation of the Company's operations, or could subject the Company to significant future liabilities. Governmental Regulations. Federal and state regulatory agencies, including the Federal Communications Commission and the various state public utility commissions and public service commissions, regulate most of the Company's domestic telecommunications customers. Although the Company is generally not directly affected by such legislation, the effects of such regulation on the Company's customers may, in turn, adversely impact the Company's business and operating results. For instance, the sale of the Company's products may be affected by the imposition upon certain of the Company's customers of common carrier tariffs and the taxation of telecommunications services. These regulations are continuously reviewed and subject to change by the various governmental agencies. In addition, the recent enactment of The Telecommunications Act of 1996 allows RBOCs, which are among the Company's largest customers, to manufacture telecommunications equipment. RBOCs may, therefore, increasingly become competitors of the Company in the markets it serves. Changes in current or future laws or regulations, in the United States or elsewhere, could materially and adversely affect the Company's business. Risks Associated with International Sales. The Company's export sales, which were primarily to the Far East, Canada and Western Europe, accounted for 26%, 28% and 24% of the Company's net sales in fiscal years 1997, 1996 and 1995, respectively. Export sales to the Far East accounted for 16%, 13%, and 11% of net sales in fiscal years 1997, 1996 and 1995, respectively. International sales may be subject to certain risks, including but not limited to, foreign currency fluctuations, export restrictions, longer payment cycles and unexpected changes in regulatory requirements or tariffs. To date, sales and purchase obligations denominated in foreign currencies have not been significant. However, if in the future, a higher portion of such sales and purchases are denominated in foreign currencies, gains and losses on the conversion to U.S. dollars of foreign currency accounts receivable and accounts payable arising from international operations may contribute to fluctuations in the Company's business and operating results. Accordingly, the Company does not currently engage in foreign currency hedging activities or derivative arrangements but may do so in the future to the extent that such obligations become more significant. Additionally, currency fluctuations could have an adverse effect on the demand for the Company's products in foreign markets. Higher international sales also subject the Company to increased risks associated with political and economic instability and changes in diplomatic and trade relationships. There can be no assurance that such factors will not materially and adversely affect the Company's operations in the future or require the Company to modify significantly its current business practices. In addition, the laws of certain foreign countries may not protect the Company's proprietary technology to the same extent as do the laws of the United States. 14 Changes to Effective Tax Rate. The Company's effective tax rate is affected by the percentage of qualified Puerto Rico earnings compared to total earnings as most of the Company's Puerto Rico earnings are taxed under Section 936 of the U.S. Internal Revenue Code which exempts qualified Puerto Rico earnings from federal income taxes. This exemption expires at the end of fiscal 2006. In addition, the benefit of the exemption is subject to certain wage-based limitations. This benefit will be further limited based on certain prior year Puerto Rico earnings during fiscal years 2003 through 2006. The Company expects the fiscal 1998 effective tax rate to increase due to the anticipated increase in the percentage of total earnings that is expected to be earned in the U.S. compared to fiscal 1997. Fluctuations in Stock Price. The Company's stock price has been and may continue to be subject to significant volatility. Many factors, including any shortfall in sales or earnings from levels expected by securities analysts and investors could have an immediate and significant adverse effect on the trading price of the Company's common stock. RESULTS OF OPERATIONS The Company operates in two different industry segments. Telecom Solutions, a division of the Company, designs, manufactures and markets advanced network synchronization systems and intelligent access systems for the telecommunications industry. Linfinity Microelectronics Inc., a subsidiary of the Company, designs, manufactures and markets linear and mixed signal integrated circuits, and modules for use in desktop power system, portable power system and data communications applications. Net Sales Net sales increased by $38.3 million (36%) to $144.4 million in fiscal 1997 and by $2.9 million (3%) to $106.0 million in fiscal 1996. The increase in fiscal 1997 sales was due to higher sales in both operations. The increase in fiscal 1996 sales was due to higher Telecom Solutions sales offset by lower Linfinity sales. Telecom Solutions' net sales increased by $21.5 million (31%) to $89.7 million in fiscal 1997 and by $5.4 million (9%) to $68.2 million in fiscal 1996. The increase in fiscal 1997 was principally due to higher sales to AT&T Corporation (AT&T) which increased to $22.5 million in fiscal 1997 from $2.6 million in fiscal 1996. The Company expects sales to AT&T to decrease significantly in fiscal 1998. The increase in fiscal 1996 resulted primarily from sales of new synchronization products and transmission products which offset the sales decline in mature synchronization products. Linfinity's net sales increased by $16.8 million (45%) to $54.6 million in fiscal 1997 and decreased by $2.5 million (6%) to $37.8 million in fiscal 1996. The increase in fiscal 1997 was primarily due to higher unit volume of new standard commercial products and a shift in sales to higher priced products. The decrease in fiscal 1996 was essentially due to lower unit volume resulting from the general slowdown in the demand for integrated circuits used in personal computers in the last half of fiscal 1996. Gross Profit Margin The Company's gross profit margins were 46%, 44%, and 46% in fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, the higher gross profit margin was principally attributable to higher unit volume and increased manufacturing efficiencies at Telecom Solutions. In fiscal 1996, the lower gross profit margin was primarily due to reduced manufacturing efficiencies at both operations, a shift to lower margin products at Telecom Solutions and a decline in unit volume at Linfinity. Future gross profit margins will largely depend on product mix, manufacturing efficiencies and selling prices. Operating Expenses Research and development expense increased to $18.5 million (or 13% of net sales) in fiscal 1997 from $15.4 million (or 15% of net sales) and $13.4 million (or 13% of net sales) in fiscal 1996 and 1995, respectively. The increase in fiscal 1997 was primarily due to higher expenditures for the development of new wireless synchronization products at Telecom Solutions. The increase in fiscal 1996 resulted principally from a higher 15 level of investment in new product development by both operations, which more than offset lower earnings-based incentive compensation in both operations. During fiscal 1997, Telecoms' new product development program was focused on wireline and wireless synchronization, network management software and transmission products. During fiscal 1997, Linfinity's new product development program was focused on SCSI terminators, switching regulators, blacklight inverters and low dropout regulators. Selling, general and administrative expense increased by 40% to $31.5 million (or 22% of net sales) in fiscal 1997 from $22.5 million (or 21% of net sales) in fiscal 1996, and decreased by 1% in fiscal 1996 from $22.8 million (or 22% of net sales) in fiscal 1995. The increase in fiscal 1997 was primarily due to higher marketing and sales expenses associated with increased sales, expanded sales support and product promotion, and higher-earnings based incentive compensation. The decrease in fiscal 1996 was essentially attributable to lower earnings-based incentive compensation at both operations, partially offset by increased Telecom Solutions' marketing expenditures to support new wireless synchronization products and continued expansion in international markets. Operating Income Operating income increased by 94% to $16.0 million in fiscal 1997 and decreased by 24% to $8.3 million in fiscal 1996. The increase in fiscal 1997 was attributable to higher operating income in both Telecom Solutions and Linfinity. The decrease in fiscal 1996 was primarily due to a reduction in Linfinity's operating income. See Note J of the Notes to Consolidated Financial Statements included in Part II, Item 8. "Financial Statements and Supplementary Data." Interest