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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998
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)
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<S> <C>
CALIFORNIA NO. 95-1906306
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2300 ORCHARD PARKWAY,
SAN JOSE, CALIFORNIA 95131-1017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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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)
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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, 1998 was approximately $76,032,192. The number of
shares outstanding of the registrant's Common Stock at September 10, 1998 was
15,798,897.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Symmetricom, Inc. Proxy Statement for the 1998 Annual
Meeting of Shareholders filed with the Commission on or about September 23,
1998 are incorporated by reference into Part III of this Annual Report on Form
10-K.
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The trend analyses and other non-historical information contained in this
Form 10-K are "forward looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbor
provisions of those Sections. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," and similar expressions
identify such forward looking statements. Such forward looking statements
include, without limitation, statements concerning the Company's future net
sales, net earnings and other operating results. The Company's actual results
could differ materially from those discussed in the forward looking statements
due to a number of factors including, without limitation, the factors listed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Business Outlook and Risk Factors" included below in Part II, Item
7.
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 as well as systems-engineered modules primarily for
use in power management and communication applications in commercial,
industrial, and defense and space markets.
TELECOM SOLUTIONS
Telecom Solutions offers a broad range of time and frequency 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 throughout a network.
Synchronization allows digital switching and transmission systems to operate
at a common, or synchronized, clock rate, thereby minimizing signal
degradation. Poor synchronization 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. 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 also plays a
critical role in many Asynchronous Transfer Mode (ATM) equipment applications.
The Company's core synchronization products consist principally of Digital
Clock Distributors (DCDs) based on quartz, rubidium and Global Positioning
System (GPS) technologies, which provide highly accurate and uninterruptible
timing that meets 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 for the generation of a stable primary timing reference
and distribution of that timing reference throughout a network, enabling
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' DCD product family consists of three product platforms:
the DCD 500 Series, the DCD Local Primary Reference (LPR) Series, and the GPS
1100 Series. The DCD 500 Series is a third generation synchronization and
timing distribution platform that provides the accurate clock references
needed throughout a
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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. The Multiple Reference Controller (MRC) card
directly accepts up to four reference sources, based on cesium, local primary
reference sources, local clock(s), and/or network feeds and selects the most
desirable reference based on a number of quality parameters. The DCD 500
platform is designed to provide maximum flexibility and meets both domestic
and international standards.
The DCD-LPR Series provides the capability to effectively use either 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 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 DCD-LPR is usually fitted
with one or two GPS Timing Interface (GTI) cards, which receive timing inputs
from the GPS receiver and output two T1 or E1 signals, and, optionally, time-
of-day. For LORAN-C based timing, the LORAN-C Timing Interface card (LTI)
provides similar functionality. The DCD-LPR can also be used with a Local
Oscillator Unit (LOU) to provide a complete stand-alone timing generation and
distribution system for facilities where a DCD 500 distribution system is
unavailable or not needed.
The GPS 1100 Series is a low-cost, compact timing unit that uses proprietary
BesTime(TM) Multiple Input Frequency Locked Loop (MIFLL) technology to combine
frequency inputs from GPS satellites, a built-in oscillator, and network T1
references to deliver a re-timed T1 reference with improved accuracy. GPS 1100
is designed for network locations where one or two key network elements need
precise timing.
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
TimeScan/TMN, a Unix-based TMN and Q3 compliant full element management system
for synchronization networks, TimeScan/NMS, a Windows NT-based proprietary
network management system, and TimeScan/Craft, a Windows 95-based local craft
maintenance terminal. TimeScan/TMN and TimeScan/NMS provide scaleable,
centralized real-time security monitoring, performance monitoring, fault
management, remote configuration, and inventory of a synchronization network.
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.
TimeScan/Craft is a local craft maintenance terminal designed to provide local
management and maintenance of one DCD at a time. Each of these products
features tools for identifying customer troubles before they affect service.
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 a very accurate synchronization source, time-of-day
information, and/or precise geographic location. A significant percentage of
Navstar's GPS receivers is purchased for timing applications, including direct
Navstar sales to the Digitally Enhanced Cordless Telephone (DECT) market and
intercompany sales to Telecom Solutions for incorporation in its
synchronization products.
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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 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.
Transmission products are typically priced at less than $5,000 for a small
system to more than $300,000 for a large system.
The Company supplies its synchronization systems and transmission products
predominantly to the Regional Bell Operating Companies (RBOCs), interexchange
carriers, independent telephone companies, Competitive Local Exchange Carriers
(CLECs), 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.
Linfinity products principally include linear and mixed signal integrated
circuits (ICs) as well as systems-engineered 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. Some of 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.
The analog and mixed-signal market is served by three product types:
standard linear IC's (SLICs), application specific standard products (ASSPs)
and custom ICs. Linfinity is focused on the power management
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segment of the overall market and competes with both SLIC and ASSP products.
Linfinity's SLIC power management products include pulse width modulators
(PWMs) which shape and manage the characteristics of voltage, low dropout
regulators (LDOs) which convert unregulated input voltage to regulated output
voltage with a minimum amount of overhead voltage, linear voltage regulators
which control power supply output levels, supervisory circuits which monitor
power supply, switching regulators which efficiently convert power by managing
voltage and current and are used to power advanced microprocessors, and power
factor correction ICs which reduce energy consumption in fluorescent lighting
and other power management product applications. SLIC products are used in
computer and data storage, lighting, automotive, telecommunications, test,
instrumentation, and defense and space equipment. In recent years, the
definition of power management has broadened to encompass other devices and
modules, often ASSPs, which address particular aspects of power management,
such as audio or display related ICs. Newer differentiated ASSP products at
Linfinity include backlight inverters, Class D audio amplification ICs, and
Small Computer Systems Interface (SCSI) terminators. 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. Class D audio amplification ICs
provide high-quality sound reproduction with small form-factor and improved
efficiency for sophisticated multi-media and wireless applications.
Linfinity's SCSI terminators, both Single Ended (SE) and Low Voltage
Differential (LVD), enable 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's marketing strategy has been one of leveraging its custom and
military programs first into higher volume SLIC opportunities, followed by
market entries with several ASSP products. Linfinity now offers a catalog of
approximately 450 standard catalog products and has introduced numerous ASSPs.
However, the market for new products sold by Linfinity has been very
competitive and characterized by pricing pressures.
Linfinity has developed bipolar wafer fabrication processes in its in-house
manufacturing facility which provide a range of high-voltage processes 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 bipolar process
with a CMOS process for mixed signal applications such as certain power
management ICs. However, because Linfinity's in-house BiCMOS wafer fabrication
capacity is limited, the Company utilizes 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 and 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 $100
to $500 for high reliability space applications.
Linfinity sells its products in the commercial, industrial, and defense and
space markets to OEMs and distributors.
In July 1998, the Company began a process to identify alternatives to
broaden Linfinity's market access for its products and to provide greater
financial resources for executing Linfinity's marketing strategy. The Company
has engaged BT Alex. Brown Inc. to assist in evaluating potential partnerships
that address these goals.
INDUSTRY SEGMENT INFORMATION
Information as to net sales, gross profit margin, research and development
expense, selling, general and administrative expense, operating income (loss),
identifiable assets, accounts receivable (net), inventories (net),
depreciation and amortization expense, and capital expenditures attributable
to each of the Company's two industry segments for each year in the three-year
period ended June 30, 1998, is contained in Note J of the Notes
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to Consolidated Financial Statements. See Part IV, Item 14. "Exhibits,
Financial Statement Schedule and Reports on Form 8-K."
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, CLECs, private network operators
and wireless service providers. Internationally, Telecom Solutions markets and
sells its products to telecommunications service providers 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 and
international 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.
The Linfinity 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 utilizes
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
Linfinity 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
that 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
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reserve of certain ICs and 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 Test
Services."
BACKLOG
The Company's backlog was approximately $15.2 million at June 30, 1998
compared to approximately $26.2 million at June 30, 1997. 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 $6.3 million and $7.3 million at June 30,
1998 and 1997, respectively. Historically, a substantial portion of Telecom
Solutions' net sales in any fiscal period has been derived from orders
received during that fiscal period. Linfinity's backlog was approximately $8.9
million and $18.9 million at June 30, 1998 and 1997, respectively. The
semiconductor industry has recently experienced a change towards significantly
shorter lead times resulting in an increased dependence by Linfinity upon
orders received and shipped during the same quarter. Linfinity's backlog may
be affected by the cancelation or delay of customer orders, the overall
condition of the semiconductor industry, overall worldwide economic conditions
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
No customer accounted for 10% or more of the Company's net sales in fiscal
years 1998 and 1996. In fiscal 1997, one of Telecom Solutions' customers, AT&T
Corporation, accounted for 16% of the Company's total net sales. The Company's
export sales, which were primarily to the Far East, Western Europe, Canada and
Latin America accounted for 27%, 26% and 28% of the Company's net sales in
fiscal years 1998, 1997 and 1996, respectively. Export sales to the Far East
accounted for 12%, 16%, and 13% of the Company's net sales in fiscal years
1998, 1997 and 1996, 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 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. In addition, as part of its license and supply agreement
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with Linfinity, IMP, Inc. has the right to manufacture, market and sell the
SCSI line of products through its own sales force in direct competition with
Linfinity.
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. Product life cycles in the semiconductor
industry typically experience declining average selling prices (ASPs) over the
life of a product. Several of the Company's product lines, including LDOs and
PWMs, are undergoing such price erosion. Linfinity's response has been to
increase the volume of units shipped and introduce new products with higher
ASPs, but there can be no assurance that the Company will be able to fully
offset the impact of future declines in ASPs. The Company believes that both
Telecom Solutions and Linfinity have generally competed favorably with respect
to their respective competitive factors, except in limited segments of the
semiconductor market where Linfinity products are under extreme price pressure
due to intense price competition.
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,
the average selling prices received for its products, 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, changes in overall worldwide market and
economic conditions, cost effectiveness, quality, 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 1998, 1997 and 1996, the Company's overall research
and development expenditures were $18,810,000, $18,457,000 and $15,413,000,
respectively. All research and development expenditures were expensed as
incurred. At June 30, 1998, 93 engineering and engineering support employees
were engaged in development activities. Telecom Solutions continued to focus
its development efforts in fiscal year 1998 on new products as well as the
enhancement of core synchronization and transmission products. The new product
development program included wireline and wireless synchronization, network
management software and core GPS, antenna and clock technologies. Telecom
Solutions' research and development expenditures were $12,387,000, $12,866,000
and $9,581,000 in fiscal years 1998, 1997 and 1996, respectively. Linfinity
focused its investment efforts in fiscal year 1998 on new product development,
enhancement of existing products and design capabilities, and improvement of
its wafer fabrication process technologies. Its new product development
program has been focused heavily on ASSPs and other desktop power management
products. Linfinity's product development program is dependent upon its
ability to recruit and retain design and applications engineers. Linfinity's
research and development expenditures were $6,423,000, $5,591,000 and
$5,832,000 in fiscal years 1998, 1997 and 1996, respectively. The Company will
continue to have significant research and development expenditures in order to
maintain its competitive position, 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 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.
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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. Although the Company periodically reviews its
facilities and internal operations for compliance with applicable
environmental regulations, such reviews are necessarily limited in scope and
frequency and, therefore, there can be no assurance that such reviews have
revealed or will reveal all potential instances of noncompliance. The
liabilities arising from any noncompliance with such environmental regulations
could materially adversely affect the Company's business, financial condition
and results of operations.
EMPLOYEES
At June 30, 1998, the Company had 642 employees, including 345 in
manufacturing, 115 in engineering and 182 in sales, marketing and
administration. At June 30, 1998, Telecom Solutions had 426 employees and
Linfinity had 216 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,
1998:
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<CAPTION>
APPROXIMATE OWNED/LEASE
FLOOR AREA EXPIRATION
LOCATION PRINCIPAL OPERATIONS (SQ. FT.) DATE
-------- -------------------- ----------- -------------
<C> <S> <C> <C>
San Jose, California..... Symmetricom Corporate 118,000 April 2009
Offices and Telecom
Solutions
administration, sales,
engineering and
manufacturing
Aguada, Puerto Rico...... Telecom Solutions 45,000 September
manufacturing 1999
Aguada, Puerto Rico...... Telecom Solutions 22,000 September
manufacturing 2000
Northampton, England..... Navstar administration, 18,000 April 1999
sales, engineering and
manufacturing
Garden Grove, California. Linfinity administration, 96,000 Owned
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 previous 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
Company believes that its current facilities are well maintained and generally
adequate to meet short-term requirements.
ITEM 3. LEGAL PROCEEDINGS
In January 1994, a securities class action complaint was filed against the
Company and certain of its present or former officers or directors in the
United States District Court, Northern District of California. The action was
filed on behalf of a putative class of purchasers of the Company's stock
during the period April 6, 1993 through November 10, 1993. The complaint seeks
unspecified money damages and alleges that the Company and certain of its
present or former officers or directors violated federal securities laws in
connection with various public statements made during the putative class
period. The Court dismissed the first and second amended complaints with leave
to amend. The plaintiff filed a third amended corrected complaint in August
1997. The Company filed a motion to dismiss this third amended complaint which
was denied in January 1998. Discovery is proceeding. The Company and its
officers believe that the complaint is entirely without merit, and intend to
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 any certainty, management, after
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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, 1998.
EXECUTIVE OFFICERS OF THE COMPANY
Following is a list of the executive officers of the Company as of September
1, 1998 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
---- --- --------
<S> <C> <C>
Roger A. Strauch........ 42 Chief Executive Officer and Chief Financial Officer
Mary A. Rorabaugh....... 39 Vice President, Finance and Secretary
Thomas W. Steipp........ 49 President and Chief Operating Officer, Telecom Solutions
James J. Peterson....... 43 President and Chief Operating Officer, Linfinity Microelectronics Inc.
</TABLE>
Mr. Strauch has served as Chief Executive Officer and Chief Financial
Officer of the Company since June 1998 and July 1998, respectively. In
addition, Mr. Strauch is Chairman of the Board of The Roda Group, a venture
development firm based in Berkeley, California. In June of 1997, Mr. Strauch
retired from his position as Chairman of the Board and Chief Executive Officer
of TCSI Corporation (TCSI), a telecommunications software company. Mr. Strauch
co-founded TCSI in 1983 and served initially as the general manager of this
Teknekron Corporation division. Once established as a separate corporation,
Mr. Strauch was elected as TCSI's President in 1987 and, in addition, its
Chief Executive Officer in 1989 and Chairman of the Board in 1996. For five
years prior thereto, Mr. Strauch served as a senior staff engineer and project
manager for Hughes Aircraft Company's Space and Communications Group. Mr.
Strauch is on the Board of Directors of Ask Jeeves, an internet navigation
company, NightFire Software, a telecommunications software company, and
Plynetics Express, a rapid prototyping and tooling manufacturer. He is a
member of the Board of Trustees of the Math Sciences Research Institute, the
Industrial Advisory Board of the Department of Electrical Engineering and
Computer Sciences at the University of California, Berkeley, and a member of
Cornell University's College of Engineering Advisory Council.
Ms. Rorabaugh has served as Vice President, Finance and Secretary of the
Company since July 1998 and as Vice President, Finance of Telecom Solutions, a
division of the Company, from April 1997 to June 1998. From April 1993 to
March 1997, Ms. Rorabaugh served as Controller, Telecom Solutions. Prior to
joining the Company, from April 1989 to March 1993, Ms. Rorabaugh was Director
of Corporate Finance and Manager of Financial Planning at VLSI Technology,
Inc., a semiconductor company. From April 1988 to March 1989, Ms. Rorabaugh
was Division Controller for Conner Peripherals, Inc., a manufacturer of hard
disk drives. From May 1984 to March 1988, Ms. Rorabaugh held various positions
with VLSI Technology, Inc., including Operations Planning Manager,
Manufacturing Controller and Senior Manufacturing Analyst. Previously,
Ms. Rorabaugh was a consultant for two years with Putnam, Hayes, & Bartlett,
Inc., a management consulting firm.
Mr. Steipp has served as President and Chief Operating Officer, Telecom
Solutions, a division of the Company, since March 1998. Prior to joining the
Company, from February 1996 to February 1998, Mr. Steipp served as Vice
President and General Manager of Broadband Data Networks, a division of
Scientific-Atlanta. From January 1979 to January 1996, Mr. Steipp held various
management positions in operations and marketing
10
<PAGE>
with Hewlett-Packard. Mr. Steipp served as General Manager of the Federal
Computer Division from January 1991 to January 1996 and Manager of Federal
Sales & Marketing from August 1990 to January 1991. From January 1989 to
August 1990, Mr. Steipp was Manager, Systems Integration Operations.
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 Director, Far East
Sales. From January 1983 to January 1987, Mr. Peterson was Product Marketing
Manager, Telecommunications. Previously, Mr. Peterson was Product Marketing
Engineer and Industry Marketing Specialist with Rockwell Corporation and
General Instruments Microelectronics Division, respectively.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is described in Note K of the Notes to
Consolidated Financial Statements. See Part IV, Item 14. "Exhibits, Financial
Statement Schedule and Reports on Form 8-K."
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 IV, Item 14. "Exhibits, Financial Statement Schedule and Reports on Form
8-K," 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,
--------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales:
Telecom Solutions $ 73,311 $ 89,718 $ 68,243 $ 62,814 $59,215
Linfinity Microelectronics Inc. 47,270 54,637 37,795 40,294 39,170
-------- -------- -------- -------- -------
Total 120,581 144,355 106,038 103,108 98,385
Operating income (loss) (5,121) 15,998 8,263 10,868 8,331
Earnings (loss) before income
taxes (4,140) 17,337 9,476 11,599 8,125
Net earnings (loss) (1,530) 13,454 7,478 10,346 6,551
Basic earnings (loss) per share (.10) .85 .48 .71 .47
Diluted earnings (loss) per share (.10) .83 .47 .66 .43
Balance Sheet:
Cash and investments 34,342 41,587 34,270 33,205 21,250
Working capital 55,556 58,325 55,522 50,739 38,503
Total assets 114,893 129,305 93,531 85,326 69,054
Long-term obligations 8,368 8,583 5,709 5,766 5,818
Shareholders' equity 84,357 87,603 70,403 60,125 46,786
</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
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, level and value of the Company's inventories, the timing of new product
introductions by the Company and its competitors, customer delays in
qualification of new products, increased competition and competitive pricing
pressures, fluctuations, especially declines, in the average selling prices
received for its products, 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. For example, net sales for the fourth quarter of fiscal 1998 were
$28.1 million compared to $39.1 million for the fourth quarter of fiscal 1997
due, in part, to the factors described
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<PAGE>
above. A significant portion of the Company's operating and manufacturing
expenses are relatively fixed in nature and planned expenditures are based in
part on anticipated orders. 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
achieve and maintain reasonable gross profit margins and positive net
earnings. 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. For example, when net
sales declined to $120.6 million for fiscal 1998 from $144.4 million for
fiscal 1997, the Company's earnings before income taxes fell to a loss of $4.1
million (including $9.2 million in non-recurring charges incurred in the third
quarter of fiscal 1998) for fiscal 1998 from earnings before income taxes of
$17.3 million in fiscal 1997 due, in part, to the factors described above. 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; Limited Backlog. A substantial
portion of the Company's quarterly net sales is often dependent upon orders
received and shipped during that quarter, of which, a significant portion may
be received during the last month or even the last few days of that quarter.
The semiconductor industry has recently experienced a change towards
significantly shorter lead times resulting in an increased dependence by
Linfinity upon orders received and shipped during the same quarter. The timing
of the receipt and shipment of even one large order may have a significant
impact on the Company's net sales and results of operations for such quarter.
Furthermore, most orders in backlog can be rescheduled or canceled without
significant penalty. As a result, it is difficult to predict the Company's
quarterly results even during the final days of a quarter. However, based on
orders received through the first two months of fiscal 1999, the Company
expects that net sales for the first quarter of fiscal 1999 will decline as
compared to net sales for the first quarter of fiscal 1998.
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 any given fiscal period. In
fiscal 1997, AT&T Corporation (AT&T), a Telecom Solutions customer, accounted
for 16% of the Company's total net sales. No customer accounted for 10% or
more of net sales in fiscal years 1998 and 1996. The timing and level of sales
to the Company's largest customers have fluctuated significantly in the past
and are expected to continue to fluctuate significantly from quarter-to-
quarter and year-to-year in the future. For example, the Company's sales to
AT&T increased to $22.5 million in fiscal 1997 from $2.6 million in fiscal
1996 but decreased to $8.1 million in fiscal 1998. There can be no assurance
as to the timing or level of future sales to the Company's customers. The loss
of one or more of the Company's significant customers or a significant
reduction or delay in sales to any such customer, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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 new and enhanced products, in a cost-effective and
timely manner. 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.
13
<PAGE>
Product Performance and Reliability. The Company's customers establish
demanding specifications for product performance and reliability. The
Company's products are complex and often use state of the art components,
processes and techniques. Undetected errors and design flaws have occurred in
the past and 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. In addition to higher
product service, warranty and replacement costs, such product defects may
seriously harm the Company's customer relationships and industry reputation,
further magnifying the adverse impact of such defects. Any such product
performance or reliability problems could have a material adverse effect on
the Company's business, financial condition and results of operations.
Competition; Pricing Pressure. The Company believes that competition in the
telecommunications and semiconductor industries in general, and in the new and
existing markets served by the Company in particular, is intense and likely to
increase substantially. The Company's ability to compete successfully in the
future will depend on, among other things: the cost effectiveness, quality,
price, service and market acceptance of the Company's products; its response
to the entry of new competitors or the introduction of new products by the
Company's competitors; its ability to keep pace with changing technology and
customer requirements; the timely development or acquisition of new or
enhanced products; and the timing of new product introductions by the Company
or its competitors. In the telecommunications market, Telecom Solutions'
primary competitors are Datum Inc. and Hewlett-Packard Company. In addition,
due, in part, to the enactment of The Telecommunications Act of 1996, which
permits Regional Bell Operating Companies (RBOCs), which are among Telecom
Solutions' largest customers, to manufacture telecommunications equipment,
RBOCs may increasingly become significant competitors of Telecom Solutions. In
the semiconductor market, Linfinity competes with a number of large
multinational companies and smaller niche companies. In addition, as part of
its license and supply agreement with Linfinity, IMP, Inc. has the right to
manufacture, market, and sell the SCSI line of products through its own sales
force in direct competition with Linfinity. Many of the Company's competitors
or potential competitors are more established than the Company and have
greater financial, manufacturing, technical and marketing resources.
Furthermore, the Company expects its competitors to continually improve their
design and manufacturing capabilities and to introduce new products and
services with enhanced performance characteristics and/or lower prices. The
Company continues to experience significant pricing pressures in all of its
markets and has experienced price erosion in several product lines, including
LDOs and PWMs. In addition, the continuing trend toward lower-priced personal
computers has intensified pricing pressures in certain related markets served
by Linfinity. Linfinity's response has been to attempt to increase the volume
of units shipped and to attempt to introduce new products with higher average
selling prices, but there can be no assurance that the Company will be able to
fully offset the impact of this severe price erosion. This competitive
environment could result in significant price reductions or the loss of orders
from current and/or potential customers which, in each case, could materially
adversely affect the Company's business, financial condition and results of
operations.
Dependence on Foundries, Assembly and Test Services. Although Linfinity uses
its own semiconductor fabrication facility to manufacture bipolar wafers, it
utilizes IMP, Inc., an independent semiconductor foundry located in San Jose,
California, to supply most of its BiCMOS wafers. While reliance on an outside
foundry may reduce capital expenditures and fixed costs, it increases certain
risks significantly, including limited control of: delivery schedules;
manufacturing yields; production costs; and wafer supply, particularly during
periods of rapidly fluctuating demand. In the event that Linfinity's outside
foundry, as a result of financial or operating difficulties or otherwise, is
unable or unwilling to continue supplying wafers to Linfinity in the
quantities and with the yields required by Linfinity, there can be no
assurance that Linfinity will be able to identify and qualify additional
manufacturing sources in a timely manner, that any such additional
manufacturing sources would be able to produce wafers with acceptable
manufacturing yields or that Linfinity would not experience delays in product
availability, quality problems, increased costs or disruption in product
development activities. Irrespective of cause, delayed or reduced wafer supply
or reduced manufacturing yields could result in delayed shipments or canceled
orders which, in either case, could materially and adversely affect the
Company's business, financial condition and results of operations.
14
<PAGE>
Linfinity also increasingly relies on independent contract manufacturers in
the Far East 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 Linfinity is
required, due to contractors' 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 business, financial condition and results of operations.
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 and international 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 position. 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. While the Company intends to continue its
efforts to obtain patents whenever possible, there can be no assurance that
patents will be issued or that new or existing patents will not be challenged,
invalidated or circumvented or that the rights granted will provide any
commercial benefit to the Company. The Company is also subject to the risk of
adverse claims and litigation alleging infringement of the intellectual
property rights of others. Although the Company is not currently party to any
intellectual property litigation, from time to time it has received claims
asserting that the Company has infringed the proprietary rights of others.
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 liabilities. Although the Company periodically reviews its
facilities and internal operations for compliance with applicable
environmental regulations, such reviews are necessarily limited in scope and
frequency and, therefore, there can be no assurance that such reviews have
revealed or will reveal all potential instances of noncompliance. The
liabilities arising from any noncompliance with such environmental regulations
could materially adversely affect the Company's business, financial condition
and results of operations.
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,
financial condition and results of operations. 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. Changes in current or
future laws or regulations, in the United States or elsewhere, could
materially and adversely affect the Company's business, financial condition
and results of operations.
15
<PAGE>
Risks Associated with International Sales. The Company's export sales, which
were primarily to the Far East, Western Europe, Canada and Latin America
accounted for 27%, 26% and 28% of the Company's net sales in fiscal years
1998, 1997 and 1996, respectively. Export sales to the Far East accounted for
12%, 16% and 13% of the Company's net sales in fiscal years 1998, 1997 and
1996, respectively. International sales subject the Company to increased risks
associated with political and economic instability and changes in diplomatic
and trade relationships. For example, the Company believes that the recent
economic instability being experienced by certain Asian countries may continue
to adversely affect export sales to the Far East during the first quarter of
fiscal 1999 and beyond. In addition to the loss of direct sales to the region,
the economic instability in Asia could have a material adverse effect on the
Company's business, financial condition and results of operations indirectly
if, for example, the current situation in Asia adversely affects the Company's
distributors, customers and suppliers in the Asia region or elsewhere in the
world, causing more widespread reductions in sales, delays in collection and
supply difficulties.
International sales may be subject to certain additional 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. 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.
There can be no assurance that such factors will not materially and adversely
affect the Company's business, financial condition or results of 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.
Inventory Risks. In the third quarter of fiscal 1998, the Company recorded
an $8.5 million inventory provision in view of lower sales prices and sales
volumes experienced by Linfinity. Although the Company believes that it
currently has appropriate provisions for inventory that has declined in value,
become obsolete or is in excess of anticipated demand, there can be no
assurance that such provisions will be adequate. The Company's business,
financial condition and operating results may be materially adversely affected
if significant inventories become obsolete or are otherwise not able to be
sold at favorable prices.
Uncertainties Regarding Sales to Distributors. The percentage of the
Company's sales sold through distributors, particularly at Linfinity, has
generally increased over the past several years, although such percentage
fluctuates from quarter to quarter. Sales to distributors, either
contractually or by industry custom, may be subject to certain rights of
return and other allowances for which the Company maintains reserves. However,
there can be no assurance that such reserves will be adequate. The Company's
business, financial condition and operating results may be materially
adversely affected if actual allowances significantly exceed amounts reserved
therefor.
Changes to Effective Tax Rate. The Company's effective tax rate is affected
by the proportion of earnings (loss) before income taxes that the Company
derives from its Telecom Solutions operation compared to its Linfinity
operation. The effective tax rate in fiscal 1998 was magnified by the
significant loss at Linfinity which was subject to higher tax rates from its
United States jurisdictions offset by the earnings at Telecom Solutions. Most
of Telecom Solutions' Puerto Rico earnings are taxed under Section 936 of the
U.S. Internal Revenue Code which exempts qualified Puerto Rico earnings from
federal income taxes. This results in an overall lower effective tax rate for
Telecom Solutions. This exemption is subject to certain wage-based limitations
and expires at the end of fiscal 2006. In addition, this exemption will be
subject to further limitations during fiscal years 2003 through 2006.
