<PAGE>
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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
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SYMMETRICOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
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.
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<PAGE>
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
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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.
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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
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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.
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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
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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
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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:
<TABLE>
<CAPTION>
APPROXIMATE OWNED/LEASE
FLOOR AREA EXPIRATION
LOCATION PRINCIPAL OPERATIONS (SQ. FT.) DATE
-------- -------------------- ----------- --------------
<C> <S> <C> <C>
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
</TABLE>
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.
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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.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
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.
</TABLE>
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
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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
<PAGE>
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.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
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
<PAGE>
SYMMETRICOM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
----------------
1997 1996
-------- -------
<S> <C> <C>
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
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK SHARE-
--------------- RETAINED HOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------- -------- --------
<S> <C> <C> <C> <C>
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
====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
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
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
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
<PAGE>
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
<PAGE>
NOTE C--BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
JUNE 30,
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
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.
<CAPTION>
JUNE 30,
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
------- ---------
(IN THOUSANDS)
<S> <C> <C>
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
=======
</TABLE>
NOTE E--INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
27
<PAGE>
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:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1997 1996 1995
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
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:
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
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%
======= ====== ======
</TABLE>
The principal components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------
1997 1996
------ ------
(IN
THOUSANDS)
<S> <C> <C>
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
====== ======
</TABLE>
The valuation allowance primarily relates to the potential tax benefit of
stock option transactions, which will be credited to common stock if realized.
28
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES --------------------------
AVAILABLE NUMBER WEIGHTED AVERAGE
FOR GRANT OF SHARES EXERCISE PRICE
--------- --------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
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
==== =====
</TABLE>
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
<PAGE>
Additional information regarding options outstanding as of June 30, 1997 is
an follows:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
$ 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
===== ===
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
--------
* The 1997 amount includes $8,750 for a facility acquired under capital
lease.
32
<PAGE>
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:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
--------
(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
<PAGE>
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
<PAGE>
SCHEDULE II
SYMMETRICOM, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED
AT TO COSTS BALANCE
BEGINNING AND DEDUCTIONS AT END
OF YEAR EXPENSES (1) OF YEAR
--------- -------- ---------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
- --------
(1) Deductions represent costs charged or amounts written off against the
reserve or allowance.
35
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C>
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)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER INDEX OF EXHIBITS
------- -----------------
<C> <S>
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.
</TABLE>
37
<PAGE>
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
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
SYMMETRICOM, INC.
(As amended through June 30, 1997)
<PAGE>
BYLAWS
OF
SYMMETRICOM, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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
</TABLE>
-iii-
<PAGE>
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.
<PAGE>
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-
<PAGE>
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
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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
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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.
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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.
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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
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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
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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
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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.
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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.
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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
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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,
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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-
<PAGE>
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-
<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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:
<PAGE>
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
------------------------
<PAGE>
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
<PAGE>
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
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