Income (Expense) Interest income increased by $.1 million to $1.9 million in fiscal 1997 and by $.5 million to $1.8 million in fiscal 1996. The increase in fiscal 1996 was principally due to an increase in invested funds. Interest expense was $.6 million in fiscal 1997, 1996 and 1995. Income Taxes The Company's effective tax rate was 22%, 21% and 11% in fiscal 1997, 1996 and 1995, respectively. The fiscal 1997 effective tax rate was lower than the federal tax rate primarily due to the benefit of lower income tax rates on Puerto Rico earnings. The increase in the effective tax rate in fiscal 1996 compared to fiscal 1995 was principally due to the fiscal 1995 reduction in the valuation allowance for deferred tax assets. The Company's effective tax rate is affected by the percentage of qualified Puerto Rico earnings compared to total earnings as most of the Company's Puerto Rico earnings are taxed under Section 936 of the U.S. Internal Revenue Code which exempts qualified Puerto Rico earnings from federal income taxes. This exemption expires at the end of fiscal 2006. In addition, the benefit of the exemption is subject to certain wage-based limitations. This benefit will be further limited based on certain prior year Puerto Rico earnings during fiscal years 2003 through 2006. The Company expects the fiscal 1998 effective tax rate to increase due to an anticipated increase in the percentage of total earnings that is expected to be earned in the U.S. compared to fiscal 1997. As a result of the factors discussed above, net earnings were $13.5 million, or $.83 per share, in fiscal 1997 compared to net earnings of $7.5 million, or $.47 per share, in fiscal 1996 and net earnings of $10.3 million, or $.66 per share, in fiscal 1995. New Accounting Pronouncements In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," was issued which establishes new standards for computing and presenting earnings per share information. The statement is effective for interim and annual periods ending after December 15, 1997. Accordingly, the Company will adopt SFAS 128 starting with its second quarter ending December 31, 1997. The Company does not anticipate that the earnings per share calculation with the adoption of SFAS 128 would have been materially different for the periods presented. 16 In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income" and Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information," were issued which require the Company to report and display certain information related to comprehensive income and operating segments, respectively. Both statements are effective for fiscal years beginning after December 15, 1997. Accordingly, the Company will adopt SFAS 130 and SFAS 131 starting with its fiscal year ending June 30, 1999. Adoption of these statements will not impact the Company's financial position and results of operations. Liquidity and Capital Resources Working capital increased by $2.8 million to $58.3 million at June 30, 1997 from $55.5 million at June 30, 1996, while the current ratio decreased to 2.9 to 1.0 from 4.8 to 1.0. The decrease in the current ratio resulted primarily from the maturity of a long-term note and an increase in accrued employee incentives. During the same period, cash, cash equivalents and short-term investments increased to $41.6 million from $34.3 million primarily due to $21.3 million in cash provided by operating activities and $1.4 million in proceeds from the net issuance of common stock, offset by $15.1 million used for capital expenditures. At June 30, 1997, the Company had an obligation to repay a $5.7 million note due in November 1997. In addition, the Company entered into a twelve-year lease obligation during fiscal 1997 for a new facility as described in Note D of the Notes to Consolidated Financial Statements. See Part II Item 8. "Financial Statements and Supplementary Data." At June 30, 1997, the Company had $7.0 million of unused credit available under its bank line of credit. The Company believes that cash, cash equivalents, short-term investments, funds generated from operations and funds available under its bank line of credit will be sufficient to satisfy working capital requirements, short-term loan repayment and capital expenditures in fiscal 1998. At June 30, 1997, the Company had no material outstanding commitments to purchase capital equipment. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Disclosure of this item is not required for the current fiscal year. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements follow Part IV, Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors appearing under the caption "Proposal No. One--Election of Directors--Nominees" on pages 2 and 3 of the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders filed with the Commission on September 24, 1997, (the "Proxy Statement") is incorporated herein by reference. Information regarding executive officers is included in Part I hereof under the heading "Executive Officers of the Company" immediately following Item 4 in Part I hereof. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated herein by reference from the section entitled "Other Information--Section 16(a) Beneficial Ownership Reporting Compliance" on page 5 of the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the Proxy Statement under the captions "Proposal No. One--Election of Directors--Nominees" on pages 2 and 3, "Executive Officer Compensation" on pages 6, 7 and 8, "Proposal No. One-- Election of Directors--Director Compensation" on page 4 and "Certain Transactions" on page 8. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the Proxy Statement under the caption "Other Information--Share Ownership by Principal Shareholders and Management" on page 5. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to the Proxy Statement under the caption "Certain Transactions" on page 8. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedule 1. Financial Statements. The following financial statements of the Company and the report of Deloitte & Touche LLP, Independent Auditors, are included in this report on Form 10-K on the pages indicated.
PAGE ---- Consolidated Balance Sheets at June 30, 1997 and 1996.................. 20 Consolidated Statements of Operations for the years ended June 30, 1997, 1996 and 1995................................................... 21 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1997, 1996 and 1995.............................................................. 22 Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995................................................... 23 Notes to Consolidated Financial Statements............................. 24 Independent Auditors' Report........................................... 34
2. Financial Statement Schedule. The following financial statement schedule of the Company for the years ended June 30, 1997, 1996, and 1995 is filed as part of this report on Form 10-K and should be read in conjunction with the financial statements. Schedule II -- Valuation and Qualifying Accounts and Reserves All other schedules have been omitted because they are not applicable, not required, or the required information is included in the Consolidated Financial Statements or notes thereto. 3. Exhibits: See Item 14(c) below. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the fiscal year ended June 30, 1997. (c) Exhibits The exhibits listed on the accompanying index immediately following the signature page are filed as a part of this report. (d) Financial Statement Schedules See Item 14(a) above. 19 SYMMETRICOM, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, ---------------- 1997 1996 -------- ------- ASSETS Current assets: Cash and cash equivalents $ 28,203 $31,327 Short-term investments 13,384 2,943 -------- ------- Cash and investments 41,587 34,270 Accounts receivable, net of allowance for doubtful accounts of $457 and $330 21,349 14,544 lnventories 22,023 17,847 Other current assets 3,830 3,647 -------- ------- Total current assets 88,789 70,308 Property, plant and equipment, net 39,617 21,547 Other assets, net 899 1,676 -------- ------- $129,305 $93,531 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,189 $ 5,544 Accrued liabilities 16,546 9,185 Current maturities of long-term obligations 5,729 57 -------- ------- Total current liabilities 30,464 14,786 Long-term obligations 8,583 5,709 Deferred income taxes 2,655 2,633 Commitments and contingencies Shareholders' equity: Preferred stock, no par value; 500 shares authorized, none issued -- -- Common stock, no par value; 32,000 shares authorized, 15,879 and 15,570 shares issued and outstanding 25,608 21,862 Retained earnings 61,995 48,541 -------- ------- Total shareholders' equity 87,603 70,403 -------- ------- $129,305 $93,531 ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 20 SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30, ---------------------------- 1997 1996 1995 -------- -------- -------- Net sales $144,355 $106,038 $103,108 Cost of sales 78,411 59,824 56,047 -------- -------- -------- Gross profit 65,944 46,214 47,061 Operating expenses: Research and development 18,457 15,413 13,407 Selling, general and administrative 31,489 22,538 22,786 -------- -------- -------- Operating income 15,998 8,263 10,868 Interest income 1,928 1,807 1,341 Interest expense (589) (594) (610) -------- -------- -------- Earnings before income taxes 17,337 9,476 11,599 Income taxes 3,883 1,998 1,253 -------- -------- -------- Net earnings $ 13,454 $ 7,478 $ 10,346 ======== ======== ======== Net earnings per common and common equivalent share $ .83 $ .47 $ .66 ======== ======== ======== Weighted average common and common equivalent shares outstanding 16,275 16,034 15,714 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 21 SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