Fluctuations in Stock Price. 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.
16
<PAGE>
Year 2000 Compliance Risks. The Company is aware that many existing
information technology (IT) systems, such as computer systems and software
products, as well as non-IT systems that include embedded technology, were not
designed to correctly process dates after December 31, 1999. The Company is
currently assessing the impact of such "Year 2000" issues on its internal IT
and non-IT systems as well as on its customers, suppliers and service
providers. The Company has formed a Year 2000 Project Team to identify and
address Year 2000 compliance issues, including those related to the Company's
significant non-IT systems used in the Company's buildings, plant, equipment
and other infrastructure. The Year 2000 Project Team is continuing its testing
and evaluation of the Company's products and the Company's IT systems and has
recently begun the process of compiling an inventory of all material Year 2000
issues related to the Company's non-IT systems. The Company has not identified
any significant areas of non-compliance with respect to its products or IT
systems and expects that the assessment and plans for remedial action for all
of its products, IT systems and non-IT systems will be completed by the end of
fiscal 1999. The Company has also initiated discussions with its significant
suppliers and service providers regarding their plans to investigate and
remediate their Year 2000 issues. Although the Company anticipates cooperation
in these efforts from most of the Company's significant suppliers and service
providers, the Company is also dependent on certain utility companies,
telecommunication service companies and other service providers that are
outside the Company's control. Therefore, it may be difficult for the Company
to obtain assurances of Year 2000 readiness from such third parties. Although
the Company believes that its Year 2000 Project Team will identify all of the
Company's material Year 2000 issues in the course of its assessments, given
the pervasiveness of Year 2000 issues and the complex interrelationships among
Year 2000 issues both internal and external to the Company, there can be no
assurance that the Company will be able to identify and accurately evaluate
all such issues.
The Company estimates that the expenses it has incurred to date to address
Year 2000 issues have not been material and, although it has not completed its
full assessment of its Year 2000 readiness, it does not expect to incur
material expenses in connection with any required remediation efforts.
As the process of compiling an inventory of non-IT systems proceeds and as
the other efforts of the Year 2000 Project Team continue, the Company may
identify situations that present material Year 2000 risks and/or that will
require substantial time and material expense to address. In addition, if any
customers, suppliers or service providers fail to appropriately address their
Year 2000 issues, such failure could have a material adverse effect on the
Company's business, financial condition and results of operations. For
example, because a significant percentage of the purchase orders received from
the Company's customers are computer generated and electronically transmitted,
a failure of one or more of the computer systems of the Company's customers
could have a significant adverse effect on the level and timing of orders from
such customers. Similarly, if Year 2000 problems experienced by any of the
Company's significant suppliers or service providers cause or contribute to
delays or interruptions in the delivery of products or services to the
Company, such delays or interruptions could have a material adverse effect on
the Company's business, financial condition and results of operations.
Finally, disruption in the economy generally resulting from Year 2000 issues
could also materially adversely affect the Company. Although the Year 2000
Project Team has not yet determined the most likely worst-case Year 2000
scenarios or quantified the likely impact of such scenarios, it is clear that
the occurrence of one or more of the risks described above could have a
material adverse effect on the Company's business, financial condition or
results of operations.
The Company's Year 2000 Project Team's activities will include the
development of contingency plans in the event the Company has not completed
all of its remediation programs in a timely manner. In addition, the Year 2000
Project Team will develop contingency plans in the event that any third
parties who provide goods or services essential to the Company's business fail
to appropriately address their Year 2000 issues. The Year 2000 Project Team
expects to conclude the development of these contingency plans by the end of
fiscal 1999. Even if these plans are completed on time and put in place, there
can be no assurance that such plans will be sufficient to address any third
party failures or that unresolved or undetected internal and external Year
2000 issues will not have a material adverse effect on the Company's business,
financial condition and results of operations.
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
17
<PAGE>
the telecommunications industry. Linfinity Microelectronics Inc., a subsidiary
of the Company, designs, manufactures and markets linear and mixed signal
integrated circuits as well as systems-engineered modules primarily for use in
power management and communication applications in commercial, industrial, and
defense and space markets.
Net Sales
Net sales decreased by $23.8 million (16%) to $120.6 million in fiscal 1998
as compared to fiscal 1997 and increased by $38.3 million (36%) to $144.4
million in fiscal 1997 as compared to fiscal 1996. The decrease in fiscal 1998
sales was due to lower sales in both operations. The increase in fiscal 1997
sales was due to higher sales in both operations.
Telecom Solutions' net sales decreased by $16.4 million (18%) to $73.3
million in fiscal 1998 as compared to fiscal 1997 and increased by $21.5
million (31%) to $89.7 million in fiscal 1997 as compared to fiscal 1996. The
decrease in fiscal 1998 was principally due to lower sales to AT&T Corporation
(AT&T), which decreased to $8.1 million in fiscal 1998 from $22.5 million in
fiscal 1997, and the completion of the Secure7 contract with SBC
Communications Inc., where Secure7 sales decreased to $0.9 million in fiscal
1998 from $8.1 million in fiscal 1997, partially offset by higher sales to
international accounts, particularly Italy, Germany and South Africa. The
Company expects sales to AT&T to fall further in fiscal 1999. The increase in
fiscal 1997 was principally due to higher sales to AT&T which increased to
$22.5 million in fiscal 1997 from $2.6 million in fiscal 1996.
Linfinity's net sales decreased by $7.4 million (13%) to $47.3 million in
fiscal 1998 as compared to fiscal 1997 and increased by $16.8 million (45%) to
$54.6 million in fiscal 1997 as compared to fiscal 1996. The decrease in
fiscal 1998 was due to increased price pressure and weak demand from component
manufacturers supplying the personal computer markets as well as an overall
decline in the global semiconductor market. The increase in fiscal 1997 was
primarily due to higher unit volumes of new standard commercial products and a
shift in sales to higher priced products.
Gross Profit Margin
The Company's gross profit margin was 37%, 46% and 44% in fiscal 1998, 1997
and 1996, respectively.
Telecom Solutions' gross profit margin was 50%, 49%, 46% in fiscal 1998,
1997 and 1996, respectively. In fiscal 1998, the higher gross margin reflects
a slightly more favorable product mix as compared to fiscal 1997. In fiscal
1997, the higher gross margin was principally attributable to higher unit
volumes and increased manufacturing efficiencies.
Linfinity's gross profit margins were 17%, 40% and 40% in fiscal 1998, 1997
and 1996, respectively. The fiscal 1998 results include a one-time charge for
inventory provision of $8.5 million and a reduction in force charge of $0.3
million. Excluding the one-time charges of $8.8 million, the gross margin for
fiscal 1998 was 36%. Excluding the one-time charges, the decrease in gross
profit margin in fiscal 1998 was primarily attributed to lower production
volumes and sales prices. In fiscal 1997, gross profit margin was unchanged
from fiscal 1996, reflecting efficiencies from higher unit sales volumes fully
offset by falling prices in some areas.
Operating Expenses
Research and development expense was $18.8 million (or 16% of net sales),
$18.5 million (or 13% of net sales) and $15.4 million (or 15% of net sales) in
fiscal 1998, 1997 and 1996, respectively.
Telecom Solutions' research and development expense was $12.4 million (or
17% of net sales), $12.9 million (or 14% of net sales) and $9.6 million (or
14% of net sales) in fiscal 1998, 1997 and 1996, respectively. The fiscal 1998
results reflect continued high investments in new products and core
technology,
18
<PAGE>
with a slight reduction due to lower earnings-based incentive compensation.
During fiscal 1998, Telecom Solutions' new product development program was
focused on wireline and wireless synchronization, network management software
and core GPS, antenna and clock technologies. The increase in fiscal 1997 was
primarily due to higher expenditures for the development of new wireless
synchronization products and technologies and for the initial development
efforts related to network management software.
Linfinity's research and development expense was $6.4 million (or 14% of net
sales), $5.6 million (or 10% of net sales) and $5.8 million (or 15% of net
sales) in fiscal 1998, 1997 and 1996, respectively. In fiscal 1998, $0.5
million of the increase was due to purchased development from IMP, Inc.
Linfinity's new product development program was focused on developing its new
line of ASSPs and desktop power management products during fiscal 1998, 1997
and 1996.
Selling, general and administrative expense was $30.6 million (or 25% of net
sales), $31.5 million (or 22% of net sales) and $22.5 million (or 21% of net
sales) in fiscal 1998, 1997 and 1996, respectively.
Telecom Solutions' selling, general and administrative expense was $19.1
million (or 26% of net sales), $21.1 million (or 24% of net sales) and $15.8
million (or 23% of net sales) in fiscal 1998, 1997 and 1996, respectively. The
decrease in fiscal 1998 reflects lower selling expenses associated with lower
sales and lower earnings-based incentive compensation. 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.
Linfinity's selling, general and administrative expense was $11.5 million
(or 24% of net sales), $10.4 million (or 19% of net sales) and $6.7 million
(or 18% of net sales) in fiscal 1998, 1997 and 1996, respectively. The
increase in fiscal 1998 was substantially due to an increase in bad debt
provision and a $0.4 million charge related to a reduction in force. The
increase in 1997 was substantially due to higher marketing and sales expenses
associated with increased sales, expanded sales support, new product promotion
and higher earnings-based incentive compensation.
Operating Income (Loss)
Operating loss was $5.1 million in fiscal 1998, a $21.1 million decrease in
operating income from fiscal 1997. Fiscal 1997 operating income increased by
94% to $16.0 million from $8.3 million in fiscal 1996.
Telecom Solutions' operating income decreased by 52% to $4.8 million in
fiscal 1998 and increased 71% to $10.0 million in fiscal 1997 from $5.9
million in fiscal 1996. The decrease in fiscal 1998 is primarily attributable
to the unfavorable impact of lower net sales partially offset by reductions in
operating expenses. The increase in fiscal 1997 reflects the favorable impact
of higher net sales partially offset by increased operating expenses.
Linfinity's operating loss was $9.9 million in fiscal 1998, a $15.9 million
decrease in operating income from fiscal 1997. Fiscal 1997 operating income
increased by 150% to $6.0 million from $2.4 million in fiscal 1996. The fiscal
1998 results reflect the unfavorable effect of lower net sales, the one-time
charge to inventory provision, the one-time charges for the reduction in force
and increased operating expenses. The increase in fiscal 1997 reflects the
favorable impact of higher net sales partially offset by higher operating
expenses.
Interest Income (Expense)
Interest income was $1.8 million, $1.9 million and $1.8 million in fiscal
1998, 1997 and 1996, respectively. The decrease in fiscal 1998 reflects lower
average invested cash balances offset by slightly higher interest rates.
Interest expense was $0.8 million, $0.6 million and $0.6 million in fiscal
1998, 1997 and 1996, respectively. Fiscal 1998 was predominantly due to
interest expense at Telecom Solutions, associated with the capital lease on
19
<PAGE>
its building in San Jose. Interest expense in fiscal 1997 and fiscal 1996 was
associated with a note payable at Linfinity that was repaid in full in
September 1997.
Income Taxes
The income tax benefit was $2.6 million (effective tax rate of 63%) in
fiscal 1998. The income tax provision was $3.9 million (effective tax rate of
22%) and $2.0 million (effective tax rate of 21%) in fiscal 1997 and 1996,
respectively. The fiscal 1998 income tax benefit and effective tax rate were
primarily affected by the proportion of earnings (loss) before income taxes
between Telecom Solutions and Linfinity. The effective tax rate in fiscal 1998
was magnified by the significant loss at Linfinity netted against the earnings
at Telecom Solutions. Linfinity was subject to higher tax rates from its
United States jurisdictions, while most of the Telecom Solutions Puerto Rico
earnings are taxed under Section 936 of the U.S. Internal Revenue code which
exempts qualified Puerto Rico earnings from federal income taxes. The fiscal
1997 and 1996 effective tax rates were lower than the federal tax rate
principally due to the benefit of lower income tax rates resulting from the
federal exemption of qualified Puerto Rico earnings. However, this Section 936
exemption expires at the end of fiscal 2006 and is subject to certain wage
based limitations. Additionally, this benefit will be further limited during
fiscal 2003 to 2006, based on certain prior year Puerto Rico earnings.
Net Income (Loss)
As a result of the factors discussed above, net loss was $1.5 million, or
$0.10 per share (diluted), in fiscal 1998 compared to net earnings of $13.5
million, or $0.83 per share (diluted), in fiscal 1997 and net earnings of $7.5
million, or $0.47 per share (diluted), in fiscal 1996.
New Accounting Pronouncements
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings per Share," which requires
the presentation of basic and diluted earnings per share information. Basic
earnings per share, which replaces primary earnings per share, is computed by
dividing net earnings by the weighted average number of common shares
outstanding during the period. Diluted earnings per share, which replaces
fully diluted earnings per share, is computed by dividing net earnings by the
weighted average number of common shares outstanding and common equivalent
shares from dilutive stock options, using the treasury stock method. All prior
period earnings per share data presented have been restated to conform with
the provisions of this Statement.
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.
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities," was
issued which defines derivatives, requires all derivatives be carried at fair
value, and provides for hedging accounting when certain conditions are met.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Although the Company has not fully assessed the
implications of this new statement, the Company does not believe adoption of
this statement will have a material impact on the Company's financial
statements.
20
<PAGE>
Liquidity and Capital Resources
Working capital decreased to $55.6 million at June 30, 1998 from $58.3
million at June 30, 1997, while the current ratio increased to 3.8 to 1.0 from
2.9 to 1.0. The increase in the current ratio resulted primarily from the
repayment of a $5.7 million note. During the same period, cash, cash
equivalents and short-term investments decreased to $34.3 million from $41.6
million, principally due to $6.5 million used for capital expenditures, the
repayment of the $5.7 million note, and $1.8 million used for the net
repurchase of the Company's common stock which more than offset $7.5 million
in cash provided by operating activities.
At June 30, 1998, the Company had a capital lease obligation entered during
fiscal 1997 for a facility as described in Note D of the Notes to Consolidated
Financial Statements See Part IV, Item 14. "Exhibits, Financial Statement
Schedule and Reports on Form 8-K." At June 30, 1998, 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 1999. At June 30, 1998, the
Company had no material outstanding commitments to purchase capital equipment.
Year 2000 Issue
The Company is aware that many existing information technology (IT) systems,
such as computer systems and software products, as well as non-IT systems that
include embedded technology, were not designed to correctly process dates
after December 31, 1999. The Company is currently assessing the impact of such
"Year 2000" issues on its internal IT and non-IT systems as well as on its
customers, suppliers and service providers. The Company has formed a Year 2000
Project Team to identify and address Year 2000 compliance issues, including
those related to the Company's significant non-IT systems used in the
Company's buildings, plant, equipment and other infrastructure. The Year 2000
Project Team is continuing its testing and evaluation of the Company's
products and the Company's IT systems and has recently begun the process of
compiling an inventory of all material Year 2000 issues related to the
Company's non-IT systems. The Company has not identified any significant areas
of non-compliance with respect to its products or IT systems and expects that
the assessment and plans for remedial action for all of its products, IT
systems and non-IT systems will be completed by the end of fiscal 1999. The
Company has also initiated discussions with its significant suppliers and
service providers regarding their plans to investigate and remediate their
Year 2000 issues. Although the Company anticipates cooperation in these
efforts from most of the Company's significant suppliers and service
providers, the Company is also dependent on certain utility companies,
telecommunication service companies and other service providers that are
outside the Company's control. Therefore, it may be difficult for the Company
to obtain assurances of Year 2000 readiness from such third parties. Although
the Company believes that its Year 2000 Project Team will identify all of the
Company's material Year 2000 issues in the course of its assessments, given
the pervasiveness of Year 2000 issues and the complex interrelationships among
Year 2000 issues both internal and external to the Company, there can be no
assurance that the Company will be able to identify and accurately evaluate
all such issues.
The Company estimates that the expenses it has incurred to date to address
Year 2000 issues have not been material and, although it has not completed its
full assessment of its Year 2000 readiness, it does not expect to incur
material expenses in connection with any required remediation efforts.
As the process of compiling an inventory of non-IT systems proceeds and as
the other efforts of the Year 2000 Project Team continue, the Company may
identify situations that present material Year 2000 risks and/or that will
require substantial time and material expense to address. In addition, if any
customers, suppliers or service providers fail to appropriately address their
Year 2000 issues, such failure could have a material adverse effect on the
Company's business, financial condition and results of operations. For
example, because a significant percentage of the purchase orders received from
the Company's customers are computer generated
21
<PAGE>
and electronically transmitted, a failure of one or more of the computer
systems of the Company's customers could have a significant adverse effect on
the level and timing of orders from such customers. Similarly, if Year 2000
problems experienced by any of the Company's significant suppliers or service
providers cause or contribute to delays or interruptions in the delivery of
products or services to the Company, such delays or interruptions could have a
material adverse effect on the Company's business, financial condition and
results of operations. Finally, disruption in the economy generally resulting
from Year 2000 issues could also materially adversely affect the Company.
Although the Year 2000 Project Team has not yet determined the most likely
worst-case Year 2000 scenarios or quantified the likely impact of such
scenarios, it is clear that the occurrence of one or more of the risks
described above could have a material adverse effect on the Company's
business, financial condition or results of operations.
The Company's Year 2000 Project Team's activities will include the
development of contingency plans in the event the Company has not completed
all of its remediation programs in a timely manner. In addition, the Year 2000
Project Team will develop contingency plans in the event that any third
parties who provide goods or services essential to the Company's business fail
to appropriately address their Year 2000 issues. The Year 2000 Project Team
expects to conclude the development of these contingency plans by the end of
fiscal 1999. Even if these plans are completed on time and put in place, there
can be no assurance that such plans will be sufficient to address any third
party failures or that unresolved or undetected internal and external Year
2000 issues will not have a material adverse effect on the Company's business,
financial condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to fluctuations in interest
rates and in foreign currency exchange rates:
Interest Rate Exposure. The Company's exposure to market risk due to
fluctuations in interest rates relates primarily to its short-term investment
portfolio, which consists of corporate debt securities which are classified as
available-for-sale and were reported at an aggregate fair value of $3.0
million as of June 30, 1998. These available-for-sale securities are subject
to interest rate risk inasmuch as their fair value will fall if market
interest rates increase. If market interest rates were to increase immediately
and uniformly by 10% from the levels prevailing at June 30, 1998, the fair
value of the portfolio would not decline by a material amount. The Company
does not use derivative financial instruments to mitigate the risks inherent
in these securities. However, the Company does attempt to reduce such risks by
typically limiting the maturity date of such securities to no more than nine
months, placing its investments with high credit quality issuers and limiting
the amount of credit exposure with any one issuer. In addition, the Company
believes that it currently has the ability to hold these investments until
maturity, and, therefore, believes that reductions in the value of such
securities attributable to short-term fluctuations in interest rates would not
materially affect the financial position, results of operations or cash flows
of the Company.
Foreign Currency Exchange Rate Exposure. The Company's exposure to market
risk due to fluctuations in foreign currency exchange rates relates primarily
to the intercompany balance with its U.K. subsidiary. Although the Company
transacts business in various foreign countries, settlement amounts are
usually based on U.S. currency. Transaction gains or losses have not been
significant in the past and there is no hedging activity on sterling or other
currencies. Based on the intercompany balance of $1.5 million at June 30,
1998, a hypothetical 10% adverse change in sterling against U.S. dollars would
not result in a material foreign exchange loss. Consequently, the Company does
not expect that reductions in the value of such intercompany balances or of
other accounts denominated in foreign currencies resulting from even a sudden
or significant fluctuation in foreign exchange rates would have a direct
material impact on the Company's financial position, results of operations or
cash flows.
Notwithstanding the foregoing analysis of the direct effects of interest
rate and foreign currency exchange rate fluctuations on the value of certain
of the Company's investments and accounts, the indirect effects of such
fluctuations could have a material adverse effect on the Company's business,
financial condition and results of
22
<PAGE>
operations. For example, international demand for the Company's products is
affected by foreign currency exchange rates. In addition, interest rate
fluctuations may affect the buying patterns of the Company's customers.
Furthermore, interest rate and currency exchange rate fluctuations have broad
influence on the general condition of the U.S., foreign and global economies
which could materially adversely affect the Company.
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.
23
<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" of the Company's Proxy Statement for the
1998 Annual Meeting of Shareholders filed with the Commission on September 23,
1998, (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" 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," "Executive Officer
Compensation," "Proposal No. One--Election of Directors--Director
Compensation," and "Certain Transactions."
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."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Proxy Statement under the caption
"Certain Transactions."
24
<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, 1998 and 1997.................. 26
Consolidated Statements of Operations for the years ended June 30,
1998, 1997 and 1996................................................... 27
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 1998, 1997 and 1996.......................................... 28
Consolidated Statements of Cash Flows for the years ended June 30,
1998, 1997 and 1996................................................... 29
Notes to Consolidated Financial Statements............................. 30
Independent Auditors' Report........................................... 42
</TABLE>
2. Financial Statement Schedule. The following financial statement
schedule of the Company for the years ended June 30, 1998, 1997, and 1996
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, 1998.
(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.
25
<PAGE>
SYMMETRICOM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31,369 $ 28,203
Short-term investments 2,973 13,384
-------- --------
Cash and investments 34,342 41,587
Accounts receivable, net of allowance for doubtful accounts
of $479 and $457 16,347 21,349
Inventories, net 16,798 22,023
Other current assets 8,257 3,830
-------- --------
Total current assets 75,744 88,789
Property, plant and equipment, net 38,334 39,617
Other assets, net 815 899
-------- --------
$114,893 $129,305
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,585 $ 8,189
Accrued liabilities 14,388 16,546
Current maturities of long-term obligations 215 5,729
-------- --------
Total current liabilities 20,188 30,464
Long-term obligations 8,368 8,583
Deferred income taxes 1,980 2,655
Commitments and contingencies (Notes D & F)
Shareholders' equity:
Preferred stock, no par value;
500 shares authorized, none issued -- --
Common stock, no par value;
32,000 shares authorized, 15,772 and 15,879 shares issued
and outstanding 23,892 25,608
Retained earnings 60,465 61,995
-------- --------
Total shareholders' equity 84,357 87,603
-------- --------
$114,893 $129,305
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales $120,581 $144,355 $106,038
Cost of sales 76,306 78,411 59,824
-------- -------- --------
Gross profit 44,275 65,944 46,214
Operating expenses:
Research and development 18,810 18,457 15,413
Selling, general and administrative 30,586 31,489 22,538
-------- -------- --------
Operating income (loss) (5,121) 15,998 8,263
Interest income 1,819 1,928 1,807
Interest expense (838) (589) (594)
-------- -------- --------
Earnings (loss) before income taxes (4,140) 17,337 9,476
Income tax provision (benefit) (2,610) 3,883 1,998
-------- -------- --------
Net earnings (loss) $ (1,530) $ 13,454 $ 7,478
======== ======== ========
Basic earnings (loss) per share $ (.10) $ .85 $ .48
======== ======== ========
Weighted average shares outstanding--basic 15,845 15,755 15,449
======== ======== ========
Diluted earnings (loss) per share $ (.10) $ .83 $ .47
======== ======== ========
Weighted average shares outstanding--diluted 15,845 16,275 16,034
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<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, 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
Issuance of common stock:
Stock option exercises 75 590 -- 590
Employee stock purchase plan 86 942 -- 942
Tax benefit from stock option plans -- 109 -- 109
Repurchase of common stock (268) (3,357) -- (3,357)
Net earnings (loss) -- -- (1,530) (1,530)
------ ------- ------- -------
Balance at June 30, 1998 15,772 $23,892 $60,465 $84,357
====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $125,428 $137,463 $103,056
Cash paid to suppliers and employees (114,873) (115,244) (94,035)
Interest received 1,216 1,332 1,148
Interest paid (838) (589) (594)
Income taxes paid (3,475) (1,702) (559)
-------- -------- --------
Net cash provided by operating activities 7,458 21,260 9,016
-------- -------- --------
Cash flows from investing activities:
Purchases of short-term investments (19,289) (33,941) (24,644)
Maturities of short-term investments 29,700 23,500 35,552
Purchases of plant and equipment, net (6,490) (15,136) (9,092)
Increase in notes receivable, net (800) -- --
Other 141 45 (596)
-------- -------- --------
Net cash provided by (used for) investing
activities 3,262 (25,532) 1,220
-------- -------- --------
Cash flows from financing activities:
Repayment of long-term obligations (5,729) (204) (52)
Proceeds from issuance of common stock 1,532 2,547 1,789
Repurchase of common stock (3,357) (1,195) --
-------- -------- --------
Net cash provided by (used for) financing
activities (7,554) 1,148 1,737
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 3,166 (3,124) 11,973
Cash and cash equivalents at beginning of year 28,203 31,327 19,354
-------- -------- --------
Cash and cash equivalents at end of year $ 31,369 $ 28,203 $ 31,327
======== ======== ========
Reconciliation of net earnings (loss) to net
cash
provided by operating activities:
Net earnings (loss) $ (1,530) $ 13,454 $ 7,478
Depreciation and amortization 8,386 6,548 5,171
Net deferred income taxes (4,767) (512) (98)
Changes in assets and liabilities:
Accounts receivable 5,002 (6,805) (2,699)
Inventories 5,225 (4,176) 8
Accounts payable (2,604) 2,645 1,236
Accrued liabilities (2,158) 7,361 (2,336)
Tax benefit from employee stock plans 109 2,394 1,011
Other (205) 351 (755)
-------- -------- --------
Net cash provided by operating activities $ 7,458 $ 21,260 $ 9,016
======== ======== ========
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.
29
<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 as well as systems-engineered modules
primarily for use in power management and communication applications in
commercial, industrial, and defense and space markets.
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 1998, 1997 and 1996 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 1998, 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.
30
<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 generally 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 (loss) Per Share. Basic earnings (loss) per share is computed
by dividing net earnings (loss) by the weighted average number of common
shares outstanding during the period. Diluted earnings (loss) per share is
calculated by dividing net earnings (loss) by the weighted average number of
common shares outstanding and common equivalent shares from dilutive stock
options using the treasury method except when antidilutive. The following
table reconciles the number of shares utilized in the earnings (loss) per
share calculations.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net earnings (loss) $(1,530) $13,454 $ 7,478
Weighted average shares outstanding--basic 15,845 15,755 15,449
Dilutive stock options -- 520 585
------- ------- -------
Weighted average shares outstanding--diluted 15,845 16,275 16,034
Basic earnings (loss) per share $ (.10) $ .85 $ .48
Diluted earnings (loss) per share $ (.10) $ .83 $ .47
</TABLE>
Reclassifications. Certain reclassifications have been made to the prior
year consolidated financial statements to conform to the 1998 presentation.
Such reclassifications had no effect on previously reported results of
operations or retained earnings.
Recent Accounting Pronouncements. Effective December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128 (SFAS 128),
"Earnings per Share," which requires the presentation of basic and diluted
earnings per share information. Basic earnings per share, which replaces
primary earnings per share, is computed by dividing net earnings by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share, which replaces fully diluted earnings per share,
is computed by dividing net earnings by the weighted average number of common
shares outstanding and common equivalent shares from dilutive stock options,
using the treasury stock method. All prior period earnings per share data
presented have been restated to conform with the provisions of this Statement.
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. It is not
expected that the adoption of these statements will have any material impact
on the Company's financial position and results of operations.
31
<PAGE>
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities," was
issued which defines derivatives, requires all derivatives be carried at fair
value, and provides for hedging accounting when certain conditions are met.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Although the Company has not fully assessed the
implications of this new statement, the Company does not believe adoption of
this statement will have a material impact on the Company's financial
statements.
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. During September 1997,
the Company increased its investment in Linfinity by $6.3 million in exchange
for another 2,000,000 shares of Linfinity common stock. The proceeds were used
by Linfinity for repayment of a note payable which was collateralized by land,
building and related personal property.
In addition, 2,500,000 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. See Note I for information concerning
Linfinity's outstanding stock options.