TOTAL COMMON STOCK SHARE- --------------- RETAINED HOLDERS' SHARES AMOUNT EARNINGS EQUITY ------ ------- -------- -------- Balance at June 30, 1994 14,071 $16,069 $30,717 $46,786 Issuance of common stock: Stock option exercises, net of shares tendered upon exercise 910 1,611 -- 1,611 Employee stock purchase plan 18 188 -- 188 Net exercise of warrant 98 -- -- -- Tax benefit from stock option plans -- 1,194 -- 1,194 Net earnings -- -- 10,346 10,346 ------ ------- ------- ------- Balance at June 30, 1995 15,097 19,062 41,063 60,125 Issuance of common stock: Stock option exercises, net of shares tendered upon exercise 407 1,079 -- 1,079 Employee stock purchase plan 66 710 -- 710 Tax benefit from stock option plans -- 1,011 -- 1,011 Net earnings -- -- 7,478 7,478 ------ ------- ------- ------- Balance at June 30, 1996 15,570 21,862 48,541 70,403 Issuance of common stock: Stock option exercises, net of shares tendered upon exercise 325 1,730 -- 1,730 Employee stock purchase plan 74 817 -- 817 Tax benefit from stock option plans -- 2,394 -- 2,394 Repurchase of common stock (90) (1,195) -- (1,195) Net earnings -- -- 13,454 13,454 ------ ------- ------- ------- Balance at June 30, 1997 15,879 $25,608 $61,995 $87,603 ====== ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 22 SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED JUNE 30, ---------------------------- 1997 1996 1995 -------- -------- -------- Cash flows from operating activities: Cash received from customers $137,463 $103,056 $103,800 Cash paid to suppliers and employees (115,912) (94,610) (86,910) Interest received 2,000 1,723 1,303 Interest paid (589) (594) (610) Income taxes paid (1,702) (559) (725) -------- -------- -------- Net cash provided by operating activities 21,260 9,016 16,858 -------- -------- -------- Cash flows from investing activities: Purchases of short-term investments (33,941) (24,644) (16,754) Maturities of short-term investments 23,500 35,552 2,903 Purchases of plant and equipment, net (15,136) (9,092) (6,629) Other 45 (596) (26) -------- -------- -------- Net cash provided by (used for) investing activities (25,532) 1,220 (20,506) -------- -------- -------- Cash flows from financing activities: Repayment of long-term obligations (204) (52) (47) Proceeds from issuance of common stock 2,547 1,789 1,799 Repurchase of common stock (1,195) -- -- -------- -------- -------- Net cash provided by financing activities 1,148 1,737 1,752 -------- -------- -------- Net increase (decrease) in cash and cash equivalents (3,124) 11,973 (1,896) Cash and cash equivalents at beginning of year 31,327 19,354 21,250 -------- -------- -------- Cash and cash equivalents at end of year $ 28,203 $ 31,327 $ 19,354 ======== ======== ======== Reconciliation of net earnings to net cash provided by operating activities: Net earnings $ 13,454 $ 7,478 $ 10,346 Depreciation and amortization 6,548 5,171 5,260 Net deferred income taxes (512) (98) (713) Changes in assets and liabilities: Accounts receivable (6,805) (2,699) 432 Inventories (4,176) 8 (2,044) Accounts payable 2,645 1,236 84 Accrued liabilities 7,361 (2,336) 2,552 Tax benefit from employee stock plans 2,394 1,011 1,194 Other 351 (755) (253) -------- -------- -------- Net cash provided by operating activities $ 21,260 $ 9,016 $ 16,858 ======== ======== ======== Noncash investing and financing activity: Facility acquired under capital lease $ 8,750 ========
The accompanying notes are an integral part of these consolidated financial statements. 23 SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business. SymmetriCom, Inc. (the Company) operates in two different industry segments. Telecom Solutions, a division of the Company, designs, manufactures and markets advanced network synchronization systems and intelligent access systems for the telecommunications industry. Linfinity Microelectronics Inc., a subsidiary of the Company, designs, manufactures and markets linear and mixed signal integrated circuits, and modules for use in desktop power system, portable power system and data communications applications. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated. Fiscal Period. The Company, for presentation purposes, presents each fiscal year as if it ended on June 30. However, the Company's fiscal year ends on the Sunday closest to June 30. All references to years refer to the Company's fiscal years. Fiscal years 1997, 1996, and 1995 consisted of 52 weeks. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents. The Company considers all highly liquid debt investments purchased with an original maturity of three months or less to be cash equivalents. Short-term Investments. Short-term investments, consisting of corporate debt securities which mature through October 1997, are classified as available-for- sale and reported at fair value. Net unrealized gains and losses, if significant, are excluded from earnings and included as a separate component of shareholders' equity. The cost of securities sold is based on the specific identification method. Fair Values of Financial Instruments. The estimated fair value of the Company's financial instruments, which include cash equivalents, short-term investments, accounts receivable and long-term obligations, approximate their carrying value. Concentrations of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, short-term investments and accounts receivable. The Company places its investments with high-credit-quality corporations and financial institutions. Accounts receivable are derived primarily from sales to telecommunications service providers, original equipment manufacturers and distributors. Management believes that its credit evaluation, approval and monitoring processes substantially mitigate potential credit risks. Inventories. Inventories are stated at the lower of cost (first-in, first- out) or market. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the assets (three to thirty years) or the lease term if shorter. Long-lived assets. Effective July 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires recognition of impairment loss of long-lived assets and certain identifiable intangibles assets in the event the net book value of such assets exceeds the estimated future cash flows. The adoption of SFAS 121 had no material impact on the Company's financial position or results of operations. 24 Foreign Currency Translation. Foreign currency translation gains and losses and the effect of foreign currency exchange rate fluctuations have not been significant. Revenue Recognition. Sales are recognized upon shipment. Provisions are made for warranty costs, sales returns and price protection. Stock Options. In October 1995, Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," was issued which establishes a fair value based method of accounting for compensation costs related to stock option plans and other forms of stock based compensation plans as an alternative to the intrinsic value based method of accounting defined under Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Effective July 1, 1996, the Company adopted SFAS 123 by electing to continue to apply the accounting provisions of APB 25 and providing the pro forma disclosure requirements of SFAS 123. Net Earnings Per Common and Common Equivalent Share. Net earnings per common and common equivalent share is based on the weighted average number of common shares outstanding and dilutive stock options, using the treasury stock method. Reclassifications. Certain reclassifications have been made to the 1996 and 1995 consolidated statements of cash flows to conform to the 1997 presentation. Such reclassifications had no effect on previously reported results of operations or retained earnings. Recent Accounting Pronouncements. In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," was issued which establishes new standards for computing and presenting earnings per share information. The statement is effective for interim and annual periods ending after December 15, 1997. Accordingly, the Company will adopt SFAS 128 starting with its second quarter ending December 31, 1997. The Company does not anticipate that the earnings per share calculation with the adoption of SFAS 128 would have been materially different for the periods presented. In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income" and Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information," were issued which require the Company to report and display certain information related to comprehensive income and operating segments, respectively. Both statements are effective for fiscal years beginning after December 15, 1997. Accordingly, the Company will adopt SFAS 130 and SFAS 131 starting with its fiscal year ending June 30, 1999. Adoption of these statements will not impact the Company's financial position and results of operations. NOTE B--LINFINITY MICROELECTRONICS INC. In July 1993, substantially all of the assets and liabilities of the Company's Semiconductor Group were transferred to Linfinity, a newly-formed subsidiary, in exchange for 6,000,000 shares of Linfinity Series A preferred stock and 2,000,000 shares of Linfinity common stock. Each Series A preferred share is convertible into one share of common stock. In addition, 2,000,000 shares of Linfinity's common stock have been reserved for issuance under Linfinity's employee stock option plan. All options have been granted at the fair market value on the date of grant as determined by Linfinity's Board of Directors based upon independent appraisal. Outstanding stock options generally vest 25% per year from date of grant and expire no later than ten years from date of grant. 25 NOTE C--BALANCE SHEET DETAIL
JUNE 30, ---------------- 1997 1996 ------- ------- (IN THOUSANDS) Inventories: Raw materials $ 6,454 $ 6,704 Work-in-process 8,450 6,868 Finished goods 7,119 4,275 ------- ------- $22,023 $17,847 ======= ======= Property, plant and equipment, net: Land $ 1,247 $ 1,247 Buildings and improvements 23,413 8,659 Machinery and equipment 46,733 38,864 Leasehold improvements 2,599 2,312 ------- ------- 73,992 51,082 Accumulated depreciation and amortization (34,375) (29,535) ------- ------- $39,617 $21,547 ======= ======= Building and improvements included $8,750,000 of costs capitalized under a capital lease for the Company's facility in San Jose, California which was completed in June 1997. No amortization expense was recorded in 1997. JUNE 30, ---------------- 1997 1996 ------- ------- (IN THOUSANDS) Accrued liabilities: Employee compensation and benefits $ 8,925 $ 3,687 Accrued warranty expense 2,741 2,088 Other 4,880 3,410 ------- ------- $16,546 $ 9,185 ======= ======= Long-term obligations: Note payable $ 5,709 $ 5,766 Capital lease 8,603 -- ------- ------- 14,312 5,766 Current maturities (5,729) (57) ------- ------- $ 8,583 $ 5,709 ======= =======
The note payable bears interest at 10.25% per annum and is due in November 1997. The note is collateralized by land, building, and related personal property. The Company has a $7,000,000 unsecured bank line of credit which expires in December 1998 and bears interest at the bank's prime rate, 8.5% at June 30, 1997. The line of credit agreement requires that the Company maintain certain financial ratios and prohibits an operating loss in two consecutive quarters. The line of credit has not been utilized during the last three years. 26 NOTE D--LEASE COMMITMENTS During 1997, the Company leased a facility in San Jose, California under which the land and building were accounted for as an operating lease and a capital lease, respectively. This lease expires in April 2009. A section of the facility has been sublet and accounted for as an operating lease. This sublease expires in November 2000. The minimum future sublease payments to be received as of June 30, 1997 were $715,000 in 1998, $736,000 in 1999, $757,000 in 2000, and $324,000 in 2001. The Company leases certain other facilities and equipment under operating lease agreements which expire at various dates through 2001. Rental expense charged to operations was $1,923,000 in 1997, $1,741,000 in 1996, and $1,554,000 in 1995, respectively. Future minimum lease payments as of June 30, 1997 are as follows:
CAPITAL OPERATING LEASE LEASE ------- --------- (IN THOUSANDS) FOR THE YEARS: 1998 $ 750 $1,280 1999 930 967 2000 991 693 2001 1,055 623 2002 1,121 595 Thereafter 9,591 4,049 ------- ------ Total minimum lease payments 14,438 $8,207 ====== Amount representing interest (8.5%) (5,835) ------- Present value of minimum lease payments 8,603 Current portion (20) ------- Long-term obligation $ 8,583 =======
NOTE E--INCOME TAXES Income tax expense consists of:
YEAR ENDED JUNE 30, ---------------------- 1997 1996 1995 ------ ------ ------ (IN THOUSANDS) Current: Federal $3,511 $1,250 $1,341 State (78) (56) 159 Puerto Rico 588 902 466 Foreign 374 -- -- ------ ------ ------ 4,395 2,096 1,966 ------ ------ ------ Deferred: Federal (817) 386 (532) State 134 (114) (373) Puerto Rico 171 (370) 192 ------ ------ ------ (512) (98) (713) ------ ------ ------ $3,883 $1,998 $1,253 ====== ====== ======
27 Deferred income tax expense (benefit) is recorded when income and expenses are recognized in different periods for financial reporting and tax purposes. The significant components of deferred income tax expense (benefit) are as follows:
YEAR ENDED JUNE 30, ----------------------- 1997 1996 1995 ------- ------ ------ (IN THOUSANDS) Net operating loss and credit carryforwards $ 1,064 $ (156) $ (813) Reserves and accruals (824) 32 631 Depreciation and amortization (614) (93) (263) Deferred taxes on Puerto Rico earnings 481 (688) 204 Change in valuation allowance (619) 807 (472) ------- ------ ------ $ (512) $ (98) $ (713) ======= ====== ====== The effective income tax rate differs from the federal statutory income tax rate as follows: YEAR ENDED JUNE 30, ----------------------- 1997 1996 1995 ------- ------ ------ Federal statutory income tax rate 35.0% 35.0% 35.0% Change in valuation allowance -- -- (17.6) Federal tax benefit of Puerto Rico operations (13.0) (17.2) (12.9) Puerto Rico taxes 4.4 5.6 5.7 Research and development tax credit (1.5) -- (2.6) State income taxes, net of federal benefit .3 (1.8) 1.2 Other (2.8) (.5) 2.0 ------- ------ ------ Effective income tax rate 22.4% 21.1% 10.8% ======= ====== ======
The principal components of deferred tax assets and liabilities are as follows:
JUNE 30, -------------- 1997 1996 ------ ------ (IN THOUSANDS) Deferred tax assets: Net operating loss and credit carryforwards $4,496 $5,560 Reserves and accruals 3,516 2,692 ------ ------ 8,012 8,252 Valuation allowance (4,496) (5,115) ------ ------ 3,516 3,137 ------ ------ Deferred tax liabilities: Depreciation and amortization 201 815 Unremitted Puerto Rico earnings 2,777 2,296 ------ ------ 2,978 3,111 ------ ------ Net deferred tax asset $ 538 $ 26 ====== ======
The valuation allowance primarily relates to the potential tax benefit of stock option transactions, which will be credited to common stock if realized. 28 At June 30, 1997, for federal income tax purposes, the Company had research and development and investment tax credit carryforwards of approximately $2,600,000 which expire in the years 1999 through 2012, and alternative minimum tax credit carryforwards of approximately $1,100,000 which have no expiration date. Additionally, for state income tax purposes, the Company had research and development tax credit carryforwards of approximately $800,000 which have no expiration date. The Company operates a subsidiary in Puerto Rico under a grant providing for a partial exemption from Puerto Rico taxes through fiscal 2008. In addition, this subsidiary is taxed under Section 936 of the U.S. Internal Revenue Code which exempts qualified Puerto Rico source earnings, subject to certain wage- based limitations, from federal income taxes through fiscal 2006. This exemption will be further limited based on certain prior year Puerto Rico earnings during the fiscal years 2003 through 2006. Appropriate taxes have been provided on this subsidiary's earnings which are intended to be remitted to the parent company. At June 30, l997, the total unremitted earnings of the Puerto Rico subsidiary and the related tax liability were approximately $25,500,000 and $2,777,000, respectively. NOTE F--CONTINGENCIES In January 1994, a securities class action complaint was filed against the Company and three of its officers in the United States District Court, Northern District of California. The action was filed on behalf of a putative class of purchasers of the Company's stock during the period April 6, 1993 through November 10, 1993. The complaint seeks unspecified money damages and alleges that the Company and certain of its officers violated federal securities laws in connection with various public statements made during the putative class period. The Court dismissed this complaint and the second amended complaints with leave to amend. The plaintiff filed a third amended corrected complaint in August 1997. After consultation with counsel, the Company and its officers believe that the complaint is entirely without merit, and intend to file a motion to dismiss the third amended corrected complaint and continue to defend the action vigorously. The Company is also a party to certain other claims in the normal course of its operations. While the results of such claims cannot be predicted with certainty, management, after consultation with counsel, believes that the final outcome of such matters will not have a material adverse effect on the Company's financial position or results of operations. NOTE G--RELATED PARTY TRANSACTIONS The Company paid $47,000, $36,000 and $36,000 for marketing research in 1997, 1996 and 1995, respectively, to a firm whose managing director was also a director of the Company. During 1995, two executive officers exercised stock options in exchange for notes of $43,000 bearing interest at approximately 6% per annum, payable annually. The notes were collateralized by the stock issued upon exercise of the stock options and were recorded as an offset against common stock. One note was repaid in 1997 and the other note is due in 1998. During 1993, the Company made a $95,000 unsecured 5% loan to an executive officer which was repaid in 1996. NOTE H--BENEFIT PLANS 401(k) Plans. The Company's U.S. and Puerto Rico employees are eligible to participate in the Company's 401(k) plans. The Company's discretionary contributions vest immediately and were $105,000, $102,000, and $101,000 in 1997, 1996 and 1995, respectively. 