NOTE C--BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
JUNE 30,
----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials $ 3,875 $ 6,454
Work-in-process 6,215 8,450
Finished goods 6,708 7,119
------- -------
$16,798 $22,023
======= =======
Property, plant and equipment, net:
Land $ 1,247 $ 1,247
Buildings and improvements 17,938 23,413
Machinery and equipment 50,188 46,733
Leasehold improvements 7,959 2,599
------- -------
77,332 73,992
Accumulated depreciation and amortization (38,998) (34,375)
------- -------
$38,334 $39,617
======= =======
</TABLE>
Building and improvements includes $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. At June 30, 1998, accumulated amortization for this
lease totaled $761,000. No amortization expense was recorded in 1997.
32
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued liabilities:
Employee compensation and benefits $ 4,249 $ 8,925
Accrued warranty expense 3,994 2,741
Other 6,145 4,880
------- -------
$14,388 $16,546
======= =======
Long-term obligations:
Note payable $ -- $ 5,709
Capital lease 8,583 8,603
------- -------
8,583 14,312
Current maturities (215) (5,729)
------- -------
$ 8,368 $ 8,583
======= =======
</TABLE>
The note payable bearing interest at 10.25% per annum was repaid in
September 1997. The note was collateralized by land, building, and related
personal property.
The Company has a $7,000,000 unsecured bank line of credit which expires on
May 1, 2000 and bears interest at the bank's prime rate, 8.5% at June 30,
1998. The line of credit agreement contains certain financial ratios to be
maintained by the Company. It also requires the Company to have positive net
income during the quarter ending March 31, 1999 and to maintain net income
greater than zero not less than every other quarter after such period. The
line of credit has not been utilized during the last three years.
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 at June 30, 1998 were $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 $1,406,000 in 1998, $1,923,000 in
1997, and $1,741,000 in 1996, respectively. Future minimum lease payments at
June 30, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
------- ---------
(IN THOUSANDS)
<S> <C> <C>
FOR THE YEARS:
1999 $ 930 $1,091
2000 991 837
2001 1,055 652
2002 1,121 595
2003 1,189 595
Thereafter 8,401 3,454
------- ------
Total minimum lease payments 13,687 $7,224
======
Amount representing interest (8.5%) (5,104)
-------
Present value of minimum lease payments 8,583
Current portion (215)
-------
Long-term obligation $ 8,368
=======
</TABLE>
33
<PAGE>
NOTE E--INCOME TAXES
Income tax provision (benefit) consists of:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1998 1997 1996
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ 791 $3,511 $1,250
State 242 (78) (56)
Puerto Rico 1,034 588 902
Foreign 90 374 --
------- ------ ------
2,157 4,395 2,096
------- ------ ------
Deferred:
Federal (3,325) (817) 386
State (975) 134 (114)
Puerto Rico (467) 171 (370)
------- ------ ------
(4,767) (512) (98)
------- ------ ------
$(2,610) $3,883 $1,998
======= ====== ======
</TABLE>
Deferred income tax provision (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 provision (benefit) are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1998 1997 1996
------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Tax credit and net operating loss carryforwards $(1,335) $1,064 $(156)
Reserves and accruals (3,045) (824) 32
Depreciation and amortization (375) (614) (93)
Deferred taxes on Puerto Rico earnings (294) 481 (688)
Change in valuation allowance 282 (619) 807
------- ------ -----
$(4,767) $ (512) $ (98)
======= ====== =====
</TABLE>
The effective income tax rate differs from the federal statutory income tax
rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
--------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Federal statutory income tax rate (35.0)% 35.0% 35.0%
Federal tax benefit of Puerto Rico operations (20.8) (13.0) (17.2)
Puerto Rico taxes 13.7 4.4 5.6
Research and development tax credit (4.8) (1.5) --
State income taxes, net of federal benefit (17.7) .3 (1.8)
Other 1.6 (2.8) (.5)
----- ----- -----
Effective income tax rate (63.0)% 22.4% 21.1%
===== ===== =====
</TABLE>
34
<PAGE>
The principal components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 5,831 $ 4,496
Reserves and accruals 6,561 3,516
Depreciation and amortization 174 --
------- -------
12,566 8,012
Valuation allowance (4,778) (4,496)
------- -------
7,788 3,516
------- -------
Deferred tax liabilities:
Depreciation and amortization -- 201
Unremitted Puerto Rico earnings 2,483 2,777
------- -------
2,483 2,978
------- -------
Net deferred tax assets $ 5,305 $ 538
======= =======
</TABLE>
Net deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets $ 7,285 $ 3,193
Non-current liabilities (1,980) (2,655)
------- -------
Net deferred tax assets $ 5,305 $ 538
======= =======
</TABLE>
At June 30, 1998, for federal income tax purposes, the Company had research
and development and investment tax credit carryforwards of approximately
$3,231,000 which expire in the years 1999 through 2013, and alternative
minimum tax credit carryforwards of approximately $1,356,000 which have no
expiration date. Additionally, for state income tax purposes, the Company had
research and development tax credit carryforwards of approximately $1,244,000
which have no expiration date.
Based on the Company's assessment of the future realizability of deferred
tax assets, a valuation allowance has been provided as it is more likely than
not that sufficient taxable income will not be generated to realize certain
tax credit carryforwards. At June 30, 1998, approximately $4,419,000 of the
valuation allowance was attributable to the potential tax benefit of stock
option transactions, which would be credited to common stock if realized.
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 during the fiscal years 2003 through 2006
based on certain prior year Puerto Rico earnings. Appropriate taxes have been
provided on this subsidiary's earnings all of which are intended to be
remitted to the parent company. At June 30, l998, the total unremitted
earnings of the Puerto Rico subsidiary and the related tax liability were
approximately $15,425,000 and $2,483,000, respectively.
35
<PAGE>
NOTE F--CONTINGENCIES
In January 1994, a securities class action complaint was filed against the
Company and certain of its present or former officers or directors in the
United States District Court, Northern District of California. The action was
filed on behalf of a putative class of purchasers of the Company's stock
during the period April 6, 1993 through November 10, 1993. The complaint seeks
unspecified money damages and alleges that the Company and certain of its
present or former officers or directors violated federal securities laws in
connection with various public statements made during the putative class
period. The Court dismissed the first and second amended complaints with leave
to amend. The plaintiff filed a third amended corrected complaint in August
1997. The Company filed a motion to dismiss this third amended complaint,
which was denied in January 1998. Discovery is proceeding. The Company and its
officers believe that the complaint is entirely without merit, and intend to
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 any 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
In March 1998, the Company extended two loans in the amounts of $400,000 and
$500,000 to an executive officer in connection with his employment by the
Company. The $400,000 loan, together with interest at 6% per annum, is to be
forgiven in four equal installments on June 25, 1998, 1999, 2000 and 2001. The
Company recognizes compensation expense in the amount of both the loan and
interest to be forgiven during the applicable fiscal period. The $500,000 loan
is interest free with a term of ten years to be repaid in 2008. Both loans are
secured by a deed of trust pertaining to the executive officer's principal
home in California. Pursuant to the loan agreements, any loan balance and/or
accrued interest amount will become due and payable if the executive officer
resigns or is terminated for cause. In July 1998, the Company funded an
unsecured loan of $150,000, which is payable upon demand, to another executive
officer. The loan is interest free and may be forgiven subject to certain
conditions.
During 1998, the Company paid $10,000 for consulting fees to a director of
the Company. The Company paid $47,000 and $36,000 for marketing research in
1997 and 1996, respectively, to a firm whose managing director was also a
director of the Company until August 1996. 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. Such notes were repaid in 1997 and 1998,
respectively. 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 $143,000, $105,000 and $102,000 in
1998, 1997 and 1996, respectively.
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 has
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 the last trading day of the Company's immediately
preceding fiscal year. In July 1998, the number of shares reserved for
issuance increased by 473,000. 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
36
<PAGE>
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 and expire no later than ten years from the date of grant. Options
granted to employees and consultants prior to fiscal 1999 and options granted
to non-employee directors are generally exercisable in annual installments of
25%, 25% and 50% at the end of each of the three years following the date of
grant. Options granted to employees and consultants after fiscal 1998 are
generally exercisable at 25% at the end of the first year and 2.08% for each
month thereafter for the following three years.
Stock option activity for the three years ended June 30, 1998 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, 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
Authorized 476 -- --
Granted (789) 789 12.61
Exercised -- (75) 7.45
Canceled 123 (123) 14.80
Expired -- (5) 1.75
---- -----
Balances at June 30, 1998 485 2,125 12.49
==== =====
</TABLE>
At June 30, 1998, 1997 and 1996, the number of shares and weighted average
exercise price underlying exercisable options were 867,000 at $11.48, 573,000
at $11.08 and 593,000 at $7.24, respectively. The weighted average fair value,
using the Black-Scholes method, of options granted was $5.17 in 1998, $6.62 in
1997 and $9.02 in 1996.
The stock option activity includes the cancelation of options for 297,000
shares in April 1996 and the corresponding grant of new options in April 1996
at an exercise price of $11.98, the fair market value on the date of the new
grants. The new options began revesting in April 1996. At the beginning of
fiscal 1999, the Company offered its employees and directors a stock option
repricing program in which new options were granted at an exchange rate of
three shares for every four shares and one share for every two shares,
respectively, of unexercised options as of July 14, 1998. The corresponding
grant of new options in July 1998 was at an exercise price of $6.44, the fair
market value on the date of the new grants. The new options retain the same
vesting and expiration dates as the old options. The new options also contain
a blackout period and are not exercisable until January 14, 1999. As a result,
1,260,000 old options were surrendered by employees for 945,000 new options,
and 262,000 old options were returned by directors for 131,000 new options.
37
<PAGE>
Additional information regarding options outstanding as of June 30, 1998 is
as 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>
$ 2.38 -- $ 8.94 664 7.3 $ 7.44 373 $ 7.58
9.00 -- 13.25 587 7.8 12.26 241 11.87
13.50 -- 16.00 606 8.9 15.52 61 14.19
16.25 -- 22.75 268 6.4 18.68 192 17.74
----- ---
2.38 -- 22.75 2,125 7.8 12.49 867 11.48
===== ===
</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 1998, 1997 and 1996: expected life,
six months after vesting in 1998, one year after vesting in 1997 and one and
one half years after vesting in 1996; stock volatility, 58% in both 1998 and
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 1998, 1997 and 1996 awards had been amortized to
expense over the vesting period of the awards, pro forma consolidated net loss
would have been $5,647,000 ($0.36 per share--basic, $0.36 per share--diluted)
in 1998, pro forma consolidated net earnings would have been $10,527,000
($0.67 per share--basic, $0.66 per share--diluted) in 1997 and $4,776,000
($0.31 per share--basic, $0.30 per share--diluted) in 1996. However, the
impact of outstanding nonvested stock options granted prior to 1996 has been
excluded from the pro forma calculation; accordingly, the 1998, 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. During September 1997,
Linfinity reserved an additional 500,000 shares of common stock for issuance
under this plan, for a total of 2,500,000 shares of common stock. As of June
30, 1998, there were options outstanding to purchase 1,763,000 shares of
Linfinity common stock at exercise prices ranging from $0.50 to $3.15 with a
weighted average exercise price of $2.61 and 544,000 shares available for
grant. As of June 30, 1998, there were exercisable options to purchase 757,000
shares of common stock at a weighted average exercise price of $2.08. The fair
values of fiscal 1998, 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,
205,000 shares of common stock have been reserved and were available for
issuance as of June 30, 1998.
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,
38
<PAGE>
58% in both 1998 and 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 1998, 1997 and 1996 was $4.51, $4.68
and $4.94, respectively.
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 $0.01 per right or exchange each right not held by the acquirer for
one share of the Company's common stock.
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. The Company repurchased
268,000 shares and 90,000 shares in 1998 and 1997, respectively. In September
1998, the Company's Board of Directors authorized a program to repurchase up
to 1,000,000 shares of the Company's common stock, once the April 1997 program
is completed.
39
<PAGE>
NOTE J--BUSINESS SEGMENT INFORMATION
Industry Segment Information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Sales:
Telecom Solutions $ 73,311 $ 89,718 $ 68,243
Linfinity Microelectronics Inc. 47,270 54,637 37,795
-------- -------- --------
$120,581 $144,355 $106,038
======== ======== ========
Gross Profit Margin:
Telecom Solutions $ 36,293 $ 44,015 $ 31,266
Linfinity Microelectronics Inc. 7,982 21,929 14,948
-------- -------- --------
$ 44,275 $ 65,944 $ 46,214
======== ======== ========
Research and development expense:
Telecom Solutions $ 12,387 $ 12,866 $ 9,581
Linfinity Microelectronics Inc. 6,423 5,591 5,832
-------- -------- --------
$ 18,810 $ 18,457 $ 15,413
======== ======== ========
Selling, general and administrative expense:
Telecom Solutions $ 19,090 $ 21,101 $ 15,805
Linfinity Microelectronics Inc. 11,496 10,388 6,733
-------- -------- --------
$ 30,586 $ 31,489 $ 22,538
======== ======== ========
Operating income (loss):
Telecom Solutions $ 4,816 $ 10,048 $ 5,880
Linfinity Microelectronics Inc. (9,937) 5,950 2,383
-------- -------- --------
$ (5,121) $ 15,998 $ 8,263
======== ======== ========
Identifiable assets:
Telecom Solutions $ 84,688 $ 89,924 $ 62,574
Linfinity Microelectronics Inc. 30,205 39,381 30,957
-------- -------- --------
$114,893 $129,305 $ 93,531
======== ======== ========
Accounts receivable, net:
Telecom Solutions $ 10,541 $ 11,224 $ 10,653
Linfinity Microelectronics Inc. 5,806 10,125 3,891
-------- -------- --------
$ 16,347 $ 21,349 $ 14,544
======== ======== ========
Inventories, net:
Telecom Solutions $ 11,589 $ 13,281 $ 10,530
Linfinity Microelectronics Inc. 5,209 8,742 7,317
-------- -------- --------
$ 16,798 $ 22,023 $ 17,847
======== ======== ========
Depreciation and amortization expense:
Telecom Solutions $ 5,056 $ 3,575 $ 2,654
Linfinity Microelectronics Inc. 3,330 2,973 2,517
-------- -------- --------
$ 8,386 $ 6,548 $ 5,171
======== ======== ========
Capital expenditures:
Telecom Solutions* $ 2,962 $ 20,074 $ 3,832
Linfinity Microelectronics Inc. 3,528 3,812 5,260
-------- -------- --------
$ 6,490 $ 23,886 $ 9,092
======== ======== ========
</TABLE>
--------
* The 1997 amount includes $8,750 for a facility acquired under capital
lease.
40
<PAGE>
Major Customers and Export Sales. No customer accounted for 10% or more of
the Company's net sales in 1998 and 1996. In 1997, one of Telecom Solutions'
customers accounted for 16% of the Company's total net sales. The Company's
export sales, which were primarily to the Far East, Western Europe, Canada and
Latin America accounted for 27%, 26% and 28% of the Company's net sales in
1998, 1997 and 1996, respectively. Export sales to the Far East accounted for
12%, 16%, and 13% of the Company's net sales in 1998, 1997 and 1996,
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 1998
Net sales:
Telecom Solutions $18,453 $19,737 $16,786 $18,335 $ 73,311
Linfinity Microelectronics Inc. 15,530 14,600 7,422 9,718 47,270
------- ------- ------- ------- --------
Total 33,983 34,337 24,208 28,053 120,581
Gross profit (loss) 16,181 16,716 (141) 11,519 44,275
Operating income (loss) 3,437 4,288 (12,263) (583) (5,121)
Earnings (loss) before income
taxes 3,665 4,567 (11,994) (378) (4,140)
Net earnings (loss) 2,683 3,433 (7,483) (163) (1,530)
Basic earnings (loss) per share .17 .22 (.47) (.01) (.10)
Diluted earnings (loss) per
share .17 .21 (.47) (.01) (.10)
Common stock price range (A):
High 18 18 5/8 12 1/4 7 13/16 18 5/8
Low 14 1/8 10 3/8 6 15/16 5 3/8 5 3/8
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
Basic earnings per share .14 .21 .23 .27 .85
Diluted earnings per 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
</TABLE>
--------
(A) The Company's common stock trades on The Nasdaq Stock Market under the
symbol SYMM. At June 30, 1998, there were approximately 1,300
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.
41
<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, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -----------------------
DELOITTE & TOUCHE LLP
San Jose, California
July 22, 1998
(September 3, 1998, as to the last sentence of Note I)
42
<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, 1998:
Accrued warranty expense $2,741 $2,051 $ 798 $3,994
Allowance for doubtful accounts $ 457 $ 735 $ 713 $ 479
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
</TABLE>
- --------
(1) Deductions represent costs charged or amounts written off against the
reserve or allowance.
43
<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.
/s/ Roger A. Strauch
Date: September 24, 1998 By________________________________________
(ROGER A. STRAUCH)
CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER
(PRINCIPAL EXECUTIVE 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>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Roger A. Strauch Director, Chief Executive September 24, 1998
___________________________________________ Officer and Chief Financial
(ROGER A. STRAUCH) Officer (Principal
Executive Officer,
Principal Financial and
Accounting Officer)
/s/ Mary A. Rorabaugh Vice President, Finance and September 24, 1998
___________________________________________ Secretary
(MARY A. RORABAUGH)
/s/ Richard W. Oliver Chairman of the Board September 24, 1998
___________________________________________
(RICHARD W. OLIVER)
/s/ William D. Rasdal Director September 24, 1998
___________________________________________
(WILLIAM D. RASDAL)
/s/ Robert M. Wolfe Director September 24, 1998
___________________________________________
(ROBERT M. WOLFE)
</TABLE>
44
<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(9) Certificate of Amendment to Restated Articles of Incorporation
filed October 27, 1993.
3.4(13) 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(10)(14) 1990 Director Option Plan (as amended through October 25, 1995).
10.3(5)(14) Form of Director Option Agreement.
10.4(14) 1990 Employee Stock Plan (as amended through June 29, 1998).
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(12)(14) 1994 Employee Stock Purchase Plan (as amended through December 1,
1996).
10.7(14) Consulting Agreement between the Company and Richard W. Oliver
dated June 1, 1998.
10.8(14) Consulting Agreement between the Company and William D. Rasdal
dated August 1, 1998.
10.9(9) Lease Agreement by and between Navstar Systems Limited, a
subsidiary of the Company, and Baker Hughes Limited dated April
22, 1994.
10.10(11) Lease Agreement by and between the Company and Nexus Equity, Inc.
dated June 10, 1996.
10.11 Fourth Amendment to the Revolving Credit Loan Agreement between
the Company and Comerica Bank-California dated June 26, 1998.
10.12 First Amended and Restated Revolving Credit Loan Agreement
between the Company and Comerica Bank-California dated June 29,
1998.
10.13(6) Form of Indemnification Agreement.
10.14(8) Linfinity Microelectronics Inc. Common Stock and Series A
Preferred Stock Purchase Agreement dated June 28, 1993.
10.15(8) Tax Sharing Agreement between Linfinity Microelectronics Inc. and
the Company dated June 28, 1993.
10.16(8) Intercompany Services Agreement between Linfinity
Microelectronics Inc. and the Company dated June 28, 1993.
10.17(8)(14) Linfinity Microelectronics Inc. 1993 Stock Option Plan with form
of Stock Option Agreement.
10.18(8) Linfinity Microelectronics Inc. Form of Indemnification
Agreement.
10.19(14) Employment offer letter by and between the Company and Thomas W.
Steipp, President and Chief Operating Officer, Telecom Solutions
dated February 19, 1998.
10.20(7) Agreement for Sale and Purchase of the Navstar Business of Radley
Services Limited.
10.21(7) Agreement for the Sale and Purchase of Certain Assets of Navstar
Electronics, Inc.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER INDEX OF EXHIBITS
------- -----------------
<C> <S>
10.22(14) Promissory Notes Secured by Deed of Trust issued by Thomas W. Steipp
to the Company dated March 24, 1998.
10.23 Intercompany Revolving Loan Agreement between Linfinity
Microelectronics Inc. and the Company dated August 15, 1998.
10.24(14) Promissory Note issued by James Peterson to Linfinity
Microelectronics Inc. dated July 13, 1998.
21.1 Subsidiaries of the Company.
23.1 Independent Auditors' Consent and Report on Schedule.
27.1 Financial Data Schedule.
</TABLE>
46
<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 From
S-8 filed with the Securities and Exchange Commission on December 24,
1990.
(6) Incorporated by reference from Exhibits to the 1990 Proxy Statement.
(7) Incorporated by reference from Exhibits to Current Report on Form 8-K
filed with the Securities and Exchange Commission on September 2, 1993.
(8) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1993.
(9) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1994.
(10) Incorporated by reference from Exhibits to Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on January 19,
1996.
(11) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
(12) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996.
(13) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1997.
(14) Indicates a management contract or compensatory plan or arrangement.
47
<PAGE>
EXHIBIT 10.4
SYMMETRICOM, INC.
1990 EMPLOYEE STOCK PLAN
(AS AMENDED THROUGH JUNE 29, 1998)
1. Purposes of the Plan. The purposes of this Employee Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock appreciation rights ("SARs") and
stock purchase rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
---------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-------
(c) "Code" means the Internal Revenue Code of 1986, as amended from
------
time to time, and any successor thereto.
(d) "Common Stock" means the Common Stock of the Company.
--------------
(e) "Company" means Symmetricom, Inc., a California corporation.
---------
(f) "Committee" means a Committee, if any, appointed by the Board in
-----------
accordance with paragraph (a) of Section 4 of the Plan.
(g) "Consultant" means any person, including an advisor, who is
------------
engaged by the Company or any Parent or Subsidiary to render services to the
Company. The term Consultant shall include directors of the Company.
(h) "Continuous Status as an Employee or Consultant" means the absence
------------------------------------------------
of any interruption or termination of the employment or consulting relationship
by the Company or any Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) sick leave;
(ii) military leave; (iii) any other leave of absence approved by the Board,
provided that such leave is for a period of not more than ninety (90) days,
unless reemployment upon the expiration of such leave is guaranteed by contract
or statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or its successor.
(i) "Disability" means total and permanent disability, as defined in
------------
Section 22(e)(3) of the Code.
<PAGE>
(j) "Employee" means any person, including officers and directors,
----------
employed by the Company or any Subsidiary. The payment of directors' fees by
the Company shall not be sufficient to constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
--------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
-------------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the day of determination, as
reported in the Wall Street Journal or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high and low asked prices
for the Common Stock on the day of determination, as reported in the Wall Street
Journal or such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option that satisfies the
------------------------
provisions of Section 422A of the Code.
(n) "Nonstatutory Stock Option" means an Option that is not an
---------------------------
Incentive Stock Option.
(o) "Option" means an Option granted pursuant to the Plan.
--------
(p) "Optioned Stock" means the Common Stock subject to an Option or
----------------
Right.
(q) "Optionee" means an Employee or Consultant who receives an Option
----------
or Right.
(r) "Parent" corporation shall have the meaning defined in Section
--------
425(e) of the Code.
(s) "Plan" means this 1990 Employee Stock Plan.
------
-2-
<PAGE>
(t) "Restricted Stock" means shares of Common Stock acquired pursuant
------------------
to a grant of Stock Purchase Rights under Section 8 below.
(u) "Right" means and includes SARs and Stock Purchase Rights granted
-------
pursuant to the Plan.
(v) "SAR" means a stock appreciation right granted pursuant to Section
-----
7 below.
(w) "Share" means the Common Stock, as adjusted in accordance with
-------
Section 11 of the Plan.
(x) "Stock Purchase Right" means the right to purchase Common Stock
----------------------
pursuant to Section 8.
(y) "Subsidiary" corporation shall have the meaning defined in Section
------------
425(f) of the Code.
In addition, the terms "Rule 16b-3" and "Applicable Laws," the term
"Insiders," the term "Tax Date," and the terms "Change of Control" and "Change
of Control Price," shall have the meanings set forth, respectively, in Sections
4, 7, 9 and 11 below.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the total number of Shares reserved and available for distribution
pursuant to awards made under the Plan shall be two million, two hundred
thousand (2,200,000), increased on the first day of each fiscal year of the
Company, beginning with the fiscal year commencing July 1, 1996, by a number
equal to 3.0% of the number of shares outstanding as of the last trading day of
the Company's immediately preceding fiscal year. The maximum number of Shares
reserved and available for issuance pursuant to Incentive Stock Options is
2,200,000. The Shares may be authorized but unissued, or reacquired stock.
If an Option or Right should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for other Options or Rights under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Administration With Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Options or Rights to Employees who are also officers or
directors of the Company, the Plan shall be administered by (A) the Board if the
Board may administer the Plan in compliance with Rule 16b-3 promulgated under
the Exchange Act or any successor rule ("Rule 16b-3") with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted in such a manner as to permit
-3-
<PAGE>
the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan.
(ii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or Rights to
---------
Employees or Consultants who are neither directors nor officers of the Company,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which Committee shall be constituted in such a manner as to satisfy
the legal requirements, if any, relating to the administration of incentive
stock option plans under California corporate and securities laws and under the
Code (the "Applicable Laws"). Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws.
(iii) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers and Consultants who are not directors.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options and Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Rights
or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and
-4-
<PAGE>
any restriction or limitation, or any vesting acceleration or waiver of
forfeiture restrictions regarding any Option or other award and/or the
shares of Common Stock relating thereto, based in each case on such
factors as the Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 7(a)(vii) instead of Common
Stock;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining the
amount (if any) of any deemed earnings on any deferred amount during any
deferral period);
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; and
(x) to determine the terms and restrictions applicable to Options
and Rights and any Restricted Stock acquired pursuant to Rights.
(c) Effect of Committee's Decision. All decisions, determinations and
------------------------------
interpretations of the Administrator shall be final and binding.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Rights may be granted only to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee who has been granted an Option or Right may, if he or
she is otherwise eligible, be granted additional Options or Rights. Each Option
shall be evidenced by a written Option agreement, which shall expressly identify
the Options as Incentive Stock Options or as Nonstatutory Stock Options, and
which shall be in such form and contain such provisions as the Administrator
shall from time to time deem appropriate. Without limiting the foregoing, the
Administrator may, at any time, or from time to time, authorize the Company,
with the consent of the respective recipients, to issue Options in exchange for
the surrender and cancellation of any or all outstanding Options, other options,
or Rights.
(b) Neither the Plan nor any Option or Right agreement shall confer
upon any Optionee any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with the Optionee's right or the
Company's right to terminate the Optionee's employment at any time.
(c) The following limitations shall apply to grants of Options and
Rights to Employees:
-5-
<PAGE>
(i) No Employee shall be granted, in any fiscal year of the Company,
Options and Rights to purchase more than an aggregate of 250,000 Shares.
(ii) In connection with his or her initial employment, an Employee may
be granted Options and Rights to purchase up to an additional 250,000 Shares in
the aggregate which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option or Right is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a
transaction described in Section 11), the cancelled Option or Right will be
counted against the limits set forth in subsections (i) and (ii) above. For
this purpose, if the exercise price of an Option or Right is reduced, the
transaction will be treated as a cancellation of the Option or Right and the
grant of a new Option or Right.
6. Term of Plan. Subject to Section 17 of the Plan, the Plan shall become
------------
effective upon the earlier to occur of its adoption by the Board or its approval
by the shareholders of the Company as described in Section 17. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Options and SARs.
----------------
(a) Options. The Administrator, in its discretion, may grant Options
-------
to eligible participants and shall determine whether such Options shall be
Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a written Option agreement which shall expressly identify the
Options as Incentive Stock Options or as Nonstatutory Stock Options, and be in
such form and contain such provisions as the Administrator shall from time to
time deem appropriate. Without limiting the foregoing, the Administrator may,
at any time, or from time to time, authorize the Company, with the consent of
the respective recipients, to issue Options or Rights in exchange for the
surrender and cancellation of any or all outstanding Options or Rights. Option
agreements shall contain the following terms and conditions:
(i) Option Price; Number of Shares. The per Share exercise price
------------------------------
for the Shares issuable pursuant to an Option shall be such price as is
determined by the Administrator, but shall in no event be less than 85% of the
Fair Market Value of Common Stock, determined as of the date of grant of the
Option. In the event that the Administrator shall reduce the exercise price,
the exercise price shall be no less than 85% of the Fair Market Value as of the
date of that reduction.
The Option agreement shall specify the number of Shares to which
it pertains.