29 NOTE I--SHAREHOLDERS' EQUITY Stock Options. The Company has a stock option plan under which employees and consultants may be granted non-qualified and incentive options to purchase shares of the Company's authorized but unissued common stock. Stock appreciation rights may also be granted under this plan, however, none have been granted. The Company's shareholders have approved a plan under which the number of shares reserved for issuance under the stock option plan will automatically increase each July by an amount equal to 3% of the Company's outstanding shares as of June 30, 1997. In July 1997, the number of shares reserved for issuance increased by 476,000. In addition, the Company has a director stock option plan under which non-employee directors are granted options each January to purchase 10,000 shares of the Company's authorized but unissued common stock. All options have been granted at the fair market value of the Company's common stock on the date of grant. Options expire no later than ten years from the date of grant and are generally exercisable in annual installments of 25%, 25% and 50% at the end of each of the first three years following the date of grant. Stock option activity for the three years ended June 30, 1997 is as follows:
OPTIONS OUTSTANDING SHARES -------------------------- AVAILABLE NUMBER WEIGHTED AVERAGE FOR GRANT OF SHARES EXERCISE PRICE --------- --------- ---------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Balances at June 30, 1994 539 2,285 $ 5.97 Granted (591) 591 9.44 Exercised -- (967) 2.54 Canceled 332 (332) 14.81 ---- ----- Balances at June 30, 1995 280 1,577 7.52 Authorized 650 -- -- Granted (871) 871 17.64 Exercised -- (427) 3.67 Canceled 370 (370) 21.12 ---- ----- Balances at June 30, 1996 429 1,651 10.80 Authorized 467 -- -- Granted (483) 483 14.57 Exercised -- (333) 5.47 Canceled 262 (262) 15.30 ---- ----- Balances at June 30, 1997 675 1,539 12.37 ==== =====
As of June 30, 1997, 1996 and 1995, the number of shares and weighted average exercise price underlying exercisable options were 573,000 at $11.08, 593,000 at $7.24, and 751,000 at $4.09, respectively. The weighted average fair value, using the Black-Scholes method, of options granted was $6.62 in 1997 and $9.02 in 1996. The stock option activity includes the cancelation of options for 235,000 shares in July 1994 and 297,000 shares in April 1996 and the corresponding grant of new options at exercise prices equal to the fair market value on the dates of the new grants, $8.94 in July 1994 and $11.98 in April 1996. The new options began revesting in July 1994 and April 1996, respectively. 30 Additional information regarding options outstanding as of June 30, 1997 is an follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ----------------------------------------------------------------- ----------------------------- WEIGHTED AVERAGE WEIGHTED RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER AVERAGE EXERCISE PRICES OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE - ----------------------------------------------------------------- ----------------------------- (IN THOUSANDS) (IN YEARS) (IN THOUSANDS) $ 1.75 --$ 3.75 113 3.2 $ 3.11 113 $ 3.11 5.69 -- 10.13 373 6.9 8.95 177 8.97 11.13 -- 14.63 741 9.0 12.90 94 12.25 16.25 -- 22.75 312 7.5 18.56 189 17.27 ----- --- 1.75 -- 22.75 1,539 7.8 12.37 573 11.08 ===== ===
As discussed in Note A, the Company continues to account for its stock-based awards using the intrinsic value method in accordance with APB 25 and its related interpretations. Compensation expense has been recognized in the financial statements for employee stock arrangements when the fair market value of the stock exceeds the exercise price at the date of grant. SFAS 123 requires the disclosure of pro forma net income and earnings per share as if the Company had adopted the fair value method as of the beginning of 1996. Under SFAS 123, the fair value of stock based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions for both 1997 and 1996: expected life, one year after vesting in 1997 and one and one half years after vesting in 1996; stock volatility, 58% in 1997 and 63% in 1996; risk free interest rate, 5% to 6.5%; and no dividends during the expected term. The Company's calculations are based on the multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1997 and 1996 awards had been amortized to expense over the vesting period of the awards, pro forma consolidated net income would have been $10,527,000 ($.66 per share) in 1997 and $4,776,000 ($.30 per share) in 1996. However, the impact of outstanding nonvested stock options granted prior to 1996 has been excluded from the pro forma calculation; accordingly, the 1997 and 1996 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all applicable stock options. In addition, Linfinity has a stock option plan under which options may be granted to purchase shares of Linfinity's authorized but unissued common stock with similar terms to the Company's stock option plan. As of June 30, 1997, there were options outstanding to purchase 1,558,000 shares of Linfinity common stock at exercise prices ranging from $.50 to $3.15 with a weighted average exercise price of $2.27 and 291,000 shares available for grant. As of June 30, 1997, there were exercisable options to purchase 567,000 shares of common stock at a weighted average exercise price of $1.73. The fair values of fiscal 1997 and 1996 option awards were not significant. Employee Stock Purchase Plan. The Company has an employee stock purchase plan under which eligible employees may authorize payroll deductions of up to 10% of their compensation to purchase shares of the Company's common stock at 85% of the fair market value at certain specified dates. Under this plan, 291,000 shares of common stock have been reserved and were available for issuance as of June 30, 1997. Under SFAS 123, the fair value of the employees' purchase rights was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, 6 months; stock volatility, 58% in 1997 and 63% in 1996; risk free interest rates, 4.8% to 5.9%; and no dividends during the expected term. The weighted average fair value of those purchase rights granted in 1997 and 1996 was $4.68 and $4.94, respectively. 31 Stock Repurchase Program. In April 1997, the Company's Board of Directors authorized a program to repurchase up to 500,000 shares of the Company's common stock to be used in conjunction with shares issued under the Company's stock option and employee stock purchase plans. During 1997, the Company repurchased 90,000 shares of its common stock. Common Share Purchase Rights. The Company has a shareholder rights plan which authorizes the issuance of one common share purchase right for each share of common stock. The rights expire in December 2000 and are not exercisable or transferable apart from the common stock until the occurrence of certain events. Such events include the acquisition of 20% or more of the Company's outstanding common stock or the commencement of a tender or exchange offer for 30% or more of the Company's outstanding common stock. If the rights become exercisable, each right entitles its holder to purchase one new share of common stock at an exercise price of $25.00, subject to certain antidilution adjustments. Additionally, if the rights become exercisable, a holder will be entitled, under certain circumstances, to purchase, for the exercise price, shares of common stock of the Company or in other cases, of the acquiring company, having a market value of twice the exercise price of the right. Under certain conditions, the Company may redeem the rights for a price of $.01 per right or exchange each right not held by the acquirer for one share of the Company's common stock. Warrants. During March 1995, the Company issued 98,000 shares of common stock, net of 27,000 shares tendered, in connection with the exercise of a warrant to purchase common stock at $3.375 per share. NOTE J--BUSINESS SEGMENT INFORMATION Industry Segment Information is as follows:
YEAR ENDED JUNE 30, -------------------------- 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Net Sales: Telecom Solutions $ 89,718 $ 68,243 $ 62,814 Linfinity Microelectronics Inc. 54,637 37,795 40,294 -------- -------- -------- $144,355 $106,038 $103,108 ======== ======== ======== Operating income: Telecom Solutions $ 10,048 $ 5,880 $ 6,222 Linfinity Microelectronics Inc. 5,950 2,383 4,646 -------- -------- -------- $ 15,998 $ 8,263 $ 10,868 ======== ======== ======== Identifiable assets: Telecom Solutions $ 89,924 $ 62,574 $ 55,098 Linfinity Microelectronics Inc. 39,381 30,957 30,228 -------- -------- -------- $129,305 $ 93,531 $ 85,326 ======== ======== ======== Depreciation and amortization expense: Telecom Solutions $ 3,575 $ 2,654 $ 2,841 Linfinity Microelectronics Inc. 2,973 2,517 2,419 -------- -------- -------- $ 6,548 $ 5,171 $ 5,260 ======== ======== ======== Capital expenditures: Telecom Solutions* $ 20,074 $ 3,832 $ 2,102 Linfinity Microelectronics Inc. 3,812 5,260 4,527 -------- -------- -------- $ 23,886 $ 9,092 $ 6,629 ======== ======== ========
-------- * The 1997 amount includes $8,750 for a facility acquired under capital lease. 32 Major Customers and Export Sales. In 1997, one of Telecom Solutions' customers accounted for 16% of the Company's net sales. In 1995, another Telecom Solutions' customer accounted for 11% of the Company's net sales. No other single customer accounted for 10% or more of the Company's net sales in 1997, 1996 and 1995. The Company's export sales, which were primarily to the Far East, Canada and Western Europe, accounted for 26%, 28% and 24% of the Company's net sales in 1997, 1996 and 1995, respectively. Export sales to the Far East accounted for 16%, 13%, and 11% of net sales in 1997, 1996 and 1995, respectively. NOTE K--QUARTERLY RESULTS AND STOCK MARKET DATA (UNAUDITED) Quarterly results and stock market data are as follows:
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Fiscal Year 1997 Net sales: Telecom Solutions $20,002 $21,551 $23,534 $24,631 $ 89,718 Linfinity Microelectronics Inc. 12,021 13,896 14,220 14,500 54,637 ------- ------- ------- ------- -------- Total 32,023 35,447 37,754 39,131 144,355 Gross profit 13,657 16,110 17,511 18,666 65,944 Operating income 2,600 3,896 4,424 5,078 15,998 Earnings before income taxes 2,910 4,203 4,792 5,432 17,337 Net earnings 2,258 3,262 3,719 4,215 13,454 Net earnings per common and common equivalent share .14 .20 .23 .26 .83 Common stock price range (A): High 15 5/8 20 5/8 20 5/8 17 3/4 20 5/8 Low 11 7/8 14 7/16 13 7/8 12 1/2 11 7/8 Fiscal Year 1996 Net sales: Telecom Solutions $17,215 $18,360 $14,336 $18,332 $ 68,243 Linfinity Microelectronics Inc. 10,463 10,066 8,357 8,909 37,795 ------- ------- ------- ------- -------- Total 27,678 28,426 22,693 27,241 106,038 Gross profit 13,066 13,589 8,328 11,231 46,214 Operating income 3,500 4,146 (244) 861 8,263 Earnings before income taxes 3,817 4,479 58 1,122 9,476 Net earnings 2,771 3,337 318 1,052 7,478 Net earnings per common and common equivalent share .17 .21 .02 .07 .47 Common stock price range (A): High 26 5/8 22 5/8 13 7/8 14 3/4 26 5/8 Low 20 5/8 12 7/8 8 7/8 9 5/8 8 7/8
-------- (A) The Company's common stock trades on The Nasdaq Stock Market under the symbol SYMM. At June 30, 1997, there were approximately 1,400 shareholders of record. Common stock prices are closing prices as reported on the Nasdaq Stock Market System. The Company has not paid cash dividends during the last two fiscal years and has no present plans to do so. 33 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders SymmetriCom, Inc. We have audited the accompanying consolidated balance sheets of SymmetriCom, Inc. and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of SymmetriCom, Inc. and subsidiaries at June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP - ----------------------- DELOITTE & TOUCHE LLP San Jose, California July 22, 1997 34 SCHEDULE II SYMMETRICOM, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
BALANCE CHARGED AT TO COSTS BALANCE BEGINNING AND DEDUCTIONS AT END OF YEAR EXPENSES (1) OF YEAR --------- -------- ---------- ------- Year ended June 30, 1997: Accrued warranty expense $2,088 $1,966 $1,313 $2,741 Allowance for doubtful accounts $ 330 $ 210 $ 83 $ 457 Year ended June 30, 1996: Accrued warranty expense $2,520 $1,105 $1,537 $2,088 Allowance for doubtful accounts $ 339 $ 16 $ 25 $ 330 Year ended June 30, 1995: Accrued warranty expense $2,071 $1,021 $ 572 $2,520 Allowance for doubtful accounts $ 242 $ 122 $ 25 $ 339
- -------- (1) Deductions represent costs charged or amounts written off against the reserve or allowance. 35 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Symmetricom, Inc. Date: September 24, 1997 /s/ J. Scott Kamsler By________________________________________ (J. SCOTT KAMSLER) SENIOR VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE /s/ William D. Rasdal Chairman of the September 24, 1997 - ------------------------------------- Board and Chief (WILLIAM D. RASDAL) Executive Office (Principal Executive Officer) /s/ J. Scott Kamsler Senior Vice September 24, 1997 - ------------------------------------- President, Finance (J. SCOTT KAMSLER) and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Richard W. Oliver Director September 24, 1997 - ------------------------------------- (RICHARD W. OLIVER) /s/ Roger A. Strauch Director September 24, 1997 - ------------------------------------- (ROGER A. STRAUCH) /s/ Robert M. Wolfe Director September 24, 1997 - ------------------------------------- (ROBERT M. WOLFE)
36
EXHIBIT NUMBER INDEX OF EXHIBITS ------- ----------------- 3.1(1) Restated Articles of Incorporation. 3.2(2) Certificate of Amendment to Restated Articles of Incorporation filed December 11, 1990. 3.3(10) Certificate of Amendment to Restated Articles of Incorporation filed October 27, 1993. 3.4 Bylaws, as amended June 30, 1997. 4.1(3) Common Shares Rights Agreement dated December 6, 1990, between Silicon General, Inc. and Manufacturers Hanover Trust Company of California, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively. 4.2(4) Amendment to the Common Shares Rights Agreement dated February 5, 1993 between Silicon General, Inc. and Chemical Trust Company of California, formerly Manufacturers Hanover Trust Company of California, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively. 10.1(5)(14) Amended and Restated Non-Qualified Stock Option Plan (1982), with form of Employee Non-Qualified Stock Option (1982 Plan). 10.2(11)(14) 1990 Director Option Plan (as amended through October 25, 1995). 10.3(5)(14) Form of Director Option Agreement. 10.4(11)(14) 1990 Employee Stock Plan (as amended through October 25, 1995). 10.5(5)(14) Forms of Stock Option Agreement, Restricted Stock Purchase Agreement, Tandem Stock Option/SAR Agreement, and Stock Appreciation Right Agreement for use with the 1990 Employee Stock Plan. 10.6(13)(14) 1994 Employee Stock Purchase Plan (as amended through December 1, 1996). 10.7(2) Loan Agreements between the Company and the John Hancock Mutual Life Insurance Company, dated October 18, 1990, including exhibits thereto. 10.8(6) Lease Agreement by and between the Company and Menlo Tasman Investment Company dated June 16, 1986, and Amendment to Lease dated March 27, 1987. 10.9(10) Lease Agreement by and between Navstar Systems Limited, a subsidiary of the Company, and Baker Hughes Limited dated April 22, 1994. 10.10(12) Lease Agreement by and between the Company and Nexus Equity, Inc. dated June 10, 1996. 10.11(10) Revolving Credit Loan Agreement between the Company and Comerica Bank-Detroit dated December 1, 1993. 10.12 Third Amendment to the Revolving Credit Loan Agreement between the Company and Comerica Bank-Detroit dated August 12, 1997. 10.13(7) Form of Indemnification Agreement. 10.14(9) Linfinity Microelectronics Inc. Common Stock and Series A Preferred Stock Purchase Agreement dated June 28, 1993. 10.15(9) Tax Sharing Agreement between Linfinity Microelectronics Inc. and the Company dated June 28, 1993. 10.16(9) Intercompany Services Agreement between Linfinity Microelectronics Inc. and the Company dated June 28, 1993. 10.17(9)(14) Linfinity Microelectronics Inc. 1993 Stock Option Plan with form of Stock Option Agreement. 10.18(9) Linfinity Microelectronics Inc. Form of Indemnification Agreement. 10.19(9)(14) Employment offer letter by and between the Company and Brad P. Whitney, President and Chief Operating Officer, Linfinity Microelectronics Inc. dated November 20, 1992. 10.20(8) Agreement for Sale and Purchase of the Navstar Business of Radley Services Limited. 10.21(8) Agreement for the Sale and Purchase of Certain Assets of Navstar Electronics, Inc. 21.1 Subsidiaries of the Company. 23.1 Independent Auditors' Consent and Report on Schedule. 27.1 Financial Data Schedule.