(ii) Waiting Period and Exercise Dates. At the time an Option
---------------------------------
is granted, the Administrator will determine the terms and conditions to be
satisfied before Shares may be
-6-
<PAGE>
purchased, including the dates on which Shares subject to the Option may first
be purchased. The Administrator may specify that an Option may not be
exercised until the completion of the service period specified at the time of
grant. (Any such period is referred to herein as the "waiting period.") At the
time an Option is granted, the Administrator shall fix the period within which
the Option may be exercised, which shall not be less than the waiting period,
if any, nor, in the case of an Incentive Stock Option, more than ten (10)
years, from the date of grant.
(iii) Form of Payment. The consideration to be paid for the Shares
---------------
to be issued upon exercise of an Option, including the method of payment, shall
be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case
of Shares acquired upon exercise of an Option either have been owned by the
Optionee for more than six months on the date of surrender or were not acquired,
directly or indirectly, from the Company, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale or loan proceeds required to pay the
exercise price, (6) delivery of an irrevocable subscription agreement for the
Shares which irrevocably obligates the Optionee to take and pay for the Shares
not more than twelve months after the date of delivery of the subscription
agreement, (7) any combination of the foregoing methods of payment, or (8) such
other consideration and method of payment for the issuance of Shares to the
extent permitted under Applicable Laws.
(iv) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event an Optionee's Continuous Status as an Employee or Consultant terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within such period of time as is determined by the
Administrator at the time of grant, not to exceed six (6) months (three (3)
months in the case of an Incentive Stock Option) from the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it at the date of such termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). To the extent
that Optionee was not entitled to exercise an Option at the date of such
termination, and to the extent that the Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
(v) Special Incentive Stock Option Provisions. In addition to the
-----------------------------------------
foregoing, Options granted under the Plan which are intended to be Incentive
Stock Options under Section 422A of the Code shall be subject to the following
terms and conditions:
(A) Exercise Price. The per share exercise price of an Incentive
--------------
Stock Option shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(B) Dollar Limitation. To the extent that the aggregate Fair
-----------------
Market Value of (i) the Shares with respect to which Options designated as
Incentive Stock Options plus (ii) the shares of stock of the Company, Parent
and any Subsidiary with respect to which other
-7-
<PAGE>
incentive stock options are exercisable for the first time by an Optionee
during any calendar year under all plans of the Company and any Parent and
Subsidiary exceeds $100,000, such Options shall be treated as Nonstatutory
Stock Options. For purposes of the preceding sentence, (i) Options shall be
taken into account in the order in which they were granted, and (ii) the Fair
Market Value of the Shares shall be determined as of the time the Option or
other incentive stock option is granted.
(C) 10% Shareholder. If any Optionee to whom an Incentive Stock
---------------
Option is to be granted pursuant to the provisions of the Plan is, on the date
of grant, the owner of Common Stock (as determined under Section 425(d) of the
Code) possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any Subsidiary, then the following special provisions
shall be applicable to the Option granted to such individual:
(1) The per Share Option price of Shares subject to
such Incentive Stock Option shall not be less than 110% of the Fair Market
Value of Common Stock on the date of grant; and
(2) The Option shall not have a term in excess of five
(5) years from the date of grant.
Except as modified by the preceding provisions of this subsection 7(a)(v) and
except as otherwise limited by Section 422A of the Code, all of the provisions
of the Plan shall be applicable to the Incentive Stock Options granted
hereunder.
(vi) Other Provisions. Each Option granted under the Plan may
----------------
contain such other terms, provisions, and conditions not inconsistent with the
Plan as may be determined by the Administrator.
(vii) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
(b) SARs.
----
(i) In Connection with Options. At the sole discretion of the
--------------------------
Administrator, SARs may be granted in connection with all or any part of an
Option, either concurrently with the grant of the Option or at any time
thereafter during the term of the Option. The following provisions apply to
SARs that are granted in connection with Options:
(A) The SAR shall entitle the Optionee to exercise the SAR by
surrendering to the Company unexercised a portion of the related Option. The
Optionee shall receive in exchange from the Company an amount equal to the
excess of (x) the Fair Market Value on the date of exercise of the SAR of the
Common Stock covered by the surrendered portion of the related Option over (y)
the exercise price of the Common Stock covered by the surrendered portion of the
related Option. Notwithstanding the foregoing, the Administrator may place
limits on the amount
-8-
<PAGE>
that may be paid upon exercise of an SAR; provided, however, that such limit
shall not restrict the exercisability of the related Option.
(B) When an SAR is exercised, the related Option, to the
extent surrendered, shall cease to be exercisable.
(C) An SAR shall be exercisable only when and to the
extent that the related Option is exercisable and shall expire no later than
the date on which the related Option expires.
(D) An SAR may only be exercised at a time when the Fair
Market Value of the Common Stock covered by the related Option exceeds the
exercise price of the Common Stock covered by the related Option.
(ii) Independent of Options. At the sole discretion of the
----------------------
Administrator, SARs may be granted without related Options. The following
provisions apply to SARs that are not granted in connection with Options:
(A) The SAR shall entitle the Optionee, by exercising the
SAR, to receive from the Company an amount equal to the excess of (x) the Fair
Market Value of the Common Stock covered by the exercised portion of the SAR,
as of the date of such exercise, over (y) the Fair Market Value of the Common
Stock covered by the exercised portion of the SAR, as of the last market
trading date prior to the date on which the SAR was granted; provided,
however, that the Administrator may place limits on the aggregate amount that
may be paid upon exercise of an SAR.
(B) SARs shall be exercisable, in whole or in part, at
such times as the Administrator shall specify in the Optionee's SAR agreement.
(iii) Form of Payment. The Company's obligation arising upon the
---------------
exercise of an SAR may be paid in Common Stock or in cash, or in any combination
of Common Stock and cash, as the Administrator, in its sole discretion, may
determine. Shares issued upon the exercise of an SAR shall be valued at their
Fair Market Value as of the date of exercise.
(iv) Section 16 Restrictions. SARs granted to persons who are
-----------------------
subject to Section 16 of the Exchange Act ("Insiders") shall be subject to any
additional restrictions applicable to SARs granted to such persons in compliance
with Rule 16b-3. An Insider may only exercise an SAR during such time or times
as are permitted by Rule 16b-3.
(c) Method of Exercise.
------------------
(i) Procedure for Exercise; Rights as a Shareholder. Any Option or
-----------------------------------------------
SAR granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator and as shall be permissible under
the terms of the Plan.
-9-
<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option or SAR shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option or SAR by the person entitled to exercise the Option or SAR and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Administrator
(and, in the case of an Incentive Stock Option, determined at the time of grant)
and permitted by the Option Agreement consist of any consideration and method of
payment allowable under subsection 7(a)(iii) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter shall be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised. Exercise of an SAR in any manner shall, to the extent the
SAR is exercised, result in a decrease in the number of Shares which thereafter
shall be available for purposes of the Plan, and the SAR shall cease to be
exercisable to the extent it has been exercised.
(ii) Rule 16b-3. Options and SARs granted to Insiders must comply
----------
with the applicable provisions of Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(iii) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event an Optionee's Continuous Status as an Employee or Consultant terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option or SAR, but only within such period of time as is determined
by the Administrator at the time of grant, not to exceed six (6) months (three
(3) months in the case of an Incentive Stock Option) from the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it at the date of such termination (but in no event later than the expiration of
the term of such Option or SAR as set forth in the Option or SAR Agreement). To
the extent that Optionee was not entitled to exercise an Option or SAR at the
date of such termination, and to the extent that the Optionee does not exercise
such Option or SAR (to the extent otherwise so entitled) within the time
specified herein, the Option or SAR shall terminate.
(iv) Disability of Optionee. In the event an Optionee's Continuous
----------------------
Status as an Employee or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option or SAR, but only within
six (6) months from the date of such termination, and only to the extent that
the Optionee was entitled to exercise it at the date of such termination (but in
no event later than the expiration of the term of such Option or SAR as set
forth in the Option or
-10-
<PAGE>
SAR Agreement). To the extent that Optionee was not entitled to exercise an
Option or SAR at the date of such termination, and to the extent that the
Optionee does not exercise such Option or SAR (to the extent otherwise so
entitled) within the time specified herein, the Option or SAR shall terminate.
(v) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the deceased
Optionee's Option or SAR by bequest or inheritance may exercise the Option or
SAR, but only within six (6) months following the date of death, and only to the
extent that the Optionee was entitled to exercise it at the date of death (but
in no event later than the expiration of the term of such Option or SAR as set
forth in the Option or SAR Agreement). To the extent that Optionee was not
entitled to exercise an Option or SAR at the date of death, and to the extent
that the Optionee's estate or a person who acquired the right to exercise such
Option does not exercise such Option or SAR (to the extent otherwise so
entitled) within the time specified herein, the Option or SAR shall terminate.
8. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that the offeree shall be entitled to
purchase, the price to be paid (which price shall not be less than 50% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which the offeree must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Section 16 Restrictions. Stock Purchase Rights granted to
-----------------------
Insiders, and Shares purchased by Insiders in connection with Stock Purchase
Rights, shall be subject to any
-11-
<PAGE>
restrictions applicable thereto in compliance with Rule 16b-3. An Insider may
only purchase Shares pursuant to the grant of a Stock Purchase Right, and may
only sell Shares purchased pursuant to the grant of a Stock Purchase Right,
during such time or times as are permitted by Rule 16b-3.
(e) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 11
of the Plan.
9. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this Section 9. When an Optionee incurs tax liability in
connection with the an Option or Right, which tax liability is subject to tax
withholding under applicable tax laws, and the Optionee is obligated to pay the
Company an amount required to be withheld under applicable tax laws, the
Optionee may satisfy the withholding tax obligation by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option, or
the Shares to be issued in connection with the Right, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose shall
be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is an Insider, the election must comply with the
applicable provisions of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Right is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
-12-
<PAGE>
10. Non-Transferability of Options. Options and Rights may not be sold,
------------------------------
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Subject to any required action by the shareholders of the Company,
the number of Shares covered by each outstanding Option and Right, and the
number of Shares which have been authorized for issuance under the Plan but as
to which no Options or Rights have yet been granted or which have been returned
to the Plan upon cancellation or expiration of an Option or Right, as well as
the price per Share covered by each such outstanding Option or Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the aggregate number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of Shares of
stock of any class, or securities convertible into Shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option or Right.
In the event of the proposed dissolution or liquidation of the
Company, all outstanding Options and Rights will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Board. The Board may, in the exercise of its sole discretion in such instances,
declare that any Option or Right shall terminate as of a date fixed by the Board
and give each Optionee the right to exercise his Option or Right as to all or
any part of the Optioned Stock or Right, including Shares as to which the Option
or Right would not otherwise be exercisable.
Subject to the provisions of paragraph (b) hereof, in the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each outstanding Option
and Right shall be assumed or an equivalent option or Right shall be substituted
by such successor corporation or a parent or subsidiary of such successor
corporation, unless the Board determines, in the exercise of its sole discretion
and in lieu of such assumption or substitution, that the Optionee shall have the
right to exercise the Option or Right as to all of the Optioned Stock, including
Shares as to which the Option or Right would not otherwise be exercisable. If
the Board makes an Option or Right fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Company shall
notify the Optionee that the Option or Right shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Right will terminate upon the expiration of such period. For purposes of this
paragraph, an Option granted under the Plan shall be deemed to be assumed if,
following the sale of assets or merger, the Option confers the right to
purchase, for each Share of
-13-
<PAGE>
Optioned Stock subject to the Option immediately prior to the sale of assets
or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each Share held on the effective date of the transaction (and if such
holders were offered a choice of consideration, the type of consideration
chosen by the holders if a majority of the outstanding Shares); provided,
however, that if such consideration received in the sale of assets or merger
was not solely Common Stock of the successor corporation or its parent, the
Board may, with the consent of the successor corporation and the participant,
provide for the consideration to be received upon exercise of the Option or
Right to be solely Common Stock of the successor corporation or its parent
equal in Fair Market Value to the per share consideration received by holders
of Common Stock in the sale of assets or merger.
(b) In the event of a "Change in Control" of the Company, as defined
in paragraph (c) below, any or all or none of the following acceleration and
valuation provisions shall apply, as the Board, in its discretion, shall
determine prior to such Change of Control:
(i) Any Options and Rights outstanding as of the date such
Change in Control is determined to have occurred that are not yet
exercisable and vested on such date shall become fully exercisable and
vested;
(ii) To the extent they are exercisable and vested, the value
of all outstanding Options and Rights shall, unless otherwise determined by
the Board at or after grant, shall be cashed out at the Change in Control
Price, reduced by the exercise price applicable to such Options or Rights.
The cash out proceeds shall be paid to the Optionee or, in the event of
death of an Optionee prior to payment, to the estate of the Optionee or to
a person who acquired the right to exercise the Option or Right by bequest
or inheritance.
(c) Definition of "Change in Control". For purposes of this Section
---------------------------------
11, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a
Company employee benefit plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities; or
(ii) The occurrence of a transaction requiring shareholder
approval, and involving the sale of all or substantially all of the assets
of the Company or the merger of the Company with or into another
corporation.
(d) Change in Control Price. For purposes of this Section 11, "Change
-----------------------
in Control Price" shall be, as determined by the Board, (i) the highest closing
sale price of a Share of Common Stock as reported by the NASDAQ System and as
appearing in the Wall Street Journal (or, in the event the Common Stock is
listed on a stock exchange, the highest closing price on such exchange as
-14-
<PAGE>
reported on the Composite Transaction Reporting System), at any time within the
60 day period immediately preceding the date of determination of the Change in
Control Price by the Board (the "60-Day Period"), or (ii) the highest price paid
or offered, as determined by the Board, in any bona fide transaction or bona
fide offer related to the Change in Control of the Company, at any time within
the 60-Day Period, or (iii) some lower price as the Board, in its discretion,
determines to be a reasonable estimate of the fair market value of a share of
Common Stock.
12. Time of Granting Options and Rights. The date of grant of an Option
-----------------------------------
or Right shall, for all purposes, be the date on which the Administrator makes
the determination granting such Option or Right. Notice of the determination
shall be given to each Employee or Consultant to whom an Option or Right is so
granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or under Section 422A of the Code (or any other applicable law
or regulation), the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options or Rights already granted and
such Options and Rights shall remain in full force and effect as if this Plan
had not been amended or terminated.
14. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an Option or Right unless the exercise of such Option or Right and
the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option or the issuance of Shares
on exercise of an Option or Right, the Company may require the person exercising
such Option or Right to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-15-
<PAGE>
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the non-issuance or sale of such
Shares as to which such requisite authority shall not have been obtained.
16. Agreements. Options and Rights shall be evidenced by written
----------
agreements in such form as the Board shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted as provided in Section 6. Such shareholder
approval shall be obtained in the degree and manner required under applicable
state and federal law.
-16-
<PAGE>
EXHIBIT 10.7
CONSULTING AGREEMENT SYMMETRICOM .
- --------------------------------------------------------------------------------
This Consulting Agreement ("AGREEMENT") is made and entered into as of this
first day of June ,199 8 between:
----- ------------------- -----
. CONSULTANT Richard W. Oliver
-------------------------------------------------------------------
having a principal place of business at
885 Curtiswood Lane
Nashville, TN 37204
--------------------------------------------------------------------
AND
. TELECOM SOLUTIONS, a division of SymmetriCom, Inc. having a principal place
of business at
2300 Orchard Parkway, San Jose, California 95131
INDEPENDENT CONTRACTOR STATUS
It is the express intention of the parties that Consultant is an independent
contractor and not an employee, agent, joint venturer or partner of SymmetriCom.
Nothing in the agreement shall be interpreted or construed as creating or
establishing the relationship of employer and employee between Consultant and
SymmetriCom or any employee or agent of SymmetriCom. Both parties acknowledge
that Consultant is not an employee for state or federal tax purposes.
Consultant shall retain the right to perform services for others during the term
of this agreement.
SERVICES TO BE PERFORMED BY CONSULTANT
SPECIFIC SERVICES/SCOPE OF WORK
Consultant will provide to SymmetriCom the work, work product, and/or the
services, as described on Attachment A appended hereto and pursuant to the task
schedule, if any, also set forth Attachment A.
METHOD OF PERFORMING SERVICES
Consultant will determine the method, details, and means of performing the
above-described services. SymmetriCom shall have no right to, and shall not,
control the manner or determine the method of accomplishing Consultant's
services.
PROPERTY RIGHTS
With respect to designs of any type or description, drawings, specifications,
software development, and/or other copyrightable subject matter developed by
Consultant pursuant to any Specific Services, Consultant agrees that the
relationship of Consultant and SymmetriCom is and will be considered a "work
made for hire". As such, Consultant agrees that SymmetriCom will be deemed to
be the author and copyright owner of all copyrightable subject matter created
by Consultant pursuant to any Specific Services.
Consultant will promptly make full written disclosure to SymmetriCom, will hold
in trust for the sole right and benefit of SymmetriCom, and will assign to
SymmetriCom all of Consultant's right, title, and interest in and to any and
all inventions, original works of authorship, developments, improvements,
and/or trade secrets which Consultant conceives, develops, or reduces to
practice, or causes to be conceived, developed, or reduced to practice, in
connection with any Specific Services.
Consultant will assist SymmetriCom to obtain United States or foreign letters
patent, copyrights, or mask work rights covering inventions, original works or
authorship, developments, improvements, and/or trade secrets which are assigned
hereunder to SymmetriCom, and SymmetriCom will compensate Consultant at a
reasonable rate for time actually spent by Consultant at SymmetriCom's request
for such assistant.
NON-DISCLOSURE OF INFORMATION
For the purposes of this Agreement, the term "Confidential Information" refers
to information and/or materials which
1. SymmetriCom designates to Consultant as confidential or proprietary;
2. relate to customer lists, financial information, or other subject matter
pertaining to any business of SymmetriCom;
3. are provided to SymmetriCom by any one or more of its customers and which
relate to the business, business needs, requirements, and/or specification
of its customers; and
<PAGE>
NON-DISCLOSURE OF INFORMATION - CONTINUED
4. directly or indirectly relate to
(a) the design and/or specifications of a systems which incorporates a
product that performs a complete transferal of a function (a
"System"),
(b) all aspects of software applicable to a System, including, without
limitation, the logic and coherence thereof,
(c) circuit board designs directly or indirectly related to a System, and
(d) logic designs for filters and/or circuit boards, that are directly or
indirectly related to a System, including, without limitation,
simulations thereof.
Consultant agrees that the Confidential Information is confidential and
proprietary to SymmetriCom, will be held in trust and confidence by Consultant,
and will be safeguarded by Consultant to the same extent that Consultant
safeguards information and material of similar confidential character in
Consultant's own business which in no event will be less than the safeguards
that a reasonably prudent businessperson would exercise under similar
circumstances. To those ends, Consultant will take all reasonable steps to
ensure that all those persons having access through Consultant to the
Confidential Information will observe and perform the provisions of this
paragraph.
Consultant agrees it will not, in any manner, divulge, disclose, communicate,
publish, reproduce, or use, directly or indirectly, any of the Confidential
Information either during the term of this Agreement or at any time thereafter,
except as required in the course of performing any Specific Services/Scope of
Work; provided, however, that the restrictions in this paragraph will not apply
to that portion of the Confidential Information which is or becomes a matter of
general public knowledge other than by a breach of this Agreement by
Consultant, or to information which Consultant lawfully receives from any third
party under circumstances which Consultant has a reason to believe rightfully
permits the independent disclosure thereof by such third party to others.
Consultant agrees to promptly notify SymmetriCom of circumstances known or
learned by Consultant surrounding any access, possession, or use of the
Confidential Information not authorized by this Agreement. Consultant will
send such notice in writing by overnight delivery service, communication
charges prepaid, to the address for SymmetriCom set forth herein.
EMPLOYMENT OF ASSISTANTS
Consultant may, at the Consultant's own expenses, employ such assistants as
Consultant deems necessary to perform the services required of Consultant by
this Agreement. SymmetriCom may not control, direct, or supervise Consultant's
assistants or employees in the performance of those services. Consultant
assumes full and sole responsibility for the payment of all compensation and
expenses of these assistants and for all state and federal income tax,
unemployment insurance, Social Security, disability insurance and other
applicable withholdings.
PLACE OF WORK
Consultant shall perform the services required by this Agreement at any place
or location and at such times as Consultant shall determine.
COMPENSATION
In consideration for the services to be performed by Consultant, SymmetriCom
agrees to pay Consultant as stated below or as stated on attached Purchase
Order.
$2,500 / day
----------------------------------------------------------------------------
INVOICES
Consultant shall submit invoices for all services rendered.
EXPENSES
Consultant shall be responsible for all costs and expenses incident to the
performance of services for SymmetriCom, including but not limited to, all
costs of equipment provided by Consultant, all fees, fines, licenses, bonds or
taxes required of or imposed against Consultant and all other of Consultant's
costs of doing business. SymmetriCom shall be responsible for no expenses
incurred by Consultant in performing services for SymmetriCom.
OBLIGATIONS OF CONSULTANT
INDEMNIFICATION OF LIABILITY
Consultant warrants that it has the right to enter into and to fully meet all
of the requirements of this Agreement and to do so without conflicts or
liability to others. Consultant warrants that services performed is the sole
product of Consultant's own effort and that in performing such services
Consultant will not infringe upon nor violate any patent, copyright, trademark,
trade secret, nor other property rights of a third party.
Consultant has obligations to SymmetriCom and prior obligations to prior
employment or consultation engagements to protect all information and content
of trade secrets existing between the Consultant and these entities.
Therefore:
1. Consultant will obtain releases to consult with SymmetriCom from any
employers in the same industry in which Consultant is a Consultant for
SymmetriCom. These will be original copy statements and be labeled
Attachment B.
2. Consultant will obtain releases from any consulting engagements that
Consultant has completed in the prior three (3) years which are directly
competitive or the same equipment or software design technology as that of
SymmetriCom. These will be original copy statements and be labeled
Attachment C.
Consulting Agreement .
Page 2
<PAGE>
INDEMNIFICATION OF LIABILITY - CONTINUED
Consultant shall indemnify and hold SymmetriCom harmless against any and all
liability imposed or claimed, including attorney's fees and other legal
expenses, arising directly or indirectly from any act or failure of Consultant
to Consultant's assistants, employees or agents, including all claims relating
to the injury or death of any person or damage to any property. Consultant
agrees to maintain a policy of insurance to cover any such claims.
TOOLS AND INSTRUMENTALITIES
Consultant will supply all tools and instrumentalities required to perform the
services under this Agreement. Consultant is not required to purchase or rent
any tools, equipment or services from SymmetriCom.
WORKERS' COMPENSATION
Contractor agrees to provide workers' compensation insurance for Consultant's
employees and agents and agrees to hold harmless and indemnify SymmetriCom for
any and all claims arising out of any injury, disability, or death of any of
Consultant's employees or agents.
ASSIGNMENT
Neither this Agreement nor any duties or obligations under this Agreement may
be assigned by Consultant without the prior consent of SymmetriCom.
STATE AND FEDERAL TAXES
As Consultant is not SymmetriCom's employee, Consultant is responsible for
paying all required state and federal taxes.
OBLIGATIONS OF SYMMETRICOM
COOPERATION OF SYMMETRICOM
SymmetriCom agrees to comply with all reasonable requests of Consultant and
provide access to all documents reasonably necessary to the performance of
Consultant's duties under this Agreement.
ASSIGNMENT
Neither this Agreement nor any duties or obligations under this Agreement may
be assigned by SymmetriCom without the prior written consent of Consultant.
TERMINATION OF AGREEMENT
TERMINATION FOR CONVENIENCE
Either party may terminate this agreement for its convenience upon thirty (30)
days' advance written notice to the other party.
TERMINATION ON OCCURRENCE OF STATED EVENTS
This Agreement shall terminate automatically on the occurrence of any of the
following events:
1. bankruptcy or insolvency of either party;
2. sale of the business of either party; or
3. death of either party.
TERMINATION BY SYMMETRICOM FOR DEFAULT OF CONSULTANT
Should Consultant default in the performance of this Agreement or materially
breach any of its provisions, SymmetriCom, at SymmetriCom's option, may
terminate this Agreement by giving twenty-four (24) hour written notification
to Consultant. For the purposes of this section, material breach of this
Agreement shall include, but not be limited to the breach by Consultant of any
of its obligations in section "Services to be Performed by Consultant, Non-
Disclosure of Information, and Indemnification of Liability" above.
TERMINATION BY CONSULTANT FOR DEFAULT OF SYMMETRICOM
Should SymmetriCom default in the performance of this Agreement or materially
breach any of its provisions, Consultant, at the Consultant's option, may
terminate this Agreement by giving twenty-four (24) hour written notice to
SymmetriCom.
TERMINATION FOR FAILURE TO MAKE AGREED-UPON PAYMENTS
Should SymmetriCom fail to pay Consultant all or any part of the compensation
set forth in COMPENSATION section of this Agreement on the date due,
Consultant, at the Consultant's option, may terminate this Agreement if the
failure is not remedied by SymmetriCom within sixty (60) days from the date
payment is due.
GENERAL PROVISIONS
NOTICES
Any notices to be given hereunder by either party to the other may be effected
either by personal delivery in writing or by mail, registered or certified,
postage prepared with return receipt requested. Mailed notices shall be
addressed to the parties at the addresses appearing in the introductory
paragraph of this Agreement, but each party may change the address by written
notice in accordance with this paragraph. Notices delivered personally will be
deemed communicated as of actual receipt; mailed notices will be deemed
communicated as of two days after mailing.
Consulting Agreement .
Page 3
<PAGE>
ENTIRE AGREEMENT OF THE PARTIES
This Agreement supersedes any and all Agreements, either oral or written,
between the parties hereto with respect to the rendering of services by
Consultant for SymmetriCom and contains all the covenants and Agreements
between the parties with respect to the rendering of such services in any
manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise,
have been made by any party, or anyone acting on behalf of any party, which are
not embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification of
this Agreement will be effective only if it is in writing signed by the party
to be charged.
PARTIAL INVALIDITY
If any provision in this Agreement is held by a court of competent jurisdiction
to be invalid, void, or unenforceable, the remaining provisions will
nevertheless continue in full force without being impaired or invalidated in
any way.
ATTORNEYS' FEES
If any action at law or in equity, including an action for declaratory relief,
is brought to enforce or interpret the provisions of this Agreement, the
prevailing party will be entitled to reasonable attorneys' fees, which may be
set by the court in the same action or in a separate action brought for that
purpose, in addition to any other relief to which that party may be entitled.
GOVERNING LAW
The validity, interpretation, and performance of this Agreement will be
controlled by and construed under the laws of the State of California.
The parties hereto acknowledge that each has read this Agreement, understands
it, and agrees to be bound by its terms. Executed to be effective as of the day
and year first above written.
CONSULTANT SYMMETRICOM,INC.
/s/ Roger A. Strauch
- ----------------------- ------------------------------------------
Company Name Name of Functional Area Manager or VP
/s/ Rick Oliver
- ----------------------- ------------------------------------------
Signature of Consultant Signature of Functional Area Manager or VP
- ----------------------- ------------------------------------------
Business License Number Date
- -----------------------
Date
Return completed Agreement form with Attachments to:
. SYMMETRICOM, INC.
2300 Orchard Parkway, San Jose, CA 95131 attn: Human Resources
. ATTACHMENTS
Attachment A (Description of work, work product, and/or services to be
performed)
Attachment B (Releases to consult with SymmetriCom from employers in same
industry, refer to Indemnification of Liabilities)
Attachment C (Releases from previous consulting engagements; refer to
Indemnification of Liabilities)
Approved Purchase Order to be attached
Consulting Agreement .
Page 4
<PAGE>
EXHIBIT 10.8
CONSULTING AGREEMENT
This Consulting Agreement ("AGREEMENT") is made and entered into as of August 1,
1998 between:
* CONSULTANT DAN RASDAL, having a principal place of business at:
10840 Mora Drive, Los Altos, CA 94024
AND
* SYMMETRICOM, INC, having a principal place of business at:
2300 Orchard Parkway, San Jose, CA 95131
INDEPENDENT CONTRACTOR STATUS
It is the express intention of the parties that Consultant is an independent
contractor and not an employee, agent, joint venturer or partner of SymmetriCom.
It is acknowledged that Consultant is on the Board of Directors of SymmetriCom.
Nothing in the agreement shall be interpreted or construed as creating or
establishing the relationship of employer and employee between Consultant and
SymmetriCom or any employee or agent of SymmetriCom. Both parties acknowledge
that Consultant is not an employee for state or federal tax purposes.
Consultant shall retain the right to perform services for others during the term
of this agreement.
SERVICES TO BE PERFORMED BY CONSULTANT
SPECIFIC SERVICES/SCOPE OF WORK
Consultant will provide to SymmetriCom assistance on various projects as
approved by the Chairman of the Board.
METHOD OF PERFORMING SERVICES
Consultant will determine the method, details, and means of performing the
above-described services. SymmetriCom shall have no right to, and shall not,
control the manner or determine the method of accomplishing Consultant's
services.
PROPERTY RIGHTS
With respect to designs of any type or description, drawings, specifications,
software development, and/or other copyrightable subject matter developed by
Consultant pursuant to any Specific Services, Consultant agrees that the
relationship of Consultant and SymmetriCom is and will be considered a "work
made for hire". As such, Consultant agrees that SymmetriCom will be deemed to
be the author and copyright owner of all copyrightable subject matter created
by Consultant pursuant to any Specific Services.
Consultant will promptly make full written disclosure to SymmetriCom, will hold
in trust for the sole right and benefit of SymmetriCom, and will assign to
SymmetriCom all of Consultant's right, title, and interest in and to any and
all inventions, original works of authorship, developments, improvements,
and/or trade secrets which Consultant conceives, develops, or reduces to
practice, or causes to be conceived, developed, or reduced to practice, in
connection with any Specific Services.
Consultant will assist SymmetriCom to obtain United States or foreign letters
patent, copyrights, or mask work rights covering inventions, original works or
authorship, developments, improvements, and/or trade secrets which are assigned
hereunder to SymmetriCom, and SymmetriCom will compensate Consultant at a
reasonable rate for time actually spent by Consultant at SymmetriCom's request
for such assistant.
NON-DISCLOSURE OF INFORMATION
For the purposes of this Agreement, the term "Confidential Information" refers
to information and/or materials which
1. SymmetriCom designates to Consultant as confidential or proprietary;
2. relate to customer lists, financial information, or other subject matter
pertaining to any business of SymmetriCom;
3. are provided to SymmetriCom by any one or more of its customers and which
relate to the business, business needs, requirements, and/or specification
of its customers; and
4. directly or indirectly relate to
(a) the design and/or specifications of a systems which incorporates a
product that performs a complete transferal of a function (a
"System"),
(b) all aspects of software applicable to a System, including, without
limitation, the logic and coherence thereof,
(c) circuit board designs directly or indirectly related to a System, and
<PAGE>
(d) logic designs for filters and/or circuit boards, that are directly or
indirectly related to a System, including, without limitation,
simulations thereof.
Consultant agrees that the Confidential Information is confidential and
proprietary to SymmetriCom, will be held in trust and confidence by Consultant,
and will be safeguarded by Consultant to the same extent that Consultant
safeguards information and material of similar confidential character in
Consultant's own business which in no event will be less than the safeguards
that a reasonably prudent businessperson would exercise under similar
circumstances. To those ends, Consultant will take all reasonable steps to
ensure that all those persons having access through Consultant to the
Confidential Information will observe and perform the provisions of this
paragraph.
Consultant agrees it will not, in any manner, divulge, disclose, communicate,
publish, reproduce, or use, directly or indirectly, any of the Confidential
Information either during the term of this Agreement or at any time thereafter,
except as required in the course of performing any Specific Services/Scope of
Work; provided, however, that the restrictions in this paragraph will not apply
to that portion of the Confidential Information which is or becomes a matter of
general public knowledge other than by a breach of this Agreement by
Consultant, or to information which Consultant lawfully receives from any third
party under circumstances which Consultant has a reason to believe rightfully
permits the independent disclosure thereof by such third party to others.
Consultant agrees to promptly notify SymmetriCom of circumstances known or
learned by Consultant surrounding any access, possession, or use of the
Confidential Information not authorized by this Agreement. Consultant will
send such notice in writing by overnight delivery service, communication
charges prepaid, to the address for SymmetriCom set forth herein.
PLACE OF WORK
Consultant shall perform the services required by this Agreement at any place
or location and at such times as Consultant shall determine.
COMPENSATION
In consideration for the services to be performed by Consultant, SymmetriCom
agrees to pay Consultant as stated below or as stated on attached Purchase
Order.
$10,416.67 per month as a retainer for services, plus an additional expense
amount of $881.30. This consultant agreement is expected to last until July
1999.
Additional expenses incurred for such items as air transportation, taxi and
hotels should be billed at the actual cost by presenting an invoice or having
the service direct bill to SymmetriCom.
EXPENSES
Consultant shall be responsible for costs and expenses incident to the
performance of services for SymmetriCom, including but not limited to costs of
equipment provided by Consultant, all fees, fines, licenses, bonds or taxes
required of or imposed against Consultant and all other of Consultant's costs
of doing business. SymmetriCom shall be responsible for no expenses incurred
by Consultant in performing services for SymmetriCom except as noted above
under Compensation.
OBLIGATIONS OF CONSULTANT
INDEMNIFICATION OF LIABILITY
Consultant warrants that it has the right to enter into and to fully meet all
of the requirements of this Agreement and to do so without conflicts or
liability to others. Consultant warrants that services performed is the sole
product of Consultant's own effort and that in performing such services
Consultant will not infringe upon nor violate any patent, copyright, trademark,
trade secret, nor other property rights of a third party.
Consultant has obligations to SymmetriCom and prior obligations to prior
employment or consultation engagements to protect all information and content
of trade secrets existing between the Consultant and these entities.
Therefore:
1. Consultant will obtain releases to consult with SymmetriCom from any
employers in the same industry in which Consultant is a Consultant for
SymmetriCom. These will be original copy statements and be labeled
Attachment B.
2. Consultant will obtain releases from any consulting engagements that
Consultant has completed in the prior three (3) years which are directly
competitive or the same equipment or software design technology as that of
SymmetriCom. These will be original copy statements and be labeled
Attachment C.
Consulting Agreement * Page 2
<PAGE>
TOOLS AND INSTRUMENTALITIES
Consultant will supply all tools and instrumentalities required to perform the
services under this Agreement. Consultant is not required to purchase or rent
any tools, equipment or services from SymmetriCom.
WORKERS' COMPENSATION
Consultant agrees to hold harmless and indemnify SymmetriCom for any and all
claims arising out of any injury, disability, or death of Consultant.
ASSIGNMENT
Neither this Agreement nor any duties or obligations under this Agreement may
be assigned by Consultant without the prior consent of SymmetriCom.
STATE AND FEDERAL TAXES
As Consultant is not SymmetriCom's employee, Consultant is responsible for
paying all required state and federal taxes.
OBLIGATIONS OF SYMMETRICOM
COOPERATION OF SYMMETRICOM
SymmetriCom agrees to comply with all reasonable requests of Consultant and
provide access to all documents reasonably necessary to the performance of
Consultant's duties under this Agreement.
ASSIGNMENT
Neither this Agreement nor any duties or obligations under this Agreement may
be assigned by SymmetriCom without the prior written consent of Consultant.
TERMINATION OF AGREEMENT
TERMINATION FOR CONVENIENCE
Either party may terminate this agreement for its convenience upon thirty (30)
days' advance written notice to the other party.
TERMINATION ON OCCURRENCE OF STATED EVENTS
This Agreement shall terminate automatically on the occurrence of any of the
following events:
1. bankruptcy or insolvency of either party;
2. sale of the business of either party; or
3. death of either party.
TERMINATION BY SYMMETRICOM FOR DEFAULT OF CONSULTANT
Should Consultant default in the performance of this Agreement or materially
breach any of its provisions, SymmetriCom, at SymmetriCom's option, may
terminate this Agreement by giving twenty-four (24) hour written notification
to Consultant. For the purposes of this section, material breach of this
Agreement shall include, but not be limited to the breach by Consultant of any
of its obligations in section "Services to be Performed by Consultant, Non-
Disclosure of Information, and Indemnification of Liability" above.
TERMINATION BY CONSULTANT FOR DEFAULT OF SYMMETRICOM
Should SymmetriCom default in the performance of this Agreement or materially
breach any of its provisions, Consultant, at the Consultant's option, may
terminate this Agreement by giving twenty-four (24) hour written notice to
SymmetriCom.
TERMINATION FOR FAILURE TO MAKE AGREED-UPON PAYMENTS
Should SymmetriCom fail to pay Consultant all or any part of the compensation
set forth in COMPENSATION section of this Agreement on the date due,
Consultant, at the Consultant's option, may terminate this Agreement if the
failure is not remedied by SymmetriCom within sixty (60) days from the date
payment is due.
GENERAL PROVISIONS
NOTICES
Any notices to be given hereunder by either party to the other may be effected
either by personal delivery in writing or by mail, registered or certified,
postage prepared with return receipt requested. Mailed notices shall be
addressed to the parties at the addresses appearing in the introductory
paragraph of this Agreement, but each party may change the address by written
notice
Consulting Agreement * Page 3
<PAGE>
in accordance with this paragraph. Notices delivered personally will be
deemed communicated as of actual receipt; mailed notices will be deemed
communicated as of two days after mailing.
ENTIRE AGREEMENT OF THE PARTIES
This Agreement supersedes any and all Agreements, either oral or written,
between the parties hereto with respect to the rendering of services by
Consultant for SymmetriCom and contains all the covenants and Agreements
between the parties with respect to the rendering of such services in any
manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise,
have been made by any party, or anyone acting on behalf of any party, which are
not embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification of
this Agreement will be effective only if it is in writing signed by the party
to be charged.
PARTIAL INVALIDITY
If any provision in this Agreement is held by a court of competent jurisdiction
to be invalid, void, or unenforceable, the remaining provisions will
nevertheless continue in full force without being impaired or invalidated in
any way.
ATTORNEYS' FEES
If any action at law or in equity, including an action for declamatory relief,
is brought to enforce or interpret the provisions of this Agreement, the
prevailing party will be entitled to reasonable attorneys' fees, which may be
set by the court in the same action or in a separate action brought for that
purpose, in addition to any other relief to which that party may be entitled.
GOVERNING LAW
The validity, interpretation, and performance of this Agreement will be
controlled by and construed under the laws of the State of California.
The parties hereto acknowledge that each has read this Agreement, understands
it, and agrees to be bound by its terms. Executed to be effective as of the day
and year first above written.
CONSULTANT SYMMETRICOM,INC.
Rick Oliver
- ------------------------------- -------------------------------
Company Name Name of Chairman of the Board
/s/ Dan Rasdal /s/ Rick Oliver
- ------------------------------- -------------------------------
Signature of Consultant Signature of Chairman of the Board
- ------------------------------- -------------------------------
Business License Number Date
8-26-98
- -------------------------------
Date
RETURN COMPLETED AGREEMENT FORM WITH ATTACHMENTS TO:
* SYMMETRICOM, INC.
2300 Orchard Parkway, San Jose, CA 95131 attn: Human Resources
* ATTACHMENTS
Attachment A not necessary
Attachment B (Releases to consult with SymmetriCom from employers in same
industry, refer to Indemnification of Liabilities) - none
provided as of August 1, 1998
Attachment C (Releases from previous consulting engagements; refer to
Indemnification of Liabilities) - not necessary
Approved Purchase Order to be attached
<PAGE>
EXHIBIT 10.11
FOURTH AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT
This AMENDMENT, dated the 26th day of June, 1998 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. Replace Section 6.5 with the following: "Maintain Tangible Net Worth. On a
consolidated basis, maintain a Tangible Net Worth of not less than the amount
specified during the period specified below:
(a) $75,000,000 from the date of this Amendment and to increase on
June 30, 1999 by 70% of Borrower's fiscal 1998 net profit after tax.
2. Replace Section 6.8 with the following: "Maintain Profitability. On a
consolidated basis, for the fiscal quarter ending March 31, 1999, maintain Net
Income greater than ZERO DOLLARS ($0). After the fiscal quarter ending March 31,
1999, Borrower shall maintain Net Income greater than zero dollars ($0) at least
every second quarter.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth 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.
<PAGE>
By: /s/ ROGER A. STRAUCH By: /s/ THOMAS W. STEIPP
- -------------------------- --------------------------
Roger A. Strauch Thomas W. Steipp
Its: President and COO,
Its: Chief Executive Officer Telecom Solutions
COMERICA BANK-CALIFORNIA
By: /s/ MARK HILLHOUSE
--------------------------
Mark Hillhouse
Its: Corporate Banking Officer
<PAGE>
EXHIBIT 10.12
FIRST AMENDED AND RESTATED
REVOLVING CREDIT LOAN AGREEMENT
THIS FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT made and
delivered this 29th day of June, 1998, by and between SYMMETRICOM, INC., a
California corporation (herein referred to as "Borrower") and COMERICA BANK -
California (herein referred to as "Bank").
RECITALS
--------
A. Borrower and Bank have previously entered into that certain Revolving Credit
Loan Agreement dated December 1, 1993 (as amended, the "Prior Agreement"). As of
June 29, 1998, there is no balance outstanding in connection with the Prior
Agreement.
B. Borrower desires to borrow an amount not to exceed Seven Million Dollars
($7,000,000) in the form of a revolving credit loan from Bank from time to time
for the working capital needs of Borrower, which shall replace the loan under
the Prior Agreement.
C. Bank is willing to supply such financing subject to the terms and conditions
set forth in this Agreement and the documents executed in connection herewith.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, Borrower and the Bank agree as set forth below.
1. Definitions: Accounting Terms: Construction.
-------------------------------------------
1.1 Defined Terms. As used in this Agreement, the following terms shall
-------------
have the following respective meanings:
"Accounts," "Chattel Paper," "Documents," "Equipment," "Fixtures,"
"General Intangibles," "Goods," "Instruments" and "Inventory" shall have
the meanings assigned to them in the UCC on the date of this Agreement.
"Accounts Receivable" shall mean and include all Accounts, Chattel
Paper and General Intangibles (including, but not limited to Tax Refunds,
trade names, trade styles and goodwill, trade marks, copyrights and
patents, and applications therefor, trade and proprietary secrets,
formulae, designs, blueprints and plans, customer lists, literary rights,
licenses and permits, receivables, insurance proceeds, beneficial
interests in trusts and minute books and other books and records) now
owned or hereafter acquired by Borrower.
1
<PAGE>
"Affiliate" shall mean, when used with respect to any person, any other
person which, directly or indirectly, controls or is controlled by or is under
common control with such person. For purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of
voting securities or by contract or otherwise.
"Agreement" shall mean this First Amended and Restated Revolving Credit Loan
Agreement, as amended from time to time hereafter.
"Bank" shall mean Comerica Bank-California, a California banking
corporation.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended, or any successor act or code.
"Base Rate" shall mean that annual rate of interest designated by Bank as
its base rate, which rate may not be the lowest rate of interest charged by
Bank to any of its customers, and which rate is changed by Bank from time to
time.
"Borrower" shall mean SYMMETRICOM, INC., a California corporation.
"Borrower's Telephone and Facsimile Authorization" shall mean a document
in the form and content of Exhibit B hereto authorizing telephone or facsimile
---------
notice of borrowing.
"Business Day" shall mean a day on which the Bank is open to carry on its
normal commercial lending business.
"Consolidated" or "consolidated" shall mean, when used with reference to any
financial term in this Agreement, the aggregate for two or more persons of the
amounts signified by such term for all such persons determined on a consolidated
basis in accordance with GAAP. Unless otherwise specified herein, references to
"consolidated" financial statements or data of Borrower includes consolidation
with its Subsidiaries in accordance with GAAP.
"Contract Rate" shall mean, as of any applicable date of determination, the
interest rate determined in accordance with Section 2.4 of this Agreement.
"Current Assets" shall mean, as of any applicable date of determination, all
cash, non-affiliated customer receivables, United States government securities,
claims against the United States government, and inventories.
"Current Liabilities" shall mean, as of any applicable date of
determination, (i) all liabilities of a person that should be classified as
current in accordance with GAAP, plus (ii) the principal outstanding balance
of the Note;
2
<PAGE>
plus (iii) to the extent not otherwise included, all liabilities of Borrower to
any of its Affiliates whether or not classified as current in accordance with
GAAP.
"Debt" shall mean, as of any applicable date of determination, all items of
indebtedness, obligation or liability of a person, whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, joint or
several, that should be classified as liabilities in accordance with GAAP.
"Default" shall mean a condition or event which, with the giving of notice
or the passage of time, or both, would become an Event of Default.
"Disbursement Date" shall mean each date upon which Bank makes a loan to
Borrower under Section 2.1 of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, or any successor act or code.
"Event of Default" shall mean any of those conditions or events listed in
Section 7.1 of this Agreement.
"Financial Statements" shall mean all those balance sheets, earnings
statements and other financial data (whether of Borrower, any of its
Subsidiaries, or otherwise) which have been furnished to Bank for the purposes
of, or in connection with, this Agreement and the transactions contemplated
hereby.
"GAAP" shall mean, as of any applicable date of determination, generally
accepted accounting principles consistently applied.
"Guarantor" or "Guarantors" shall mean, either individually or
collectively, as the case may be, Telecom Solutions Puerto Rico, Inc.,
Linfinity Microelectronics, Inc. and/or any other Person signing a guaranty in
favor of Bank.
"Guaranty" or "Guaranties" shall mean, individually or collectively, as
the case may be, one or more guaranties in the form of Exhibits E and G
----------------
hereto, executed by Guarantors, pursuant to those certain corporate
resolutions in the form of Exhibits F and H hereto.
----------------
"Indebtedness" shall mean all loans, advances, indebtedness, obligations and
liabilities of Borrower to Bank under this Agreement, together with all other
indebtedness, obligations (including, but not limited to, letters of credit of
any type) and liabilities whatsoever of Borrower to Bank, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising.
"Legal Rate" shall mean the maximum interest rate permitted to be paid by
Borrower or received by Bank with respect to the Indebtedness represented by the
Revolving Credit Note under applicable law.
3
<PAGE>
"Loan" shall mean the Revolving Loans.
"Net Income" shall mean the net income (or loss) of a person for any period
determined in accordance with GAAP but excluding in any event:
(i) any gains or losses on the sale or other disposition, not in the
ordinary course of business, of investments or fixed or capital assets,
and any taxes on the excluded gains and any tax deductions or credits on
account on any excluded losses; and
(ii) in the case of Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall have
actually been received by Borrower in the form of cash distributions.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any person
succeeding to the present powers and functions of the Pension Benefit Guaranty
Corporation.
"Permitted Liens" shall mean:
(a) Liens and encumbrances in favor of Bank in the future if
granted;
(b) Liens for taxes, assessments or other governmental charges incurred in
the ordinary course of business and for which no interest, late charge or
penalty is attaching or which is being contested in good faith by appropriate
proceedings and, if requested by Bank, bonded in an amount and manner
satisfactory to Bank;
(c) Liens, not delinquent, created by statute in connection with worker's
compensation, unemployment insurance, social security and similar statutory
obligations;
(d) Liens of mechanics, materialmen, carriers, warehousemen or other like
statutory or common law liens securing obligations incurred in good faith in the
ordinary course of business that are not yet due and payable;
(e) Encumbrances consisting of existing or future zoning restrictions,
existing recorded rights-of-way, existing recorded easements, existing
recorded private restrictions or existing or future public restrictions on the
use of real property, none of which materially impairs the use of such
property in the operation of the business for which it is used and none of
which is violated in any material respect by any existing or proposed
structure or land use; and
(f) Existing liens described on Schedule 4.5 attached to this Agreement.
4
<PAGE>
"Person" or "person" shall mean any individual, corporation, partnership,
joint venture, association, trust, unincorporated association, joint stock
company, government, municipality, political subdivision or agency, or other
entity.
"Quick Assets" shall mean, as of any applicable date of determination, all
cash, nonAaffiliated customer receivables, United States government securities
and claims against the United States government.
"Revolving Credit Commitment Amount" shall mean, as of any applicable date
of determination, Seven Million and 00/100 Dollars ($7,000,000).
"Revolving Credit Note" shall mean a promissory note conforming to Section
2.3 of this Agreement and in the form and content of Exhibit A to this
Agreement, as amended from time to time hereafter.
"Revolving Loan" shall mean an advance made by Bank to Borrower under
Section 2.1 of this Agreement on a Disbursement Date.
"Subsidiary" shall mean any corporation (whether now existing or hereafter
organized or acquired) in which more than fifty percent (50%) of the
outstanding securities having ordinary voting power for the election of
directors, as of any applicable date of determination, shall be owned
directly, or indirectly through one or more Subsidiaries, by Borrower.
"Tangible Net Worth" shall mean, as of any applicable date of
determination, the excess of (i) the net book value of all assets of a person
(other than patents, patent rights, trademarks, trade names, franchises,
copyrights, licenses, goodwill, and similar intangible assets) after all
appropriate deductions in accordance with GAAP (including, without limitation,
reserves for doubtful receivables, obsolescence, depreciation and
amortization), over (ii) all Debt of such person.
"Tax Refunds" shall mean refunds or claims for refunds of any taxes at any
time paid by Borrower to the United States of America or any state, city,
county or other governmental entity.
"Termination Date" shall mean May 1, 2000 (or such earlier date on which
Borrower shall permanently terminate Bank's commitment under Section 2.8.1 of
this Agreement).
"UCC" shall mean Uniform Commercial Code of the State of California
(approved June 8, 1968) as amended.
1.2 Accounting Terms. All accounting terms not specifically defined in this
----------------
Agreement shall be construed in accordance with GAAP.
1.3 Singular and Plural. Where the context herein requires, the singular
-------------------
number shall be deemed to include the plural, the masculine gender shall
include the feminine and neuter genders, and vice versa.
5
<PAGE>
2. Commitment, Interest and Fees.
-----------------------------
2.1 Revolving Credit Commitment. Subject to the terms and conditions of this
---------------------------
Agreement, Bank agrees to make loans to Borrower on a revolving basis in such
amount as Borrower shall request pursuant to Section 2.2 of this Agreement at
any time from the date of this Agreement until the Termination Date, up to an
aggregate principal amount outstanding at any time not to exceed the Commitment
Amount, provided that each Disbursement Date under this Agreement must be a
Business Day and provided that the principal amount of each Revolving Loan shall
be in the minimum amount of One Hundred Thousand Dollars ($100,000).
2.2 Borrowing Procedures.
--------------------
2.2.1 Notice. Borrower shall by telephone or facsimile give Bank
------
notice of Borrower's desire for a Revolving Loan no later than 1:00 p.m. San
Jose, California time in order to have the date of notice by the Disbursement
Date, otherwise the following Business Day shall be the Disbursement Date.
Such notice shall specify the principal amount of the proposed advance for
such Revolving Loan. Prior to such notice, Borrower shall have executed and
delivered to Bank a Borrower's Telephone and Facsimile Authorization.
2.2.2 Bank Obligations. Bank agrees to make the Revolving Loan on the
----------------
Disbursement Date established by notice to Bank from Borrower conforming to the
requirements of Section 2.2.1 by crediting the deposit account of Borrower with
Bank specified in Borrower's Telephone and Facsimile Authorization in the amount
of such Revolving Loan, provided, however, that Bank shall not be obligated if:
(a) Any of the conditions precedent set forth in Section 3 of
this Agreement shall not have been satisfied or waived by Bank in accordance
with Section 9.3 of this Agreement; or
(b) Such proposed Revolving Loan would cause the aggregate
unpaid principal amount of the Revolving Loans outstanding under this
Agreement to exceed the Commitment Amount on the Disbursement Date.
2.3 Revolving Credit Note. The Revolving Loans shall be evidenced by
---------------------
the Revolving Credit Note, executed by Borrower, dated the date of this
Agreement, payable to Bank on the Termination Date (unless sooner accelerated
pursuant to the terms of this Agreement), and in the principal amount of the
original Commitment Amount. The date and amount of each Revolving Loan made by
Bank and of each repayment of principal thereon received by Bank shall be
recorded by Bank in its records. The aggregate unpaid principal amount so
recorded by Bank shall constitute the best evidence of the principal amount
owing and unpaid on the Revolving Credit Note, provided, however, that the
failure by Bank so to record any such amount or any error in so recording any
such amount shall not limit or otherwise affect the obligations of Borrower
under this Agreement or the Revolving Credit Note to repay the principal
amount of all the Revolving Loans together with all interest accrued or
accruing thereon.
6
<PAGE>
2.4 Interest. Interest shall accrue on the principal balance of the
--------
Revolving Credit Note at Bank's Base rate of interest until demand or default,
at which time the Contract Rate shall be increased by three percent (3%) per
annum, as provided more completely in the Revolving Credit Note.
2.5 Maximum Rate. At no time shall the Contract Rate payable on the
------------
Revolving Credit Note be deemed to exceed the Legal Rate. In the event any
interest is charged or received by Bank in excess of the Legal Rate, Borrower
acknowledges that any such excess interest shall be the result of an
accidental and bona fide error, and such excess shall first be applied to
reduce the principal then unpaid hereunder (in inverse order of their
maturities if principal amounts are due in installments); second, applied to
reduce any obligation for other indebtedness of Borrower to Bank; and third,
any remaining excess returned to Borrower.
2.6 Fees.
----
2.6.1 Quarterly Fee. On a quarterly basis, Borrower agrees to pay a fee of
-------------
Six Thousand Two Hundred Fifty and 00/100 Dollars ($6,250), payable quarterly
in arrears.
2.6.2 Amendment Fee. Borrower shall pay an amendment fee concurrently with
-------------
the execution of this Agreement in the amount of Seven Thousand and Five
Hundred and 00/100 Dollars ($7,500) (the "Amendment Fee").
2.7 Basis of Computation. The amount of all interest and fees hereunder
--------------------
shall be computed for the actual number of days elapsed on the basis of a year
consisting of three hundred sixty (360) days.
2.8 Changes in Commitment and Prepayments.
-------------------------------------
2.8.1 Termination or Reduction in Commitment. Borrower, at any time
--------------------------------------
and from time to time (except as may hereinafter be provided): upon at least
five (5) Business Days' prior written notice received by Bank, may permanently
terminate Bank's commitment to make Revolving Loans under this Agreement or
permanently reduce the Commitment Amount by an integral multiple of One Hundred
Thousand Dollars ($100,000); provided, however, that Borrower, on the effective
date of such termination or reduction, shall pay to Bank, in the case of a
termination, the aggregate unpaid principal amount of all Revolving Loans, or,
in the case of a reduction, the amount, if any, by which the aggregate unpaid
principal amount of all Revolving Loans exceeds the then reduced Commitment
Amount, together in either case with all interest accrued and unpaid on the
principal amounts so prepaid, but without other premium. The notice shall
specify the Termination Date or the reduced Commitment Amount and the effective
date of the reduction, as the case may be. Borrower may not revoke any such
notice of termination or reduction without the prior written consent of Bank.
After any such reduction, the quarterly fee and any other fees provided under
Section 2.6. of this Agreement shall be calculated on the Commitment Amount as
so reduced and the Commitment Amount may not be increased or otherwise
reinstated without the express written agreement of Bank.
7
<PAGE>
2.8.2 Mandatory Payments. Borrower shall pay to Bank the amount, if
------------------
any, by which the aggregate unpaid principal amount of all Revolving Loans from
time to time exceeds the Commitment Amount, together with all interest accrued
and unpaid on the amount of such excess. Such payment shall be immediately due
and owing without notice or demand upon the occurrence of any such excess,
provided, however, that any mandatory payment made under this Section 2.8.2
shall not reduce the Commitment Amount.
2.8.3 No Excessive Interest. The Revolving Credit Note is subject to
---------------------
the condition that in no event shall the amount of interest received, charged,
or agreed to be paid, including any amounts provided for in this section that
may be deemed to constitute interest, exceed the amount permitted by applicable
law. In the event that the obligation to pay interest imposed hereunder shall
cause the amount of interest to exceed the highest rate permitted by applicable
law, and if Bank shall ever require as interest an amount in excess of the
permitted rate, such excess interest shall first be applied to reduce the
principal then unpaid hereunder (in inverse order of their maturities if
principal amounts are due in installments); second, applied to reduce any
obligation for other indebtedness of Borrower to Bank; and third, any remaining
excess shall be returned to Borrower.