37 FOOTNOTES TO EXHIBITS (1) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended July 2, 1989. (2) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1991. (3) Incorporated by reference from Exhibits to Registration Statement on Form 8-A filed with the Securities and Exchange Commission on December 8, 1990. (4) Incorporated by reference from Exhibits to Registration Statement on Form 8-A filed with the Securities and Exchange Commission on February 11, 1993. (5) Incorporated by reference from Exhibits to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on December 24, 1990. (6) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 28, 1987. (7) Incorporated by reference from Exhibits to the 1990 Proxy Statement. (8) Incorporated by reference from Exhibits to Current Report on Form 8-K filed with the Securities and Exchange Commission on September 2, 1993. (9) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1993. (10) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1994. (11) Incorporated by reference from Exhibits to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 19, 1996. (12) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1996. (13) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q for the quarter ended December 31, 1996. (14) Indicates a management contract or compensatory plan or arrangement. 38 EX-3.4 2 BYLAWS, AS AMENDED JUNE 30, 1997 EXHIBIT 3.4 BYLAWS OF SYMMETRICOM, INC. (As amended through June 30, 1997) BYLAWS OF SYMMETRICOM, INC. TABLE OF CONTENTS
Page ---- ARTICLE I - OFFICES.................................................................. 1 Section 1. PRINCIPAL OFFICES.................................................. 1 Section 2. OTHER OFFICES...................................................... 1 ARTICLE II - MEETINGS OF SHAREHOLDERS................................................ 1 Section 1. PLACE OF MEETINGS.................................................. 1 Section 2. ANNUAL MEETING..................................................... 1 Section 3. SPECIAL MEETING.................................................... 1 Section 4. NOTICE OF SHAREHOLDERS' MEETING.................................... 2 Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE....................... 2 Section 6. QUORUM............................................................. 3 Section 7. ADJOURNED MEETING; NOTICE.......................................... 3 Section 8. VOTING............................................................. 3 Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS....................................................... 4 Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................................................. 5 Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS................................................ 5 Section 12. PROXIES............................................................ 6 Section 13. INSPECTORS OF ELECTION............................................. 6 ARTICLE III - DIRECTORS.............................................................. 7 Section 1. POWERS............................................................. 7 Section 2. NUMBER OF DIRECTORS................................................ 7 Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS Section 4. VACANCIES.......................................................... 8 Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE........................ 8
-i- TABLE OF CONTENTS (Continued)
Page ---- Section 6. ANNUAL MEETING..................................................... 9 Section 7. OTHER REGULAR MEETINGS............................................. 9 Section 8. SPECIAL MEETINGS................................................... 9 Section 9. QUORUM............................................................. 9 Section 10. WAIVER OF NOTICE................................................... 10 Section 11. ADJOURNMENT........................................................ 10 Section 12. NOTICE OF ADJOURNMENT.............................................. 10 Section 13. ACTION WITHOUT MEETING............................................. 10 Section 14. FEES AND COMPENSATION OF DIRECTORS................................. 10 Section 15. APPROVAL OF LOANS TO OFFICERS...................................... 10 ARTICLE IV - COMMITTEES............................................................... 11 Section 1. COMMITTEE OF DIRECTORS............................................. 11 Section 2. MEETINGS AND ACTION OF COMMITTEES.................................. 11 ARTICLE V - OFFICERS.................................................................. 12 Section 1. OFFICERS........................................................... 12 Section 2. ELECTION OF OFFICERS............................................... 12 Section 3. SUBORDINATE OFFICERS............................................... 12 Section 4. REMOVAL AND RESIGNATION OF OFFICERS................................ 12 Section 5. VACANCIES IN OFFICES............................................... 12 Section 6. CHAIRMAN OF THE BOARD.............................................. 12 Section 7. PRESIDENT.......................................................... 13 Section 8. VICE PRESIDENTS.................................................... 13 Section 9. SECRETARY.......................................................... 13 Section 10. CHIEF FINANCIAL OFFICER; TREASURER................................. 13 ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS............................................... 14 Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................... 14 Section 2. INDEMNIFICATION OF OTHERS.......................................... 14 Section 3. PAYMENT OF EXPENSES IN ADVANCE..................................... 15 Section 4. INDEMNITY NOT EXCLUSIVE............................................ 15 Section 5. INSURANCE INDEMNIFICATION.......................................... 15
-ii- TABLE OF CONTENTS (Continued)
Page ---- Section 6. CONFLICTS......................................................... 15 ARTICLE VII - RECORDS AND REPORTS.................................................... 16 Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER...................... 16 Section 2. MAINTENANCE AND INSPECTION OF BYLAWS.............................. 16 Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS................................................. 16 Section 4. INSPECTION BY DIRECTORS........................................... 17 Section 5. ANNUAL REPORT TO SHAREHOLDERS..................................... 17 ARTICLE VIII - GENERAL CORPORATE POWERS.............................................. 17 Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING........................................................ 17 Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS......................... 17 Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED.......................................................... 17 Section 4. CERTIFICATE FOR SHARES............................................ 18 Section 5. LOST CERTIFICATES................................................. 18 Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................... 18 Section 7. CONSTRUCTION AND DEFINITIONS...................................... 18 ARTICLE IX - AMENDMENTS.............................................................. 19 Section 1. AMENDMENTS BY SHAREHOLDERS........................................ 19 Section 2. AMENDMENT BY DIRECTORS............................................ 19
-iii- BYLAWS OF SYMMETRICOM, INC. (a California corporation) ARTICLE I OFFICES Section 1. PRINCIPAL OFFICES. The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the board of directors shall fix and designate a principal business office in the State of California. Section 2. OTHER OFFICES. The board of directors or officers of the corporation may at any time establish branch or subordinate offices at any place or places wherein such board or officers shall deem advisable. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside of the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be held each year on the date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held on the third Thursday of October in each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At each annual meeting directors shall be elected, and any other proper business may be transacted. Section 3. SPECIAL MEETING. A special meeting of shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. Section 4. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) (or, if sent by third-class mail pursuant to Section 5 of this Article II, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted), or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders (but subject to the provisions of the following paragraph of this Section 4 of Article II, any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) an amendment to the articles of incorporation, pursuant to Section 902 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of that Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Code, the notice shall also state the general nature of that proposal. Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of any meeting of shareholders given shall be given either (i) personally or (ii) by first-class mail or (iii) by third-class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, or (iv) telegraphic or other written -2- communication. Notices not personally delivered shall be sent charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice. An affidavit of mailing or other means of giving any notice of any shareholders' meeting shall be executed by the secretary, assistant secretary, or any transfer agent of the corporation giving the notice, and shall be filed and maintained in the minute book of the corporation, and shall be prima facie evidence of the giving of such notice. Section 6. QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 6 of this Article II. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting, in which case the board of directors shall set a new record date. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 4 and 5 of this Article II. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. Section 8. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 11 of this Article II, subject to the provisions of Sections 702 to 704, inclusive of the Corporations Code of California (relating to -3- voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. Except as provided in the last paragraph of this Section 8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. On any matter other than elections of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and voting on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes or cumulative voting is required by California General Corporation Law or by the articles of incorporation or by these bylaws. At a shareholders' meeting at which directors are to be elected, no shareholder shall be entitled to cumulate votes (i.e., cast for any one or more ---- candidates a number of votes greater than the number of the shareholder's shares) unless the candidates' names have been placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect. Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of the shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consent, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not -4- a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting. Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time to fill a vacancy on the board of directors (provided that the vacancy was not created by removal of a director and that it has not been filled by the directors) by a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholders' proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. This notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 5 of this Article II. In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) indemnification of agents of the corporation, pursuant to Section 317 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS. For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in this event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the California General Corporation Law. -5- If the board of directors does not so fix a record date: (a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these bylaws. Section 12. PROXIES. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the shareholder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Corporations Code of California. Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders, the board of directors may appoint any person or persons other than nominees for office to act as an inspector or inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a share holder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. -6- These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS Section 1. POWERS. Subject to the provisions of the California General Corporation Law and any limitations in the articles of incorporation and these bylaws relating to the action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Section 2. NUMBER OF DIRECTORS. (a) The number of directors shall be not less than a minimum of three nor more than a maximum of five. After adoption or amendment of this bylaw by the shareholders, the exact number of directors shall be fixed, within the limits specified in this bylaw, by the following bylaw which may be amended from time to time by the Board of Directors. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are -7- equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). (b) The number of directors of the corporation shall be four. Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of the shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. No reduction of the authorized number of directors shall have the effect of removing any director before the director's term of office expires. Section 4. VACANCIES. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each director so elected shall hold office until the next annual meeting of shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist in the event of the death, resignation, or removal of any director, or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of directors is increased, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary, or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director before that director's terms of office expires. Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings of the board of directors may be held at any place within or outside the State of California -8- that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting. Section 6. ANNUAL MEETING. Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization, any desired election of officers, and the transaction of other business. Notice of this meeting shall not be required. Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Such regular meetings may be held without notice. Section 8. SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4,) days before the time of the holding of the meeting. In case notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Section 9. QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 11 of this Article III. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Corporations Code of California (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of that Code (as to appointment of committees), and Section 317(e) of that Code (as to indemnification of directors), the articles of incorporation, and other applicable laws. A meeting at which a quorum -9- is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. Section 10. WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting before or at its commencement, the lack of notice to that director. Section 11. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 8 of this Article III, to the directors who were not present at the time of adjournment. Section 13. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as an unanimous vote of the board of directors. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services, and reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. This Section 14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services. Section 15. APPROVAL OF LOANS TO OFFICERS. The corporation may, upon the approval of the board of directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the board of directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the California Corporations Code) on the date of approval by the board of directors, and (iii) the approval of the board of directors is by a vote sufficient without counting the vote of any interested director or directors. -10- ARTICLE IV COMMITTEES Section 1. COMMITTEE OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the General Corporation Law of California, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or on any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of these committees. Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 5 (place of meetings) Section 7 (regular meetings), Section 8 (special meetings and notice), Section 9 (quorum), Section 10 (waiver of notice), Section 11 (adjournment), Section 12 (notice of adjournment) and Section 13 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee; special meetings of committees may also be called by resolution of the board of directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. -11- ARTICLE V OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a chairman of the board or a president, or both, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chief executive officer, a chief operating officer, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any number of offices may be held by the same person. Section 2. ELECTION OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Any contract of employ ment with an officer shall be unenforceable unless in writing and specifically authorized by the board of directors. Section 3. SUBORDINATE OFFICERS. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of any officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting of the board, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such officer be elected, shall, if present, preside at meeting of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or -12- prescribed by the bylaws. If there is no president or chief executive officer, the chairman of the board shall act as chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V. Section 7. PRESIDENT. Subject to any supervisory powers, if any, as may be given by the board of directors to the chairman of the board and/or chief executive officer, if there be such an officer or officers, the president shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the affairs of the corporation. In the absence of the chairman of the board, or if there be none, he shall preside at all meetings of the shareholders and at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws. Section 8. VICE PRESIDENTS. In the absence or disability of the chairman of the board, the chief executive officer and the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the such officers, and when so acting shall have all the powers of, and be subject to all the restrictions upon, such officers. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, the chairman of the board, the chief executive officer, or the president. Section 9. SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office or such other place as the board of directors may direct, a book of minutes of all meetings and action of the directors, committees of directors, and shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice given, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the bylaws. Section 10. CHIEF FINANCIAL OFFICER; TREASURER. The chief financial officer or, if there be none, the treasurer shall keep and maintain, or cause to be kept and maintained, -13- adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer (or the treasurer) shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the chairman of the board, the chief executive officer, the president and board of directors, whenever they request it, an account of all of his transactions as chief financial officer (or treasurer) and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or the bylaws. Should there be no one serving in the capacity of chief financial officer, the treasurer (or, in his absence, the assistant treasurer) shall exercise all of the duties and assume all of the responsibilities of the chief financial officer. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. Section 2. INDEMNIFICATION OF OTHERS. The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an -14- employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. Section 3. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. Section 4. INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation. Section 5. INSURANCE INDEMNIFICATION. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. Section 6. CONFLICTS. No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the Articles of Incorporation, these bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. -15- ARTICLE VII RECORDS AND REPORTS Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the board of directors, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who holds at least once percent (1%) of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors may (i) inspect and copy the records of the shareholders' names and addresses and shareholdings during usual business hours on five (5) days' prior written demand on the corporation and (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. This list shall be made available to any shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal office is not in the State of California, at its principal business office in this state, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business in this state, the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of the bylaws as amended to date. Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the shareholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any form capable of being converted into written form. The minutes and accounting books and records shall be open to -16- inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interest as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary corporation of the corporation. Section 4. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents. Section 5. ANNUAL REPORT TO SHAREHOLDERS. The corporation shall prepare and send to its shareholders an annual report to shareholders as required by Section 1501 of the California General Corporation Law. ARTICLE VII GENERAL CORPORATE POWERS Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action, and in that case only shareholders of record on the date so fixed are entitled to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the California General Corporation Law. If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of directors, except as otherwise provided in these bylaws, may authorize any officer -17- or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 4. CERTIFICATE FOR SHARES. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of these shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid. All certificates shall be signed in the name of the corporation by the chairman of the board or vice chairman of the board or the president or vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent, or registrar at the date of issue. Section 5. LOST CERTIFICATES. Except as provided in this Section 5, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft, or destruction of the certificate or the issuance of the replacement certificate. Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the president, or any vice president, or any other person authorized by resolution of the board of directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to these officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers. Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. -18- ARTICLE IX AMENDMENTS Section 1. AMENDMENTS BY SHAREHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation. Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 1 of this Article IX, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended, or repealed by the board of directors. -19- EX-10.12 3 THIRD AMENDMENT TO REVOLVING CREDIT LOAN AGR. Exhibit 10.12 ------------- THIRD AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT -------------------------------------------------- This AMENDMENT, dated the 12th day of August, 1997 between SYMMETRICOM, INC., a California corporation, (herein referred to as the "Borrower") and COMERICA BANK-California (herein referred to as the "Bank"). WITNESSETH: ----------- WHEREAS, the Bank and the Borrower on December 1, 1993 entered into a certain Revolving Credit Loan Agreement (the "Agreement"), a certain Revolving Credit Master Note (the "Revolving Credit Note"), a certain Guaranty, a certain Corporate Resolution Authorizing Execution of Guaranty, a certain Loan Disbursement Order, and a certain Advance & Repayment Agreement (collectively the "Loan Documents"); and WHEREAS, the Borrower desires to borrow up to Seven Million and 00/100 Dollars ($7,000,000.00) from the Bank from time to time for the working capital needs of the Borrower; and WHEREAS, the modifications to the Agreement and to the Revolving Credit Note contemplated hereby are in the best interest of, and will mutually benefit, the parties hereto; and Now, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree to amend the Agreement in the manner and to the extent hereinafter set forth: 1. In Section 1.1 titled "Definitions", delete the following section: "Termination Date". 2. In Section 1.1 titled "Definitions", add the following section: "'Termination Date' shall mean December 1, 1998 (or such earlier date on which the Borrower shall permanently terminate the Bank's commitment under Section 2.8.1 of this Agreement)". 3. Replace Section 6.5 with the following: "Maintain Tangible Net Worth. On a consolidated basis, maintain a Tangible Net Worth for it of not less than the amount specified during the period specified below: (a) $51,500,000.00 from the date of this Amendment and to increase on June 30, 1998 by 70% of Borrower's fiscal 1998 net profit after tax. IN ADDITION, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree to amend the Revolving Credit Note and the Loan Documents in the manner and to the extend hereinafter set forth: 4. Replace the first paragraph of the Revolving Credit Master Note with the following: FOR VALUE RECEIVED, the undersigned promises to pay to the order of COMERICA BANK-CALIFORNIA (the "Bank") at 201 Spear Street, Suite 200, San Francisco, California, on December 1, 1998, the principal sum or so much of the principal sum of Seven Million Dollars ($7,000,000.00) as may from time to time have been advanced and be outstanding under that certain Revolving Credit Loan Agreement dated December 1, 1993, between the undersigned and the Bank (the "Agreement") plus all accrued but unpaid interest thereon. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to the Agreement and the Revolving Credit Note to be executed and delivered by their duly authorized officers on the day and year first written above. By: /s/ William D. Rasdal By: /s/ J. Scott Kamsler ------------------------ ------------------------- William D. Rasdal J. Scott Kamsler Its: Chief Executive Officer Its: Chief Financial Officer ------------------------ ------------------------ COMERICA BANK-CALIFORNIA By: /s/ Greg H. Atkinson ------------------------- Greg H. Atkinson Its: Vice President ------------------------ EX-21.1 4 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 SYMMETRICOM, INC. SUBSIDIARIES OF THE COMPANY Analog Solutions, Inc., a California corporation Telecom Solutions, Inc., a Delaware corporation Telecom Solutions Puerto Rico, Inc., a Delaware corporation Linfinity Microelectronics Inc., a Delaware corporation Telecom Solutions (Europe) Limited, a United Kingdom Corporation Navstar Systems Ltd., a United Kingdom Corporation Manufacturing Solutions (Puerto Rico), Inc., Delaware Corporation EX-23.1 5 INDEPENDENT AUDITORS' CONSENT AND REPORT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE We consent to the incorporation by reference in Registration Statement No. 33-38384 on Form S-8, Post-Effective Amendment No. 2 to Registration Statement No. 33-3456 on Form S-8, Post-Effective Amendment No. 2 to Registration Statement No. 33-11317 on Form S-8, Post-Effective Amendment No. 3 to Registration Statement No. 2-70291 on Form S-8, Registration Statement No. 33- 56042 on Form S-8, Registration Statement No. 33-57163 on Form S-8, Registration Statement No. 333-00333 on Form S-8 and Registration Statement No. 333-21815 on Form S-8 of our report dated July 22, 1997, appearing in this Annual Report on Form 10-K of SymmetriCom, Inc. for the year ended June 30, 1997. Our audits of the consolidated financial statements referred to in our aforementioned report also included the consolidated financial statement schedule of SymmetriCom, Inc., listed in Item 14(a)2. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP - ------------------------- DELOITTE & TOUCHE LLP San Jose, California September 23, 1997 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 28,203 13,384 21,806 457 22,023 88,789 73,992 34,375 129,305 30,464 0 0 0 25,608 0 129,305 144,355 144,355 78,411 78,411 0 0 589 17,337 3,883 13,454 0 0 0 13,454 .83 .83
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