2.9 Letter of Credit Accommodations. Each letter of credit issued for
-------------------------------
Borrower shall be pursuant to the terms and conditions hereof and of a Bank
standard form Letter of Credit Application and Agreement executed by Borrower.
Each letter of credit shall: (i) expire not later than three hundred and sixty-
five (365) days after the date of issuance; (ii) require drafts payable at
sight; (iii) be in form and substance and in favor of beneficiaries satisfactory
to Bank. A letter of credit issued by Bank for the account of Borrower shall be
included as an outstanding advance under the Commitment Amount and shall be
included in all calculations of Indebtedness from the date the letter of credit
is issued and until it expires, regardless whether the letter of credit is drawn
upon by the beneficiary. The aggregate undrawn or drawn but unreimbursed amount
of all letters of credit outstanding at any given time shall not exceed Two
Million Dollars ($2,000,000).
2.9.1 Letter of Credit Fees. Borrower shall pay Bank certain fees,
---------------------
which may be increased or decreased as when Bank advises Borrower consistent
with Bank's schedules of fees applicable to commercial letters of credit.
2.10 Basis of Payments. All sums payable by Borrower to Bank under this
-----------------
Agreement or the other documents contemplated hereby shall be paid directly to
Bank at its principal office set forth in Section 8.10 hereof in immediately
available United States funds, without set off, deduction or counterclaim. In
its sole discretion, Bank may charge any and all deposit or other accounts
(including without limitation an account evidenced by a certificate of deposit)
of Borrower with Bank for all or a part of any Indebtedness then due; provided,
however, that this authorization shall not affect Borrower's obligation to pay,
when due, any Indebtedness whether or not account balances are sufficient to pay
amounts due.
2.11 Receipt of Payments. Any payment of the Indebtedness made by mail
-------------------
will be deemed tendered and received only upon actual receipt by Bank at the
address
8
<PAGE>
designated for such payment, whether or not Bank has authorized payment by mail
or any other manner, and shall not be deemed to have been made in a timely
manner unless received on the date due for such payment, time being of the
essence. Borrower expressly assumes all risks of loss or liability resulting
from non-delivery or delay of delivery of any item of payment transmitted by
mail or in any other manner. Acceptance by Bank of any payment in an amount less
than the amount then due shall be deemed an acceptance on account only, and the
failure to pay the entire amount then due shall be and continue to be an Event
of Default, and at any time thereafter and until the entire amount then due has
been paid, Bank shall be entitled to exercise any and all rights conferred upon
it herein upon the occurrence of an Event of Default. Borrower waives the right
to direct the application of any and all payments at any time or times hereafter
received by Bank from or on behalf of Borrower. Borrower agrees that Bank shall
have the continuing exclusive right to apply and to reapply any and all payments
received at any time or times hereafter against the Indebtedness in such manner
as Bank may deem advisable, notwithstanding any entry by Bank upon any of its
books and records. Borrower expressly agrees that to the extent that Bank
receives any payment or benefit and such payment or benefit, or any part
thereof, is subsequently invalidated, declared to be fraudulent or preferential,
set aside or is required to be repaid to a trustee, receiver, or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then to the extent of such payment or benefit, the Indebtedness or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such payment or benefit had not been made and, further, any such repayment
by Bank, to the extent that Bank did not directly receive a corresponding cash
payment, shall be added to and be additional Indebtedness payable upon demand
by Bank.
3. Conditions Precedent to Obligations of Bank.
-------------------------------------------
3.1 Conditions to First Disbursement. The obligations of Bank under this
--------------------------------
Agreement are subject to the occurrence, prior to or simultaneously with the
Disbursement Date first occurring, of each of the conditions set forth herein.
3.1.1 Documents Executed, Delivered and Filed. Borrower shall have
---------------------------------------
executed (or caused to be executed) and delivered to Bank and, as appropriate,
there shall have been filed or recorded with such filing or recording offices as
Bank shall deem appropriate, including, without limitation, the following:
(a) The Revolving Credit Note;
(b) The Corporation Resolutions and Incumbency Certification -
Authority to Procure Loans;
(c) Borrower's Authorization for the Revolving Credit Note; and
(d) The Guaranties signed by Guarantors, together with
corporate resolutions authorizing the execution of such Guaranties.
3.1.2 Certified Resolutions. Borrower shall have furnished to Bank a
---------------------
copy of resolutions of the Board of Directors of Borrower authorizing the
execution,
9
<PAGE>
delivery and performance of this Agreement, the borrowing hereunder, the
Revolving Credit Note and any other documents contemplated by this Agreement,
which shall have been certified by the Secretary or Assistant Secretary of
Borrower as of the Disbursement Date first occurring as being complete, accurate
and in effect.
3.1.3 Certificate of Incumbency. Borrower shall have furnished to
-------------------------
Bank a certificate of the Secretary or Assistant Secretary of Borrower,
certified as of the Disbursement Date first occurring, as to the incumbency and
signatures of the officers of Borrower signing this Agreement, the Revolving
Credit Note and any documents contemplated or delivered under this Agreement.
4.1.4 Payment of Amendment Fee. Borrower shall have paid the
------------------------
Amendment Fee to Bank.
3.2 Conditions to All Disbursements. The obligations of Bank to make any
-------------------------------
Revolving Loan on any Disbursement Date, including, but not limited to, the
Disbursement Date first occurring, are subject to the occurrence, prior to or on
the Disbursement Date related to such Revolving Loan, of each of the following
conditions set forth in this Section 3.2.
3.2.1 Bank Satisfaction. Bank shall not know or have any reason to
-----------------
believe that, as of such Disbursement Date:
(a) Any Default or Event of Default has occurred and is
continuing;
(b) Any warranty or representation set forth in Section 4 of
this Agreement shall not be true and correct; or
(c) Any provision of law, any order of any court or other
agency of government on any regulation, rule or interpretation thereof shall
have had any material adverse effect on the validity or enforceability of this
Agreement, the Revolving Credit Note, or other documents contemplated hereby.
4. Warranties and Representations.
------------------------------
On a continuing basis from the date of this Agreement until the later of
the Termination Date or when the Indebtedness is paid in full and Borrower has
performed all of its other obligations hereunder, Borrower represents and
warrants to Bank as set forth herein.
4.1 Corporate Existence and Power. (a) Borrower and each of its
-----------------------------
Subsidiaries is a duly organized, validly existing and in good standing under
the laws of the State of California; (b) Borrower and its Subsidiaries each has
the power and authority to own its properties and assets and to carry out its
business as now being conducted and is qualified to do business and in good
standing in every jurisdiction wherein such qualification is necessary; and (c)
Borrower has the power and authority to execute, deliver and perform this
Agreement, to borrow money in accordance with
10
<PAGE>
its terms, to execute, deliver and perform the Revolving Credit Note, and other
documents contemplated hereby, and to do any and all other things required of it
hereunder.
4.2 Authorization and Approvals. The execution, delivery and performance
---------------------------
of this Agreement, the borrowings hereunder and the execution, delivery and
performance of the Revolving Credit Note, and other documents contemplated
hereby (a) have been duly authorized by all requisite corporate action of
Borrower, (b) do not require registration with or consent or approval of, or
other action by, any federal, state or other governmental authority or
regulatory body, or, if such registration, consent or approval is required, the
same has been obtained and disclosed in writing to Bank, (c) will not violate
any provision of law, any order of any court or other agency of government, the
Articles of Incorporation or Bylaws of Borrower, any provision of any indenture,
note, agreement or other instrument to which Borrower is a party, or by which it
or any of its properties or assets are bound, (d) will not be in conflict with,
result in a breach of or constitute (with or without notice or passage of time)
a default under any such indenture, note, agreement or other instrument, and (e)
will not result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any of the properties or assets of Borrower other
than in favor of Bank in the future if granted.
4.3 Valid and Binding Agreement. This Agreement is, and the Revolving
---------------------------
Credit Note, and all other documents contemplated hereby will be, when
delivered, valid and binding obligations of Borrower.
4.4 Actions, Suits or Proceedings. There are no actions, suits or
-----------------------------
proceedings, at law or in equity, and no proceedings before any arbitrator or by
or before any governmental commission, board, bureau, or other administrative
agency, pending, or, to the best knowledge of Borrower, threatened against or
affecting Borrower, or any of its Subsidiaries or any properties or rights of
Borrower, or any of its Subsidiaries, which, if adversely determined, could
materially impair the right of Borrower, or any of its Subsidiaries to carry on
business substantially as now conducted or could have a material adverse effect
upon the financial condition of Borrower, or any of its Subsidiaries.
4.5 No Liens, Pledges, Mortgages or Security Interests. Except for
--------------------------------------------------
Permitted Liens, none of Borrower's, or its Subsidiaries' assets and properties,
are subject to any mortgage, pledge, lien, security interest or other
encumbrance of any kind or character.
4.6 Accounting Principles. All consolidated and consolidating balance
---------------------
sheets, earnings statements and other financial data furnished to Bank for the
purposes of, or in connection with, this Agreement and the transactions
contemplated by this Agreement, have been prepared in accordance with GAAP, and
do or will fairly present the financial condition of Borrower, and its
Subsidiaries, as of the dates, and the results of their operations for the
periods, for which the same are furnished to Bank. Without limiting the
generality of the foregoing, the Financial Statements have been prepared in
accordance with GAAP (except as disclosed therein) and fairly present the
financial condition of Borrower, and its Subsidiaries as of the dates, and the
results of its operations for the fiscal periods, for which the same are
furnished to Bank. Borrower has no material contingent obligations, liabilities
for taxes, long-term leases or unusual
11
<PAGE>
forward or long-term commitments not disclosed by, or reserved against in, the
Financial Statements.
4.7 Financial Condition. Borrower and its Subsidiaries is each solvent,
-------------------
able to pay its debts as they mature, has capital sufficient to carry on its
business and has assets the fair market value of which exceed its liabilities,
and Borrower and its Subsidiaries will not be rendered insolvent, under-
capitalized or unable to pay maturing debts by the execution or performance of
this Agreement, or the other documents contemplated hereby. There has been no
material adverse change in the business, properties or condition (financial or
otherwise) of Borrower, or any of its Subsidiaries since the date of the latest
of the Financial Statements.
4.8 Conditions Precedent. As of each Disbursement Date and the Termination
--------------------
Date, all appropriate conditions precedent referred to in Section 3 hereof shall
have been satisfied or waived in writing by Bank.
4.9 Taxes. Borrower, and its Subsidiaries has each filed by the due date
-----
therefor all federal, state and local tax returns and other reports it is
required by law to file, has paid or caused to be paid all taxes, assessments
and other governmental charges that are shown to be due and payable under such
returns, and has made adequate provision for the payment of such taxes,
assessments or other governmental charges which have accrued but are not yet
payable. Borrower has no knowledge of any deficiency or assessment in connection
with any taxes, assessments or other governmental charges not adequately
disclosed in the Financial Statements.
4.10 Compliance with Laws. Borrower, and its Subsidiaries has each
--------------------
complied with all applicable laws, to the extent that failure to comply would
materially interfere with the conduct of the business of Borrower, or any of its
Subsidiaries.
4.11 Indebtedness. Except as disclosed on Schedule 4.11 attached hereto,
------------ -------------
neither Borrower, nor any of its Subsidiaries has any indebtedness for money
borrowed or any direct or indirect obligations under any leases (whether or not
required to be capitalized under GAAP) or any agreements of guarantee or surety
except for the endorsement of negotiable instruments by Borrower, or its
Subsidiaries in the ordinary course of business for deposit or collection.
4.12 Material Agreements. Except as disclosed on Schedule 4.12 attached
------------------- -------------
hereto, neither Borrower, nor any of its Subsidiaries has any material leases,
contracts or commitments of any kind (including, without limitation, employment
agreements, collective bargaining agreements, powers of attorney, distribution
contracts, patent or trademark licenses, contracts for future purchase or
delivery of goods or rendering of services, bonus, pension and retirement plans,
or accrued vacation pay, insurance and welfare agreements); to the best
knowledge of Borrower, all parties to such agreements have complied with the
provisions of such leases, contracts or commitments; and to the best knowledge
of Borrower, no party to such agreements is in default thereunder, nor has there
occurred any event which with notice or the passage of time, or both, would
constitute such a default.
12
<PAGE>
4.13 Margin Stock. Neither Borrower nor any of its Subsidiaries is engaged
------------
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
and no part of the proceeds of any loan hereunder will be used, directly or
indirectly, to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock or for any other
purpose which might violate the provisions of Regulation G, T, U or X of the
said Board of Governors. Borrower does not own any margin stock.
4.14 Pension Funding. Neither Borrower, nor any of its Subsidiaries has
---------------
incurred any accumulated funding deficiency within the meaning of ERISA or
incurred any liability to the PBGC in connection with any employee benefit plan
established or maintained by Borrower, or any of its Subsidiaries and no
reportable event or prohibited transaction, as defined in ERISA, has occurred
with respect to such plans.
4.15 Misrepresentation. No warranty or representation by Borrower
-----------------
contained herein or in any certificate or other document furnished by Borrower
pursuant hereto contains any untrue statement of material fact or omits to state
a material fact necessary to make such warranty or representation not misleading
in light of the circumstances under which it was made. There is no fact which
Borrower has not disclosed to Bank in writing which materially and adversely
affects nor, so far as Borrower can now foresee, is likely to prove to affect
materially and adversely the business, operations, properties, prospects,
profits or condition (financial or otherwise) of Borrower, or any of its
Subsidiaries or ability of Borrower to perform this Agreement.
4.16 No Conflicting Agreements. Neither Borrower, nor any of its
-------------------------
Subsidiaries is in default under any shareholder agreement, preferred stock
agreement or any other agreement to which it is a party or by which it or any of
its property is bound, the effect of which might have a material adverse effect
on the business or operations of Borrower, or any of its Subsidiaries. No
provision of the Certificate of Incorporation, By-Laws or preferred stock, if
any, of Borrower, and no provision of any existing mortgage, indenture, note,
contract, agreement, statute (including, without limitation, any applicable
usury or similar law), rule, regulation, judgment, decree or order binding on
Borrower or affecting the property of Borrower conflicts with, or requires any
consent under, or would in any way prevent the execution, delivery or carrying
out of the terms of, this Agreement and the documents contemplated hereby, and
the taking of any such action will not constitute a default under, or result in
the creation or imposition of, or obligation to create any lien upon the
property of Borrower pursuant to the terms of any such mortgage, indenture,
note, contract or agreement.
5. Affirmative Covenants.
---------------------
On a continuing basis from the date of this Agreement until the later of
the Termination Date or when the Indebtedness is paid in full and Borrower has
performed all of its other obligations hereunder, Borrower covenants and agrees
that it will perform all of the affirmative covenants set forth herein.
13
<PAGE>
5.1 Financial and Other Information.
-------------------------------
5.1.1 Annual Financial Reports. Borrower shall furnish to Bank, in
------------------------
form and reporting basis satisfactory to Bank, not later than one hundred and
twenty (120) days after the close of each fiscal year of Borrower, beginning
with the fiscal year ending June 30, 1998, financial statements of Borrower on a
consolidated and consolidating basis containing the balance sheet of Borrower as
of the close of each such fiscal year, statements of income and retained
earnings and a statement of cash flows for each such fiscal year, and such other
comments and financial details as are usually included in similar reports. Such
reports shall be prepared in accordance with GAAP by independent certified
public accountants of recognized standing selected by Borrower and acceptable to
Bank and shall contain unqualified opinions as to the fairness of the statements
therein contained.
5.1.2 Quarterly Financial Statements. Borrower shall furnish to Bank
------------------------------
not later than thirty (30) days after the close of each quarter of each fiscal
year of Borrower, beginning with the quarter ending June 30, 1998, financial
statements on a consolidated and consolidating basis containing the balance
sheet of Borrower as of the end of each such period, statements of income and
retained earnings of Borrower for the portion of the fiscal year up to the end
of such period, and such other comments and financial details as are usually
included in similar reports. These statements shall be prepared on the same
accounting basis as the statements required in Section 5.1.1 of this Agreement
and shall be in such detail as Bank may reasonably require, and the accuracy of
the statements shall be certified by the chief executive or financial officer of
Borrower.
5.1.3 No Default Certificate. Together with each delivery of the
----------------------
financial statements required by Sections 5.1.1 and 5.1.2 of this Agreement,
Borrower shall furnish to Bank a certificate of its chief executive or financial
officer in form to be provided by Bank attached hereto stating that no Event of
Default or Default has occurred, or if any such Event of Default or Default
exists, stating the nature thereof, the period of existence thereof and what
action Borrower proposes to take with respect thereto.
5.1.4 Aging Report of Accounts. In the event that average borrowings
------------------------
exceed Three Million Five Hundred Thousand Dollars ($3,500,000) in any month,
Borrower shall furnish to Bank monthly by the tenth (10th) day of each month, an
aging report as of the end of the preceding month of Borrower's Accounts in a
form satisfactory to Bank.
5.1.5 Adverse Events. Borrower shall promptly inform Bank of the
--------------
occurrence of any Default or Event of Default, or of any other occurrence which
has or could reasonably be expected to have a materially adverse effect upon
Borrower's or any of its Subsidiaries' business, properties, or financial
condition or upon Borrower's ability to comply with its obligations hereunder.
5.1.6 Shareholder Reports. Borrower shall promptly furnish to Bank
-------------------
upon becoming available a copy of all financial statements, reports, notices,
proxy statements and other communications sent by Borrower or any of its
Subsidiaries to
14
<PAGE>
their stockholders, and all regular and periodic reports filed by Borrower or
any of its Subsidiaries with any securities exchange, the Securities and
Exchange Commission, the Corporations and Securities Bureau of the Department of
Commerce of the State of California or any governmental authorities succeeding
to any or all of the functions of said Commission or Bureau.
5.1.7 Management Letters. Borrower shall furnish to Bank, promptly
------------------
upon receipt thereof, copies of all management letters and other reports of
substance submitted to Borrower or any of its Subsidiaries by independent
certified public accountants in connection with any annual or interim audit of
the books of Borrower or any of its Subsidiaries.
5.1.8 Other Information As Requested. Borrower shall promptly furnish
------------------------------
to Bank such other information regarding the operations, business affairs and
financial condition of Borrower and its Subsidiaries as Bank may reasonably
request from time to time and permit Bank, its employees, attorneys and agents,
to inspect all of the books, records and properties of Borrower and its
Subsidiaries at any reasonable time.
5.2 Insurance. Borrower shall keep its insurable properties and the
---------
insurable properties of its Subsidiaries adequately insured and maintain: (a)
insurance against fire and other risks customarily insured against under an
"all-risk" policy and such additional risks customarily insured against by
companies engaged in the same or a similar business to that of Borrower or its
Subsidiaries, as the case may be; (b) necessary worker's compensation insurance;
(c) public liability and product liability insurance, and (d) such other
insurance as may be required by law or as may be reasonably required in writing
by Bank, all of which insurance shall be in such amounts, containing such terms,
in such form, for such purposes, prepaid for such time period, and written by
such companies as may be satisfactory to Bank. All such policies shall contain a
provision whereby they may not be canceled or amended except upon thirty (30)
days' prior written notice to Bank. Borrower will promptly deliver to Bank, at
Bank's request, evidence satisfactory to Bank that such insurance has been so
procured and, with respect to casualty insurance, made payable to Bank. If
Borrower fails to maintain satisfactory insurance as herein provided, Bank shall
have the option to do so, and Borrower agrees to repay Bank upon demand, with
interest at the Contract Rate, all amounts so expended by Bank. Borrower hereby
appoints Bank or any employee or agent of Bank as Borrower's attorney-in-fact,
which appointment is coupled with an interest and irrevocable, and authorizes
Bank or any employee or agent of Bank, on behalf of Borrower, to adjust and
compromise any loss under said insurance and to endorse any check or draft
payable to Borrower in connection with returned or unearned premiums on said
insurance or the proceeds of said insurance, and any amount so collected may be
applied toward satisfaction of the Indebtedness, provided, however, that Bank
shall not be required hereunder so to act.
5.3 Taxes. Borrower shall pay promptly and within the time that they can
-----
be paid without late charge, penalty or interest all taxes, assessments and
similar imposts and charges of every kind and nature lawfully levied, assessed
or imposed upon Borrower or its Subsidiaries, and their property, except to the
extent being contested in good faith and, if requested by Bank, bonded in an
amount and manner satisfactory to Bank. If Borrower shall fail to pay such taxes
and assessments within the time they can
15
<PAGE>
be paid without penalty, late charge or interest Bank shall have the option to
do so, and Borrower agrees to repay Bank upon demand, with interest at the
Contract Rate, all amounts so expended by Bank.
5.4 Maintain Corporation and Business. Borrower shall do or cause to be
---------------------------------
done all things necessary to preserve and keep in full force and effect
Borrower's and each of its Subsidiaries' corporate existence, rights and
franchises and comply with all applicable laws; continue to conduct and operate
its and each of its Subsidiaries' business substantially as conducted and
operated during the present and preceding calendar year; at all times maintain,
preserve and protect all franchises and trade names and preserve all the
remainder of its and its Subsidiaries' property and keep the same in good
repair, working order and condition; and from time to time make, or cause to be
made, all needed and proper repairs, renewals, replacements, betterments and
improvements thereto so that the business carried on in connection therewith may
be properly and advantageously conducted at all times.
5.5 Maintain Tangible Net Worth. Borrower shall, on a consolidated basis,
---------------------------
as of the last day of each fiscal quarter commencing with the fiscal quarter
ending June 30, 1998, maintain a Tangible Net Worth of not less than
$75,000,000. On each subsequent fiscal quarter of Borrower, the minimum Tangible
Net Worth of Borrower shall increase by seventy percent (70%) of Borrower's Net
Income before taxes. There shall be no reduction in the requirement hereunder
based on any losses by Borrower.
5.6 Quick Ratio. Borrower shall, on a consolidated basis, maintain a ratio
-----------
of its Quick Assets to the sum of Current Liabilities and outstanding (or drawn
but not reimbursed) letters of credit of not less than 1.25:1.00, measured on a
quarterly basis.
5.7 Maintain Debt to Tangible Net Worth. Borrower shall, on a consolidated
-----------------------------------
basis, maintain a ratio of Debt to Tangible Net Worth of not greater than
1.00:1.00, measured quarterly.
5.8 Maintain Profitability. Borrower shall, on a consolidated basis
----------------------
maintain Net Income greater than zero dollars ($0) for the quarter ending March
31, 1999. Thereafter, Borrower shall maintain Net Income greater than zero not
less than every other quarter.
5.9 ERISA. (a) Borrower shall at all times meet and cause each of the
-----
Subsidiaries to meet the minimum funding requirements of ERISA with respect to
Borrower's and Subsidiaries' employee benefit plans subject to ERISA; (b)
promptly after Borrower knows or has reason to know (i) of the occurrence of any
event, which would constitute a reportable event or prohibited transaction under
ERISA, or (ii) that the PBGC or Borrower has instituted or will institute
proceedings to terminate an employee pension plan, deliver to Bank a certificate
of the chief financial officer of Borrower setting forth details as to such
event or proceedings and the action which Borrower proposes to take with respect
thereto, together with a copy of any notice of such event which may be required
to be filed with the PBGC; and (c) furnish to Bank (or cause the plan
administrator to furnish Bank) a copy of the annual return (including all
schedules and attachments) for each plan covered by ERISA, and filed with the
Internal
16
<PAGE>
Revenue Service by Borrower not later than ten (10) days after such report has
been so filed.
5.10 Use of Loan Proceeds. Borrower shall use the proceeds of the Loan
--------------------
hereunder only for the purposes set forth in the Recitals to this Agreement.
6. Negative Covenants.
------------------
On a continuing basis from the date of this Agreement until the later of
the Termination Date or when the Indebtedness is paid in full and Borrower has
performed all of its other obligations hereunder, Borrower covenants and agrees
that it will not and will not permit any Subsidiary without Bank's prior written
consent which shall not be unreasonably withheld, to do any of the items set
forth below.
6.1 Dividends. Borrower shall not declare or pay any dividends on, or make
---------
any other distribution (whether by reduction of capital or otherwise) with
respect to any shares of its capital stock, except for dividends to pay income
taxes.
6.2 Stock Issuance. Borrower shall not issue any additional shares of its
--------------
capital stock, or any warrant, right or option relating thereto or any security
convertible into any of the foregoing.
6.3 Stock Acquisition. Borrower shall not purchase, redeem, retire or
-----------------
otherwise acquire any of the shares of its capital stock, or make any commitment
to do so.
6.4 Liens and Encumbrances. Borrower shall not create, incur, assume or
----------------------
suffer to exist any mortgage, pledge, encumbrance, security interest, lien or
charge of any kind upon any of its property or assets (including, without
limitation, any charge upon property purchased or acquired under a conditional
sales or other title retaining agreement or lease required to be capitalized
under GAAP) whether now owned or hereafter acquired other than Permitted Liens.
6.5 Indebtedness. Borrower shall not incur, create, assume or permit to
------------
exist any indebtedness or liability on account of deposits or advances or any
indebtedness or liability for borrowed money, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, or any
other indebtedness whatsoever, except for (a) the Indebtedness; (b) indebtedness
subordinated to the prior payment in full of the Indebtedness upon terms and
conditions approved in writing by Bank; (c) existing indebtedness to the extent
set forth on attached Schedule 4.11; (d) trade indebtedness incurred and paid in
the ordinary course of business; (e) contingent indebtedness to the extent
permitted by Section 6.7 of this Agreement; (f) indebtedness secured by
Permitted Liens; and (g) indebtedness related to acquisitions permitted by
Section 6.11 of this Agreement.
6.6 Extension of Credit. Borrower shall not make loans, advances or
-------------------
extensions of credit to any Person, except for sales on open account and
otherwise in the ordinary course of business.
17
<PAGE>
6.7 Guarantee Obligations. Borrower shall not guarantee or otherwise,
---------------------
directly or indirectly, in any way be or become responsible for obligations of
any other Person, whether by agreement to purchase the indebtedness of any other
Person, agreement for the furnishing of funds to any other Person through the
furnishing of goods, supplies or services, by way of stock purchase, capital
contribution, advance or loan, for the purpose of paying or discharging (or
causing the payment or discharge of) the indebtedness of any other Person, or
otherwise, except for the endorsement of negotiable instruments by Borrower in
the ordinary course of business for deposit or collection.
6.8 Subordinate Indebtedness. Borrower shall not subordinate any
------------------------
indebtedness due to it from a Person to indebtedness of other creditors of such
Person.
6.9 Property Transfer, Merger or Lease-Back. Borrower shall not (a) sell,
---------------------------------------
lease, transfer or otherwise dispose of properties and assets having an
aggregate book value of more than Five Hundred Thousand Dollars ($500,000) in
any fiscal year (whether in one transaction or in a series of transactions)
except as to the sale of inventory in the ordinary course of business; (b)
change its name, consolidate with or merge into any other corporation, permit
another corporation to merge into it, acquire all or substantially all the
properties or assets of any other Person, enter into any reorganization or
recapitalization or reclassify its capital stock; or (c) enter into any sale-
leaseback transaction.
6.10 Acquire Securities. Borrower shall not purchase or hold beneficially
------------------
any stock or other securities of, or make any investment or acquire any interest
whatsoever in, any other Person, except for the common stock of the Subsidiaries
owned by Borrower on the date of this Agreement and except for certificates of
deposit with maturities of one year or less of United States commercial banks
with capital, surplus and undivided profits in excess of One Hundred Million
Dollars ($100,000,000) and direct obligations of the United States Government
maturing within one year from the date of acquisition thereof.
6.11 Acquire Fixed Assets. Borrower shall not acquire or expend for, or
--------------------
commit itself to acquire or expend for fixed assets by lease, purchase or
otherwise in an aggregate amount that exceeds Seven Million Dollars ($7,000,000)
in any fiscal year.
6.12 Pension Plan. Borrower shall not (a) allow any fact, condition or
------------
event to occur or exist with respect to any employee pension or profit sharing
plans established or maintained by it which might constitute grounds for
termination of any such plan or for the court appointment of a trustee to
administer any such plan, or (b) permit any such plan to be the subject of
termination proceedings (whether voluntary or involuntary) from which
termination proceedings there may result a liability of Borrower or any of its
Subsidiaries to the PBGC which, in the opinion of Bank, will have a materially
adverse effect upon the operations, business, property, assets, financial
condition or credit of Borrower or any of its Subsidiaries.
6.13 Misrepresentation. Borrower shall not furnish Bank with any
-----------------
certificate or other document that contains any untrue statement of a material
fact or omits to state a
18
<PAGE>
material fact necessary to make such certificate or document not misleading in
light of the circumstances under which it was furnished.
6.14 Margin Stock. Borrower shall not apply any of the proceeds of the
------------
Note to the purchase or carrying of any "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, or any
regulations, interpretations or rulings thereunder.
7. Events of Default, Enforcement: Application of Proceeds.
-------------------------------------------------------
7.1 Events of Default . The occurrence of any of the events described below
-----------------
shall constitute an Event of Default hereunder.
7.1.1 Failure to Pay Monies Due. It shall be an Event of Default if
-------------------------
Borrower shall fail to pay, when due, any principal or interest under the
Revolving Credit Note or any taxes, insurance or other amount payable by
Borrower under this Agreement or if Borrower, or any of its Subsidiaries shall
fail to pay, when due, any indebtedness, obligation or liability whatsoever of
Borrower, or any of its Subsidiaries to Bank.
7.1.2 Misrepresentation. It shall be an Event of Default if any
-----------------
warranty or representation of Borrower in connection with or contained in this
Agreement, or if any financial data or other information now or hereafter
furnished to Bank by or on behalf of Borrower, shall prove to be false or
misleading in any material respect.
7.1.3 Noncompliance with Bank Agreement. It shall be an Event of
---------------------------------
Default if Borrower, or any of its Subsidiaries shall fail to perform in the
time and manner required any of its obligations or covenants under, or shall
fail to comply with any of the provisions of, this Agreement or any other
agreement with Bank to which it may be a party, which does not involve the
failure to make a payment when due (be it principal, interest, taxes,
insurance or otherwise) and which is not cured by Borrower within thirty (30)
days after the earlier of the date of notice to Borrower by Bank of such
Default or the date Bank is notified, or should have been notified pursuant to
Borrower's obligation under Section 5.1.8 hereof, of such Default.
7.1.4 Other Defaults. It shall be an Event of Default if Borrower, or
--------------
any of its Subsidiaries shall default in the payment when due of any of its
indebtedness (other than to Bank) or in the observance or performance of any
term, covenant or condition in any agreement or instrument evidencing,
securing or relating to such indebtedness, and such default be continued for a
period sufficient to permit acceleration of the indebtedness, irrespective of
whether any such default shall be forgiven or waived or there has been
acceleration by the holder thereof.
7.1.5 Judgments. It shall be an Event of Default if there shall be
---------
rendered against Borrower, or any of its Subsidiaries one or more judgments or
decrees involving an aggregate liability of Five Hundred Thousand Dollars
($500,000) or more, which has or have become non-appealable and shall remain
undischarged, unsatisfied by insurance and shall be unstayed for more than
thirty (30) days, whether or not consecutive; or if a writ of attachment or
garnishment against the property of Borrower,
19
<PAGE>
any of its Subsidiaries or the Guarantor shall be issued and levied in any
action claiming Five Hundred Thousand Dollars ($500,000) or more and not
released or appealed and bonded in an amount and manner satisfactory to Bank
within thirty (30) days after such issuance and levy.
7.1.6 Business Suspension, Bankruptcy, Etc. It shall be an Event of
------------------------------------
Default if Borrower, or any of its Subsidiaries shall voluntarily suspend
transaction of its business; or if Borrower, or any of its Subsidiaries shall
not pay its debts as they mature or shall make a general assignment for the
benefit of creditors; or proceedings in bankruptcy, or for reorganization or
liquidation of Borrower, or any of its Subsidiaries under Bankruptcy Code or
under any other state or federal law for the relief of debtors shall be
commenced or shall be commenced against Borrower, or any of its Subsidiaries
and shall not be discharged within thirty (30) days of commencement; or a
receiver, trustee or custodian shall be appointed for Borrower, or any of its
Subsidiaries or for any substantial portion of their respective properties or
assets.
7.1.7 Inadequate Funding or Termination of Employee Benefit Plan(s).
-------------------------------------------------------------
It shall be an Event of Default if Borrower, or any of its Subsidiaries shall
fail to meet its minimum funding requirements under ERISA with respect to any
employee benefit plan established or maintained by it, or if any such plan
shall be subject of termination proceedings (whether voluntary or involuntary)
and there shall result from such termination proceedings a liability of
Borrower, or any of its Subsidiaries to the PBGC which in the opinion of Bank
will have a materially adverse effect upon the operations, business, property,
assets, financial condition or credit of Borrower, or any of its Subsidiaries,
as the case may be.
7.1.8 Occurrence of Certain Reportable Events. It shall be an Event
---------------------------------------
of Default if there shall occur, with respect to any pension plan maintained
by Borrower, or any of its Subsidiaries any reportable event (within the
meaning of Section 4043(b) of ERISA) which Bank shall determine constitutes a
ground for the termination of any such plan, and if such event continues for
thirty (30) days after Bank gives written notice to Borrower, provided that
termination of such plan or appointment of such trustee would, in the opinion
of Bank, have a materially adverse effect upon the operations, business,
property, assets, financial condition or credit of Borrower, or any of its
Subsidiaries, as the case may be.
7.2 Acceleration of Indebtedness: Remedies. Upon the occurrence of an
--------------------------------------
Event of Default, all Indebtedness shall be due and payable in full
immediately at the option of Bank without presentation, demand, protest,
notice of dishonor or other notice of any kind, all of which are hereby
expressly waived. Unless all of the Indebtedness is then immediately fully
paid, Bank shall have and may exercise any one or more of the rights and
remedies available to Borrower under this Agreement, or under any other
document contemplated hereby or for which provision is provided by law or in
equity.
7.3 Application of Proceeds. All of the Indebtedness shall constitute one
-----------------------
loan. Upon the occurrence of an Event of Default which is not cured within the
cure period, if any, provided under Section 7.2 of this Agreement, Bank may in
its sole discretion set off any proceeds against any portion of the
Indebtedness. The proceeds of any sale or other disposition of the assets of
Borrower authorized by this Agreement
20
<PAGE>
shall be applied by Bank, first upon all expenses authorized by the UCC or
otherwise in connection with the sale and all reasonable attorneys' fees and
legal expenses incurred by Bank; the balance of the proceeds of such sale or
other disposition shall be applied in the payment of the Indebtedness, first
to interest, then to principal, then to other Indebtedness and the surplus, if
any, shall be paid over to Borrower or to such other Person or Persons as may
be entitled thereto under applicable law. Borrower shall remain liable for any
deficiency, which Borrower shall pay to Bank immediately upon demand.
7.4 Cumulative Remedies. The remedies provided for herein are cumulative
-------------------
to the remedies for collection of the Indebtedness as provided by law, in
equity or by any document contemplated hereby. Nothing herein contained is
intended, nor shall it be construed, to preclude Bank from pursuing any other
remedy for the recovery of any other sum to which Bank may be or become
entitled for the breach of this Agreement by Borrower.
7.5 Payable Upon Demand. To the extent that any of the Indebtedness is
-------------------
payable upon demand, nothing contained in this Agreement or any document
contemplated hereby shall be construed to prevent Bank from making demand,
without notice and with or without reason, for immediate payment of all or any
part of such Indebtedness at any time or times, whether or not a Default or an
Event of Default has occurred.
8. General Terms. Bank and Borrower agree to the general terms set forth in
-------------
this Section 8.
8.1 Independent Rights. No single or partial exercise of any right, power
------------------
or privilege hereunder, or any delay in the exercise thereof, shall preclude
other or further exercise of the rights of the parties to this Agreement.
8.2 Covenant Independence. Each covenant in this Agreement shall be deemed
---------------------
to be independent of any other covenant, and an exception or illegality in one
covenant shall not create an exception or illegality in another covenant.
8.3 Waivers and Amendments. No forbearance on the part of Bank in
----------------------
enforcing any of its rights under this Agreement, nor any renewal, extension
or rearrangement of any payment or covenant to be made or performed by
Borrower hereunder, shall constitute a waiver of any of the terms of this
Agreement or of any such right. No Default or Event of Default shall be waived
by Bank except in a writing signed and delivered by an officer of Bank, and no
waiver of any other Default or Event of Default shall operate as a waiver of
any Default or Event of Default or of the same Default or Event of Default on
a future occasion. No other amendment, modification or waiver of, or consent
with respect to, any provision of this Agreement, the Note or other documents
contemplated hereby shall be effective unless the same shall be in writing and
signed and delivered by an officer of Bank.
8.4 Governing Law. This Agreement, and each and every term and provision
-------------
hereof, shall be governed by and construed in accordance with the internal law
of the
21
<PAGE>
State of California. If any provisions of this Agreement shall for any reason be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, but this Agreement shall be construed as if
such invalid or unenforceable provisions had never been contained herein.
8.5 Survival of Warranties, Etc. All of Borrower's covenants, agreements,
---------------------------
representations and warranties made in connection with this Agreement and any
document contemplated hereby shall survive the borrowing and the delivery of the
Note hereunder and shall be deemed to have been relied upon by Bank,
notwithstanding any investigation heretofore or hereafter made by Bank. All
statements contained in any certificate or other document delivered to Bank at
any time by or on behalf of Borrower pursuant hereto or in connection with the
transactions contemplated hereby shall constitute representations and warranties
by Borrower in connection with this Agreement.
8.6 Costs and Expenses. Borrower agrees that it will reimburse Bank, upon
------------------
demand, for all costs and expenses incurred by Bank in connection with (i)
collecting or attempting to collect the Indebtedness or any part thereof; (ii)
the enforcement of Bank's rights or remedies under this Agreement or the other
documents contemplated hereby; (iii) the preparation or making of any
amendments, modifications, waivers or consents with respect to this Agreement or
the other documents contemplated hereby; and/or (iv) any other matters or
proceedings arising out of or in connection with any lending arrangement between
Bank and Borrower, which costs and expenses include without limit payments made
by Bank for taxes, insurance, assessments, or other costs or expenses which
Borrower is required to pay under this Agreement or the other documents
contemplated hereby; expenses related to the examination of the assets of
Borrower; audit expenses; court costs and reasonable attorneys' fees (whether
inhouse or outside counsel is used, whether legal assistants are used, and
whether such costs are incurred in formal or informal collection actions,
federal bankruptcy proceedings, probate proceedings, on appeal or otherwise);
and all other costs and expenses of Bank incurred in connection with any of the
foregoing.
8.7 Payments on Saturdays, Etc. Whenever any payment to be made hereunder
--------------------------
shall be stated to be due on a Saturday, Sunday or any other day which is not
a Business Day, such payment may be made on the next succeeding Business Day,
and such extension, if any, shall be included in computing interest in
connection with such payment.
8.8 Binding Effect. This Agreement shall inure to the benefit of and shall
--------------
be binding upon the parties hereto and their respective successors and
assigns; provided, however, that Borrower may not assign or transfer its
rights or obligations hereunder without the prior written consent of Bank.
8.9 Maintenance of Records. Borrower will keep all of its records
----------------------
concerning its business operations and accounting at its principal place of
business. Borrower will give Bank prompt written notice of any change in its
principal place of business, or in the location of its records.
22
<PAGE>
8.10 Notices. All notices and communications provided for herein or in any
-------
document contemplated hereby or required by law to be given shall be in
writing (unless expressly provided to the contrary) and, if personally
delivered, effective when delivered at the address below or, in the case of
mailing, effective two (2) days after sending by first class mail, postage
prepaid, addressed as follows:
(a) If to Borrower, to: Symmetricom, Inc.
2300 Orchard Parkway
San Jose, California 95131A1017
Attention: Mary Rorabaugh; and
(b) if to Bank, to: Comerica Bank- California
201 Spear Street, Suite 200
San Francisco, CA 94105
Attention: Mark S. Hillhouse
Corporate Banking Officer
or to such other address as a party shall have designated to the other in
writing in accordance with this section. The giving of at least five (5) days'
notice before Bank shall take any action described in any notice shall
conclusively be deemed reasonable for all purposes; provided, that this shall
not be deemed to require Bank to give five days' notice or any notice if not
specifically required in this Agreement.
8.11 Counterparts. This Agreement may be signed in any number of
------------
counterparts with the same effect as if the signatures were upon the same
instrument.
8.12 Headings. Article and section headings in this Agreement are included
--------
for the convenience of reference only and shall not constitute a part of this
Agreement for any purpose.
8.13 Release and Discharge. Upon full payment of the Indebtedness and
---------------------
performance by Borrower of all its other obligations hereunder, except as
provided in Section 5.20(f) hereof the parties shall thereupon automatically
each be fully, finally and forever released and discharged from any claim,
liability or obligation in connection with this Agreement and the other
documents contemplated hereby.
8.14 WAIVER OF JURY TRIAL. BORROWER AND BANK HEREBY IRREVOCABLY WAIVE THE
--------------------
RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS AT
ANY TIME IN WHICH BORROWER AND BANK ARE PARTIES ARISING OUT OF THIS AGREEMENT
OR THE OTHER DOCUMENTS CONTEMPLATED HEREBY.
8.15 Integration. This Agreement, the Revolving Credit Note, and such other
-----------
agreement, documents and instruments as may be executed in connection herewith
shall supersede all prior negotiations, agreements and commitments with respect
to the subject matter hereof. In the event of a conflict between this agreement
and any other Agreement between the parties, this Agreement shall govern.
23
<PAGE>
8.16 Further Assurances. Borrower shall execute such instruments and
------------------
documents as Bank may reasonably request from time to time and otherwise to
effect the purposes hereof.
IN WITNESS WHEREOF, Borrower and Bank have caused this Amended and Restated
Revolving Credit Loan Agreement to be executed by their respective duly
authorized officers as of the day and year first written above.
SYMMETRICOM, INC.
a California Corporation
By: /s/ Roger Strauch
--------------------------------
Its: Roger Strauch
Chief Executive Officer
By: /s/ Mary Rorabaugh
------------------------------------
Mary Rorabaugh
Its: Vice President of Finance
COMERICA BANK-CALIFORNIA
By: /s/ Mark S. Hillhouse
---------------------------------------
Mark S. Hillhouse
Its: Corporate Banking Officer
24
<PAGE>
LIST OF EXHIBITS
EXHIBIT A - Revolving Credit Note
EXHIBIT B - Borrower's Telephone and Facsimile Authorization
EXHIBIT C - Corporation Resolutions and Incumbency Certification - Authority to
Procure Loans
EXHIBIT D - Not Applicable
EXHIBIT E - Guaranty of Linfinity Microelectronics, Inc.
EXHIBIT F - Corporate Resolutions and Authority to Support Another's Borrowings
for Linfinity Microelectronics, Inc.
EXHIBIT G - Guaranty of Telecom Solutions, Inc. Puerto Rico Inc.
EXHIBIT H - Corporate Resolutions and Authority to Support Another's Borrowing-
for Telecom Solutions Puerto Rico, Inc.
25
<PAGE>
LIST OF SCHEDULES
SCHEDULE 4.5 - Permitted Liens
SCHEDULE 4.11 - Indebtedness
SCHEDULE 4.12 - Material Agreements
26
<PAGE>
EXHIBIT A
FIRST AMENDED AND RESTATED REVOLVING CREDIT NOTE
------------------------------------------------
$7,000,000 June 29, 1998
FOR VALUE RECEIVED, the undersigned promises to pay to the order of COMERICA
BANK-CALIFORNIA ("Bank") at any office of Bank in the State of California, on
May 1, 2000, the principal sum or so much of the principal sum of Seven Million
and 00/100 Dollars ($7,000,000) as may from time to time have been advanced and
be outstanding under that certain First Amended and Restated Revolving Credit
Loan Agreement dated June 29, 1998 between the undersigned and Bank (the
"Agreement") plus all accrued but unpaid interest thereon.
The unpaid principal amount of this First Amended and Restated Revolving
Credit Note (this "Note") shall bear interest at the rate provided in Section
2.4 of the Agreement, which Agreement, as it may be amended from time to time,
is by this reference incorporated herein and made a part hereof. Interest
shall be payable to the extent accrued on the first (1st) day of each
consecutive calendar month, beginning August 1, 1998, until maturity (whether
by acceleration or otherwise) and, thereafter, on demand at a rate equal to
three percent (3%) per annum plus the rate otherwise prevailing hereunder, but
in no event to exceed the Legal Rate (as defined in the Agreement).
This Note is a master note under which sums may or must be repaid from
time to time and under which new advances are to be made by Bank pursuant to
the terms and conditions of the Agreement, and the books and records of Bank
shall constitute the best evidence of the amount of the indebtedness at any
time owing hereunder.
This Note is unsecured.
If an Event of Default (as defined in the Agreement) occurs and is not cured
within the time, if any, provided for by the Agreement, Bank may exercise any
one or more of the rights and remedies granted by the Agreement or any document
contemplated thereby or given to a lender under applicable law, including
without limitation, the right to accelerate this Note and any other Indebtedness
(as defined in the Agreement), and may set off against the principal of and
interest on this Note or against any other Indebtedness (i) any amount owing by
Bank to the undersigned; (ii) any property of the undersigned at any time in the
possession of Bank or any Affiliate of Bank; and (iii) any amount in any deposit
or other account (including, without limitation, an account evidenced by a
certificate of deposit) of the undersigned with Bank or any Affiliate of Bank.
The undersigned and all accommodation parties, guarantors and indorsers (i)
waive presentment, demand, protest and notice of dishonor; (ii) agree that no
extension or indulgence to the undersigned or release or non-enforcement of any
rights, whether with or without notice, shall affect the obligations of any
accommodation
27
<PAGE>
party, guarantor or indorser; and (iii) agree to reimburse the holder of this
Note for any and all costs and expenses incurred in collecting or attempting to
collect any and all principal and interest under this Note (including, but not
limited to, court costs and reasonable attorneys' fees, whether in-house or
outside counsel is used and whether such costs and expenses are incurred in
formal or informal collection actions, federal bankruptcy proceedings,
including, without limitation, relief from stay and nondischargeability actions,
appellate proceedings, probate proceedings, or otherwise). This Note shall be
governed by and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the undersigned has executed this First Amended and
Restated Revolving Credit Note as of June 29, 1998.
Symmetricom, Inc.
By:
___________________________________
Roger Strauch
Its: Chief Executive Officer
By:
___________________________________
Mary Rorabaugh
Its: Vice President of Finance
28
<PAGE>
SCHEDULE 4.5
PERMITTED LIENS
_______________
Lender/Financial Institution Date of Original Filing
__________________________________________________________
MetLife Capital Corporation March 17, 1992
MetLife Capital Corporation August 29, 1991
MetLife Capital Corporation December 12, 1990
MetLife Capital Corporation December 14, 1990
MetLife Capital Corporation December 5, 1990
MetLife Capital Corporation May 13, 1991
MetLife Capital Corporation April 18, 1991
MetLife Capital Corporation March 10, 1992
29
<PAGE>
SCHEDULE 4.11
INDEBTEDNESS
____________
Capital Lease Obligation
________________________
Subject: An office building lease
Location: 2300 Orchard Parkway, San Jose, CA
Lender/Owner Name: Nexus Equity 11 LLC
Tenant: SymmetriCom
Lease Term: April 1997 - April 2009
Monthly Rent:
1st 12 months $121,271
2nd 12 months $126,122
3rd 12 months $131,167
4th 12 months $136,414
5th 12 months $141,870
6th 12 months $147,545
7th 12 months $153,447
8th 12 months $159,585
9th 12 months $165,968
10th 12 months $172,607
11th 12 months $179,511
12th 12 months $186,691
Guarantee And Incentive Payment Agreement
_________________________________________
Title of the Agreement: Offer Letter
Name: Thomas W. Steipp,
President and Chief Operating Officer
Telecom Solutions (a division of SymmetriCom)
Amount: Guarantee $162,500 of incentive payment for the Company's fiscal year
1999 (7/98-6/99)
Date of the Offer Letter: February 19, 1998
30
<PAGE>
SCHEDULE 4.12
MATERIAL AGREEMENTS
___________________
See Schedule 4.11 for discussion of material agreements
31
<PAGE>
EXHIBIT B
[LOGO OF COMERICA]
Borrower's Telephone and Facsimile Authorization
Date: June 29, 1998
-------------
Obligor Number: __________________________ Obligation Number:
__________________
Assignment Unit: __________________________
The undersigned confirms certain borrowing arrangements pursuant to and subject
to the terms of the $7,000,000.00 Note, and all renewals, extensions,
-------------
modifications, and/or substitutions thereof (the "Note") dated DECEMBER 1, 1993,
----------------
executed and delivered by the undersigned to COMERICA BANK-CALIFORNIA ("Bank").
------------------------
Until notice to the contrary to the undersigned, Bank has agreed that advances
under the Note may be requested from time to time at the discretion of the
undersigned by telephone or facsimile transmission. Immediately upon receipt
from time to time of such telephone request or facsimile transmission from the
undersigned, Bank is authorized to lend and credit such sums of money as
requested to any of the following accounts or any other account with Bank
designated by the undersigned (together with the Security Code) (such
accounts(s) referred to as "Designated Accounts(s)")
Comerica 1890684481
_________________________________________
_________________________________________
_________________________________________
Bank may rely on receipt of the Security Code as proof that the caller or sender
is authorized to make the request for advance, repayment, or change of
Designated Accounts(s) on behalf of the undersigned.
The undersigned acknowledges that borrowings under the Note may be repaid from
time to time at the election of the undersigned, but subject to the terms of the
Note and any related agreement with Bank, upon receipt of instructions to do so
sent from the undersigned to Bank by telephone or facsimile transmission
(together with the Security Code). Repayment may be effected (in whole or in
part) by debiting any account designated above (or designated in compliance with
the above paragraph) in accordance with the undersigned's instructions (together
with the Security Code). The undersigned shall remain fully responsible for any
amounts outstanding under the Note if the undersigned's accounts with Bank are
insufficient for the repayment of the Note. All requests for payments are to be
against collected funds.
The undersigned acknowledges that if Bank makes an advance or effects a
repayment based on a request made by telephone or facsimile transmission, it
shall be for the convenience of the undersigned and all risks involved in the
use of this procedure shall be borne by the undersigned, and the undersigned
expressly agrees to indemnify and hold Bank harmless therefor. Without
limitation of the foregoing, the undersigned acknowledges that Bank shall have
no duty to confirm the authority of anyone requesting an advance or repayment
by telephone or facsimile transmission, and further the Bank has advised the
undersigned to protect and safeguard the Security Code to prevent its
unauthorized use. The undersigned assumes any losses or damages whatsoever which
may occur or arise out of its failure to protect and safeguard the Security Code
or out of its unauthorized use.
Borrower(s): SYMMETRICOM, INC.
---------------------------------------------
Address: 2500 ORCHARD PARKWAY, SAN JOSE, CA 95131-1017
---------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
By: /s/ Roger A. Strauch Its: Chief Executive Officer
---------------------------- ----------------------------
SIGNATURE OF Roger A. Strauch TITLE (if applicable)
By: /s/ Thomas W. Steipp Its: Chief Operating Officer
---------------------------- ----------------------------
SIGNATURE OF Thomas W. Steipp TITLE (if applicable)
By: /s/ Mary A. Rornbaugh Its: Vice President, Finance
---------------------------- ----------------------------
SIGNATURE OF Mary A. Rornbaugh TITLE (if applicable)
By: Its:
---------------------------- ----------------------------
SIGNATURE OF TITLE (if applicable)
SECURITY CODE:
----------------
<PAGE>
EXHIBIT C
[LOGO OF COMERICA]
CORPORATION RESOLUTIONS AND INCUMBENCY CERTIFICATION
-AUTHORITY TO PROCURE LOAN
================================================================================
I certify that I am the duly elected and qualified Secretary of SYMMETRICOM,
INC. a California corporation (the "Corporation") and the keeper of the records
of the Corporation; that the following is a true and correct copy of resolutions
duly adopted by the Board of Directors of the Corporation in accordance with its
bylaws and applicable statutes on or as of June 29, 1998.
COPY OF RESOLUTIONS:
Be it Resolved, That:
1. Any (insert number required to sign) (2) two of the following (insert
titles only) Chief Executive Officer, Chief Operating Officer, VP Finance
of the Corporation are/is authorized, for, on behalf of, and in the name of
the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or
financial accommodations from Comerica Bank-California (the "Bank") up to
an amount not exceeding $7,000,000 (if left blank, then unlimited);
(b) Discount with the Bank commercial or other business paper belonging to the
Corporation made or drawn by or upon third parties, without limit as to
amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver
certificates and/or instruments representing stocks, bonds, evidences of
indebtedness or other securities owned by the Corporation, whether or not
registered in the name of the Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by grant,
security interest, assignment, lien, deed of trust or mortgage upon any
real or personal property, tangible or intangible of the Corporation; and
(e) Execute and deliver in form and content as may be required by the Bank any
and all notes, evidences of indebtedness, applications for letters of
credit, guaranties, subordination agreements, loan and security agreements,
financing statements, assignments, liens, deeds of trust, mortgages, trust
receipts and other agreements, instruments or documents to carry out the
purposes of these Resolutions, any or all of which may relate to all or to
substantially all of the Corporation's property and assets.
2. Said Bank be and it is authorized and directed to pay the proceeds of any
such loans or discounts as directed by the persons so authorized to sign,
whether so payable to the order of any of said persons in their individual
capacities or not, and whether such proceeds are deposited to the individual
credit of any of said persons or not;
3. Any and all agreements, instruments and documents previously executed and
acts and things previously done to carry out the purposes of these Resolutions
are ratified, confirmed and approved as the act or acts of the Corporation.
4. These Resolutions shall continue in force and the Bank may consider the
holders of said offices and their signatures to be and continue to be as set
forth in a certified copy of these Resolutions delivered to the Bank, until
notice to the contrary in writing is duly served on the Bank (such notice to
have no effect on any action previously taken by the Bank in reliance on these
Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may
rely upon a certificate signed by an officer of the Bank to effect that these
Resolutions and any agreement, instrument or document executed pursuant to them
are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and
their signatures, respectively, to be and continue to be as set forth in the
Certificate of the Secretary of the Corporation until notice to the contrary in
writing is duly served on the Bank.
I further certify that the above Resolutions are in full force and effect as of
the date of this Certificate; that these Resolutions and any borrowings or
financial accommodations under these Resolutions have been properly noted in the
corporate books and records, and have not been rescinded, annulled, revoked or
modified; that neither the foregoing Resolutions nor any actions to be taken
pursuant to them are or will be in contravention of any provision of the
articles of incorporation or bylaws of the Corporation or of any agreement,
indenture or other instrument to which the Corporation is a party or by which it
is bound; and that neither the articles of incorporation nor bylaws of the
Corporation nor any agreement, indenture or other instrument to which the
Corporation is a party or by which it is bound require the vote or consent of
shareholders of the Corporation to authorize any act, matter or thing described
in the foregoing Resolutions.
I further certify that the following named persons have been duly elected to the
offices set opposite their respective names, that they continue to hold these
offices at the present time, and that the signatures which appear below are the
genuine, original signatures of each respectively:
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
Name (Type or Print) Title Signature
- -------------------- ----- ---------
Roger A. Strauch Chief Executive Officer /s/ ROGER A. STRAUCH
Thomas W. Steipp Chief Operating Officer /s/ THOMAS W. STEIPP
Mary A. Rorabaugh Vice President, Finance /s/ MARY A. RORABAUGH
In Witness Whereof, I have affixed my name as Secretary and have caused the
corporate seal of said Corporation to be affixed this 29th day of June, 1998.
Mary A. Rorabaugh
--------------------------
Secretary
- -------------------------------------------------------------------------------
The Above Statements are Correct. ____________________________________________
SIGNATURE OF OFFICER OR DIRECTOR OF, IF NONE,
A SHAREHOLDER OTHER THAN SECRETARY WHEN
SECRETARY IS AUTHORIZED TO SIGN ALONE
Failure to complete the above when the Secretary is authorized to sign alone
shall constitute a certification by the Secretary that the Secretary is the sole
Shareholder, Director and Officer of the Corporation.
<PAGE>
[LOGO OF COMERICA]
EXHIBIT E
GUARANTY
================================================================================
The undersigned, for value received , unconditionally and absolutely
guarantee(s) to COMERICA BANK-CALIFORNIA ("Bank) a, California banking
corporation, and to the Bank's successors and assigns, payment when due, whether
by stated maturity, demand, acceleration or otherwise, of all existing and
future indebtedness to the Bank of SYMMETRICOM INC. ("Borrower") of any
successor in interest, including without limit any debtor-in-possession or
trustee in bankruptcy which succeeds to the interest of this party or person
jointly and severally the "Borrower"), however this indebtedness has been or may
be incurred or evidenced, whether absolute or contingent direct or indirect,
voluntary or involuntary, liquidated or unliquidated, joint or several, and
whether or not known to the undersigned at the time of this Guaranty or at the
time any future indebtedness is incurred (the "Indebtedness").
The Indebtedness guaranteed includes without limit: (a) any and all direct
indebtedness of the Borrower to the Bank, including indebtedness evidenced by
any and all promissory notes; (b) any and all obligations or liabilities of the
Borrower to the Bank arising under any guaranty where the Borrower has
guaranteed the payment of indebtedness owing to the Bank from a third party; (c)
any and all obligations or liabilities of the Borrower to the Bank arising from
applications or agreements for the issuance of letters of credit; (d) any and
all obligations or liabilities of the Borrower to the Bank arising out of any
other agreement by the Borrower including without limit any agreement to
indemnify the Bank for environmental liability or to clean up hazardous waste;
(e) any and all indebtedness, obligations or liabilities for which the Borrower
would otherwise be liable to the Bank were it not for the invalidity,
irregularity or unenforceability of them by reason of any bankruptcy, insolvency
or other law or order of any kind, or for any other reason, including without
limit liability for interest and attorneys' fees on, or in connection with, any
of the Indebtedness from and after the filing by or against the Borrower of a
bankruptcy petition whether an involuntary or voluntary bankruptcy case,
including, without limitation, all attorneys' fees and costs incurred in
connection with motions for relief from stay, cash collateral motions,
nondischargeability motions, preference liability motions, fraudulent conveyance
liability motions, fraudulent transfer liability motions and all other motions
brought by Borrower, Guarantor, Bank or third parties in any way relating to
Bank's rights with respect to such Borrower, Guarantor, or third party and/or
affecting any collateral securing any obligation owed to Bank by Borrower,
Guarantor, or any third party, probate proceedings, on appeal or otherwise; (f)
any and all amendments, modifications, renewals and/or extensions of any of the
above, including without limit amendments, modifications, renewals and/or
extensions which are evidenced by new or additional instruments, documents or
agreements; and (g) all costs of collecting Indebtedness, including without
limit reasonable attorneys' fees and costs.
The undersigned waive(s) notice of acceptance of this Guaranty and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any Indebtedness,
and diligence in collecting any Indebtedness, and agree(s) that the Bank may
modify the terms of any Indebtedness, compromise, extend, increase, accelerate,
renew or forbear to enforce payment of any or all Indebtedness, or permit the
Borrower to incur additional Indebtedness, all without notice to the undersigned
and without affecting in any manner the unconditional obligation of the
undersigned under this Guaranty. The undersigned further waive(s) any and all
other notices to which the undersigned might otherwise be entitled. The
undersigned acknowledge(s) and agree(s) that the liabilities created by this
Guaranty are direct and are not conditioned upon pursuit by the Bank of any
remedy the Bank may have against the Borrower or any other person or any
security. No invalidity, irregularity or unenforceability of any part or all of
the Indebtedness or any documents evidencing the same, by reason of any
bankruptcy, insolvency or other law or order of any kind or for any other
reason, and no defense or setoff available at any time to the Borrower, shall
impair, affect or be a defense or setoff to the obligations of the undersigned
under this Guaranty.
The undersigned deliver(s) this Guaranty based solely on the undersigned's
independent investigation of the financial condition of the Borrower and is
(are) not relying on any information furnished by the Bank. The undersigned
assume(s) full responsibility for obtaining any further information concerning
the Borrower's financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate from time to
time. The undersigned waive(s) any duty on the part of the Bank, and agree(s)
that it is not relying upon nor expecting the Bank to disclose to the
undersigned any fact now or later known by the Bank, whether relating to the
operations or condition of the Borrower, the existence, liabilities or financial
condition of any co-guarantor of the Indebtedness, the occurrence of any default
with respect to the Indebtedness, or otherwise, notwithstanding any effect these
facts may have upon the undersigned's risk under this Guaranty or the
undersigned's rights against the Borrower. The undersigned knowingly accept(s)
the full range of risk encompassed in this Guaranty, which risk includes without
limit the possibility that the Borrower may incur Indebtedness to the Bank after
the financial condition of the Borrower, or its ability to pay its debts as they
mature, has deteriorated.
The undersigned represent(s) and warrant(s) that: (a) the Bank has made no
representation to the undersigned as to the creditworthiness of the Borrower;
and (b) the undersigned has (have) established adequate means of obtaining from
the Borrower on a continuing basis financial and other information pertaining to
the Borrower's financial condition. The undersigned agree(s) to keep adequately
informed of any facts, events or circumstances which might in any way affect the
risks of the undersigned under this Guaranty.
The undersigned grant(s) to the Bank a security interest in and the right of
setoff as to any and all property of the undersigned now or later in the
possession of the Bank. The undersigned subordinate(s) any claim of any nature
that the undersigned now or later has (have) against the Borrower to and in
favor of all Indebtedness and agree(s) not to accept payment or satisfaction of
any claim that the undersigned now or later may have against the Borrower
without the prior written consent of the Bank. Should any payment, distribution,
security, or proceeds, he received by the undersigned upon or with respect to
any claim that the undersigned now or may later have against the Borrower, the
undersigned shall immediately deliver the same to the Bank in the form received
(except for endorsement or assignment by the undersigned where required by the
Bank) for application on the Indebtedness, whether matured or unmatured, and
until delivered the same shall be held in trust by the undersigned as the
property of the Bank. The undersigned further assign(s) to the Bank as
collateral for the obligations of the undersigned under this Guaranty all claims
of any nature that the undersigned now or later has (have) against the Borrower
(other than any claim under a deed of trust or mortgage covering real property)
with full right on the part of the Bank, in its own name or in the name of the
undersigned, to collect and enforce these claims.
The undersigned agree(s) that no security now or later held by the Bank for the
payment of any Indebtedness. whether from the Borrower, any guarantor, or
otherwise, and whether in the nature of a security interest, pledge, lien,
assignment, setoff, suretyship, guaranty, indemnity, insurance or otherwise,
shall affect in any manner the unconditional obligation of the undersigned under
this Guaranty, and the Bank, in its sole discretion, without notice to the
undersigned, may release, exchange, enforce and otherwise deal with any security
without affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledges(s) and agree(s) that the Bank
has no obligation to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personality, to secure payment of the Indebtedness,
and the undersigned is (are) not relying upon any asset(s) in which the Bank has
or may have a lien or security interest for payment of the Indebtedness.
The undersigned acknowledge(s) that the effectiveness of this Guaranty is not
conditioned on any or all of the Indebtedness being guaranteed by anyone else.
Until the Indebtedness is irrevocably paid in full, the undersigned waive(s) any
and all rights to be subrogated to the position of the Bank or to have the
benefit of any lien, security interest or other guaranty now or later held by
the Bank for the Indebtedness or to enforce any remedy which the Bank now or
later has against the Borrower or any other person. Until the Indebtedness is
irrevocably paid in full, the undersigned shall have no right of reimbursement,
indemnity, contribution or other right of recourse to or with respect to the
Borrower or any other person. The undersigned agree(s) to indemnify and hold
harmless the Bank from and against any and all claims, actions, damages, costs
and expenses, including without limit reasonable attorneys' fees, incurred by
the Bank in connection with the
1.
<PAGE>
undersigned's exercise of any right of subrogation, contribution,
indemnification or recourse with respect to this Guaranty. The Bank has no duty
to enforce or protect any rights which the undersigned may have against the
Borrower or any other person and the undersigned assume(s) full responsibility
for enforcing and protecting these rights.
Notwithstanding any provision of the preceding paragraph or anything else in
this Guaranty to the contrary, if any of the undersigned is or becomes an
"insider" or "affiliate" (as defined in Section 101 of the Federal Bankruptcy
Code, as it may be amended) with respect to the Borrower, then that undersigned
irrevocably and absolutely waives any and all rights of subrogation,
contribution, indemnification, recourse, reimbursement and any similar rights
against the Borrower (or any other guarantor) with respect to this Guaranty,
whether such rights arise under an express or implied contract or by operation
of law. It is the intention of the parties that the undersigned shall not be (or
be deemed to be) a "creditor" (as defined in Section 101 of the Federal
Bankruptcy Code, as it may be amended) of the Borrower (or any other guarantor)
by reason of the existence of this Guaranty in the event that the Borrower
becomes a debtor in any proceeding under the Federal Bankruptcy Code. This
waiver is given to induce the Bank to enter into certain written contracts with
the Borrower included in the Indebtedness. The undersigned warrant(s) and
agree(s) that none of Bank's rights, remedies or interests shall be directly or
indirectly impaired because of any of the undersigned's status as an "insider"
or "affiliate" of the Borrower, and undersigned shall take any action, and shall
execute any document, which the Bank may request in order to effectuate this
warranty to the Bank.
If any Indebtedness is guaranteed by two or more guarantors, the obligation of
the undersigned shall be several and also joint, each with all and also each
with any one or more of the others, and may be enforced at the option of the
Bank against each severally, any two or more jointly, or some severally and some
jointly The Bank, in its sole discretion, may release any one or more of the
guarantors for any consideration which it deems adequate, and may fail or elect
not to prove a claim against the estate of any bankrupt, insolvent, incompetent
or deceased guarantor; and after that, without notice to any other guarantor,
the Bank may extend or renew any or all Indebtedness and may permit the Borrower
to incur additional Indebtedness, without affecting in any manner the
unconditional obligation of the remaining guarantor(s). This action by the Bank
shall not, however, be deemed to affect any right to contribution which may
exist among the guarantors.
Any of the undersigned may terminate their obligation under this Guaranty as to
future Indebtedness (except as provided below) by (and only by) delivering
written notice of termination to an officer of the Bank and receiving from an
officer of the Bank written acknowledgement of delivery; provided, the
termination shall not be effective until the opening of business on the fifth
(5th) day following written acknowledgement of delivery. Any termination shall
not affect in any way the unconditional obligations of the remaining
guarantor(s), whether or not the termination is known to the remaining
guarantor(s). Any termination shall not affect in any way the unconditional
obligations of the terminating guarantor(s) as to any Indebtedness existing at
the effective date of termination or any Indebtedness created after that
pursuant to any commitment or agreement of the Bank or any Borrower loan with
the Bank existing at the effective date of termination (whether advances or
readvances by the Bank are optional or obligatory), or any modifications,
extensions or renewals of any of this Indebtedness, whether in whole or in part,
and as to all of this Indebtedness and modifications, extensions or renewals of
it, this Guaranty shall continue effective until the same shall have been fully
paid. The Bank has no duty to give notice of termination by any guarantor(s) to
any remaining guarantor(s). The undersigned shall indemnify the Bank against all
claims, damages, costs and expenses, including without limit reasonable
attorneys' fees and costs, incurred by the Bank in connection with any suit,
claim or action against the Bank arising out of any modification or termination
of a Borrower loan or any refusal by the Bank to extend additional credit in
connection with the termination of this Guaranty.
Notwithstanding any prior revocation, termination, surrender or discharge of
this Guaranty (or of any lien, pledge or security interest securing this
Guaranty) in whole or part, the effectiveness of this Guaranty, and of all
liens, pledges and security interests securing this Guaranty, shall
automatically continue or be reinstated, as the case may be, in the event that
(a) any payment received or credit given by the Bank in respect of the
Indebtedness is returned, disgorged or rescinded as a preference, impermissible
setoff, fraudulent conveyance, diversion of trust funds, or otherwise under any
applicable state or federal law, including, without limitation, laws pertaining
to bankruptcy or insolvency, in which case this Guaranty, and all liens, pledges
and security interests securing this Guaranty, shall be enforceable against the
undersigned as if the returned, disgorged or rescinded payment or credit had not
been received or given by the Bank, and whether or not the Bank relied upon this
payment or credit or changed its position as a consequence of it; or (b) any
liability is imposed, or sought to be imposed, against the Bank relating to the
environmental condition of, or the presence of hazardous or toxic substances on,
in or about, any property given as collateral to the Bank by the Borrower,
whether this condition is known or unknown, now exists or subsequently arises
(excluding only conditions which arise after any acquisition by the Bank of any
such property, by foreclosure, in lieu of foreclosure or otherwise, to the
extent due to the wrongful act or omission of the Bank), in which case this
Guaranty, and all liens, pledges and security interests securing this Guaranty,
shall be enforceable against the undersigned to the extent of all liability,
costs and expenses (including without limit reasonable attorneys' fees and
costs) incurred by the Bank as the direct or indirect result of any
environmental condition or hazardous or toxic substances. In the event of
continuation or reinstatement of this Guaranty and the liens, pledges and
security interests securing it, the undersigned agree(s) upon demand by the Bank
to execute and deliver to the Bank those documents which the Bank determines are
appropriate to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of the undersigned to do so
shall not affect in any way the reinstatement or continuation. If the
undersigned do(es) not execute and deliver to the Bank upon demand such
documents, the Bank and each Bank officer is irrevocably appointed (which
appointment is coupled with an interest) the true and lawful attorney of the
undersigned (with full power of substitution) to execute and deliver such
documents in the name and on behalf of the undersigned. For purposes of this
Guaranty, "environmental condition" includes, without limitation, conditions
existing with respect to the surface or ground water, drinking water supply,
land surface or subsurface and the air; and "hazardous or toxic substances"
shall include any and all substances now or subsequently determined by any
federal, state or local authority to be hazardous or toxic, or otherwise
regulated by any of these authorities.
Although the intent of the undersigned and the Bank is that California law shall
apply to this Guaranty, regardless of whether California law applies, the
undersigned further agree(s) as follows: With respect to the limitation, if any,
stated in the Additional Provisions below on the amount of principal guaranteed
under this Guaranty, the undersigned agree(s) that (a) this limitation shall not
be a limitation on the amount of Borrower's Indebtedness to the Bank; (b) any
payments by the undersigned shall not reduce the maximum liability of the
undersigned under this Guaranty unless written notice to that effect is actually
received by the Bank at or prior to the time of the payment; and (c) the
liability of the undersigned to the Bank shall at all times be deemed to be the
aggregate liability of the undersigned under this Guaranty and any other
guaranties previously or subsequently given to the Bank by the undersigned and
not expressly revoked, modified or invalidated in writing.
The undersigned waive(s) any right to require the Bank to: (a) proceed against
any person, including without limit the Borrower; (b) proceed against or exhaust
any security held from the Borrower or any other person; (c) give notice of the
terms, time and place of any public or private sale of personal property
security held from the Borrower or any other person, or otherwise comply with
the provisions of Section 9-504 of the California or other applicable Uniform
Commercial Code; (d) pursue any other remedy in the Bank's power; or (e) make
any presentments or demands for performance, or give any notices of
nonperformance, protests, notices of protest, or notices of dishonor in
connection with any obligations or evidences or Indebtedness held by tile flank
as security, in connection with any other obligations or evidences of
indebtedness which constitute in whole or in part Indebtedness, or in connection
with the creation of new or additional Indebtedness.
The undersigned authorize(s) the Bank, either before or after termination of
this Guaranty, without notice to or demand on the undersigned and without
affecting the undersigned's liability under this Guaranty, from time to time to:
(a) apply any security and direct the order or manner of sale of it, including
without limit, a nonjudicial sale permitted by the terms of the controlling
security agreement, mortgage or deed of trust, as the Bank in its discretion may
determine; (b) release or substitute any one or more of the endorsers or any
other guarantors of the Indebtedness; and (c) apply payments received by the
Bank from the Borrower to any indebtedness of the Borrower to the Bank, in such
order as the Bank shall determine in its sole discretion, whether or not this
indebtedness is covered by this Guaranty, and the undersigned waive(s) any
provision of law regarding application of payments which specifies otherwise.
The Bank may without notice assign this Guaranty in whole or in part. Upon the
Bank's request, the undersigned agree(s) to provide to the Bank copies of the
undersigned's financial statements.
2.
<PAGE>
The undersigned waive(s) any defense based upon or arising by reason of (a) any
disability or other defense of the Borrower or any other person; (b) the
cessation or limitation from any cause whatsoever, other than final and
irrevocable payment in full, of the Indebtedness; (c) any lack of authority of
any officer, director, partner, agent or any other person acting or purporting
to act on behalf of the Borrower which is a corporation, partnership or other
type of entity, or any defect in the formation of the Borrower; (d) the
application by the Borrower of the proceeds of any Indebtedness for purposes
other than the purposes represented by the Borrower to the Bank or intended. or
understood by the Bank or the undersigned; (e) any act or omission by the Bank
which directly or indirectly results in or aids the discharge of the Borrower or
any Indebtedness by operation of law or otherwise; or (f) any modification of
the Indebtedness, in any form whatsoever including without limit any
modification made after effective termination, and including without limit, the
renewal, extension, acceleration or other change in time for payment of the
Indebtedness, or other change in the terms of any Indebtedness, including
without limit increase or decrease of the interest rate. The undersigned
understands that, absent this waiver, Bank's election of remedies, including but
not limited to its decision to proceed to nonjudicial foreclosure on any real
property securing the Indebtedness, could preclude Bank from obtaining a
deficiency judgment against Borrower and the undersigned pursuant to California
Code of Civil Procedure sections 580a, 580b, 580d or 726 and could also destroy
any subrogation rights which the undersigned has against Borrower. The
undersigned further understands that, absent this waiver, California law,
including without limitation, California Code of Civil Procedure sections 580a,
580b, 580d or 726, could afford the undersigned one or more affirmative defenses
to any action maintained by Bank against the undersigned on this Guaranty.
The undersigned waives any and all rights and provisions of California Code of
Civil Procedure sections 580a, 580b, 580d and 726, including, but not limited to
any provision thereof that: (i) may limit the time period for Bank to commence a
lawsuit against Borrower or the undersigned to collect any Indebtedness owing by
Borrower or the undersigned to Bank; (ii) may entitle Borrower or the
undersigned to a judicial or nonjudicial determination of any deficiency owed by
Borrower or the undersigned to Bank, or to otherwise limit Bank's right to
collect a deficiency based on the fair market value of such real property
security; (iii) may limit Bank's right to collect a deficiency judgment after a
sale of any real property securing the Indebtedness; (iv) may require Bank to
take only one action to collect the Indebtedness or that may otherwise limit the
remedies available to Bank to collect the Indebtedness.
The undersigned waives all rights and defenses arising out of an election of
remedies by Bank even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
the undersigned's rights of subrogation and reimbursement against Borrower by
the operation of Section 580d of the Code of Civil Procedure or otherwise.
The undersigned acknowledges and agrees that this is a knowing and informed
waiver of the undersigned's rights as discussed above and that Bank is relying
on this waiver in extending credit to Borrower.
The undersigned acknowledge(s) that the Bank has the right to sell, assign,
transfer, negotiate, or grant participations in all or any part of the
Indebtedness and any related obligations, including without limit this Guaranty.
In connection with that right, the Bank may disclose any documents and
information which the Bank now or later acquires relating to the undersigned and
this Guaranty, whether furnished by the Borrower, the undersigned or otherwise.
The undersigned further agree(s) that the Bank may disclose these documents and
information to the Borrower. The undersigned agree(s) that the Bank may provide
information relating to this Guaranty or to the undersigned to the Bank's
parent, affiliates, subsidiaries and service providers.
The total obligation under this Guaranty shall be UNLIMITED unless specifically
limited in the Additional Provisions of this Guaranty, and this obligation
(whether unlimited or limited to the extent indicated in the Additional
Provisions) shall include, IN ADDITION TO any limited amount of principal
guaranteed, any and all interest on all Indebtedness and any and all costs and
expenses of any kind, including without limit reasonable attorneys' fees and
costs, incurred by the Bank at any time(s) for any reason in enforcing any of
the duties and obligations of the undersigned under this Guaranty or otherwise
incurred by the Bank in any way connected with this Guaranty, the Indebtedness
or any other guaranty of the Indebtedness (including without limit reasonable
attorneys' fees and other expenses incurred in any suit involving the conduct of
the Bank, the Borrower or the undersigned). All of these costs and expenses
shall be payable immediately by the undersigned when incurred by the Bank,
without demand, and until paid shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Guaranty to attorneys' fees shall be
deemed a reference to fees, charges, costs and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorneys'
fees or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise. Any reference in
the Additional Provisions or elsewhere (a) to this Guaranty being secured by
certain collateral shall NOT be deemed to limit the total obligation of the
undersigned under this Guaranty or (b) to this Guaranty being limited in any
respect shall NOT be deemed to limit the total obligation of the undersigned
under any prior or subsequent guaranty given by the undersigned to the Bank.
The undersigned unconditionally and irrevocably waive(s) each and every defense
and setoff of any nature which, under principles of guaranty or otherwise, would
operate to impair or diminish in any way the obligation of the undersigned under
this Guaranty, and acknowledge(s) that each such waiver is by this reference
incorporated into each security agreement, collateral assignment, pledge and/or
other document from the undersigned now or later securing this Guaranty and/or
the Indebtedness, and acknowledge(s) that as of the date of this Guaranty no
such defense or setoff exists. The undersigned acknowledge(s) that the
effectiveness of this Guaranty is subject to no conditions of any kind.
This Guaranty shall remain effective with respect to successive transactions
which shall either continue the Indebtedness, increase or decrease it, or from
time to time create new Indebtedness after all or any prior Indebtedness has
been satisfied, until this Guaranty is terminated in the manner and to the
extent provided above.
The undersigned warrant(s) and agree(s) that each of the waivers set forth above
are made with the undersigned's full knowledge of their significance and
consequences, and that under the circumstances, the waivers are reasonable and
not contrary to public policy or law If any of these waivers are determined to
be contrary to any applicable law or public policy, these waivers shall be
effective only to the extent permitted by law.
This Guaranty constitutes the entire agreement of the undersigned and the Bank
with respect to the subject matter of this Guaranty. No waiver, consent,
modification or change of the terms of this Guaranty shall bind any of the
undersigned or the Bank unless in writing and signed by the waiving party or an
authorized officer of the waiving party, and then this waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given. This Guaranty shall inure to the benefit of the Bank
and its successors and assigns. This Guaranty shall be binding on the
undersigned and the undersigned's heirs, legal representatives, successors and
assigns including, without limit, any debtor in possession or trustee in
bankruptcy for any of the undersigned. The undersigned has (have) knowingly and
voluntarily entered into this Guaranty in good faith for the purpose of inducing
the Bank to extend credit or make other financial accommodations to the
Borrower, and the undersigned acknowledge(s) that the terms of this Guaranty are
reasonable. If any provision of this Guaranty is unenforceable in whole or in
part for any reason, the remaining provisions shall continue to be effective.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.
Additional Provisions (if any):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3.
<PAGE>
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS GUARANTY OR THE INDEBTEDNESS.
IN WITNESS WHEREOF, the undersigned has (have) signed this Guaranty on JUNE 29,
-------
1998
- ----
GUARANTOR(S) LINFINITY MICROELECTRONICS INC.
By: /s/ Mary A. Rorabaugh
--------------------------------
Signature of Mary A. Rorabaugh
Its: Vice President, Finance
------------------------
(If Applicant)
By: /s/ Roger A. Strauch
--------------------------------
Signature of Roger A. Strauch
Its: Chief Executive Officer
-----------------------
(If Applicable)
GUARANTOR'S ADDRESS
11861 Western Avenue
------------------------------------
Street Address
Garden Grove, CA 92641
------------------------------------
City State Zip Code
BORROWER(S):
SYMMETRICOM, INC.
4.
<PAGE>
EXHIBIT F
[LOGO OF COMERICA] CORPORATE RESOLUTIONS AND INCUMBENCY CERTIFICATION --
AUTHORITY TO SUPPORT ANOTHER'S BORROWINGS
================================================================================
I certify that I am the duly elected and qualified Secretary of LINFINITY
MICROELECTRONICS INC. a DELAWARE corporation ("Corporation") and the keeper of
the records of the Corporation; that the following is a true and correct copy of
resolutions duly adopted by its Board of Directors in accordance with its bylaws
and applicable statutes on or as of the 29 day of June 1998;
Copy of Resolutions:
Whereas, this Corporation is financially interested in the affairs of
SYMMETRICOM, INC. ("Borrower"); and
Whereas, there has been presented to the Board of Directors of this Corporation
certain documents and instruments including but not limited to the following:
GUARANTY
[insert type(s) of support, e.g. Guaranty, Subordination Agreement, Security,
Agreement, etc.] collectively referred to as ("Agreement"), as yet unexecuted,
in favor of COMERICA BANK-CALIFORNIA ("Bank"), pertaining to the existing and/or
future indebtedness of the Borrower to the Bank; and
Whereas, in order to induce the Bank to extend credit or other financial
accommodations to the Borrower, the Board of Directors deems it advisable,
desirable, and in the best interests of this Corporation and its shareholders
that this Corporation enter into the Agreement;
Be It Resolved, That:
1. This Corporation approves, adopts, and enters into the Agreement.
2. The Chief Executive Officer, Vice President, Finance (or any one of them) of
this Corporation be, and they are, and each is, authorized, empowered and
directed to execute the Agreement, for and on behalf of this Corporation and in
its name, with such changes or additions to it as any such officer may, in that
officer's sole and absolute discretion, approve, and to deliver the same to
Bank.
3. The above-named officers be, and they are, and each is, authorized, empowered
and directed for and on behalf of this Corporation and in its name, to do all
acts and things, to give security for the liabilities of the Corporation as the
Bank shall request, and to sign, seal, execute, acknowledge, file, record and/or
deliver all certificates, financing statements and other instruments, papers and
documents from time to time necessary, desirable or appropriate to be done,
signed, sealed, executed, acknowledged, filed, recorded and/or delivered in
order to effectuate the purposes of the Agreement and of these Resolutions.
4. Any and all agreements, instruments and documents previously executed, and
acts and things previously done, to carry out the purposes of these Resolutions
are ratified, confirmed and approved as the act or acts of this Corporation.
5. These Resolutions shall continue in force, and the Bank may consider the
holders of said offices and their signatures to be and continue to be as set
forth in a certified copy of these Resolutions delivered to the Bank, until
notice to the contrary in writing is duly served on the Bank (such notice to
have no effect on any action previously taken by the Bank in reliance on these
Resolutions).
I further certify that the foregoing Resolutions are in full force and effect as
of the date of this Certificate; that such Resolutions have been properly noted
in the corporate books and records and have not been rescinded, annulled,
revoked or modified; that neither the foregoing Resolutions nor any actions to
be taken pursuant to them are or will be in violation of any provision of the
articles of incorporation or bylaws of the Corporation or of any agreement, or
other instrument to which the Corporation is a party or by which it is bound;
and that neither the articles of incorporation nor bylaws of the Corporation nor
any agreement or other instrument to which the Corporation is a party or by
which it is bound require the vote or consent of shareholders of the Corporation
to authorize any act, matter or thing described in the foregoing Resolutions.
I further certify that the following named persons have been duly elected to the
offices set opposite their respective names, that they continue to hold these
offices at the present time, and that the signatures which appear below are the
genuine, original signatures of each respectively:
(PLEASE SUPPLY GENUINE SIGNATURES BELOW)
NAME(TYPE OR PRINT) TITLE SIGNATURE
Roger A. Strauch Chief Executive Officer /s/ Roger A. Strauch
----------------------
Mary A. Rorabaugh Vice President, Finance /s/ Mary A. Rorabaugh
----------------------
In Witness Whereof, I have affixed my name as Secretary and have caused the
corporate seal of said Corporation to be affixed this 29 day of June, 1998.
/s/ Mary A. Rorabaugh
----------------------------
SECRETARY
- --------------------------------------------------------------------------------
The Above Statements are Correct. ______________________________________________
SIGNATURE OF OFFICER OR DIRECTOR OR, IF
NONE, A SHAREHOLDER, OTHER THAN SECRETARY,
WHEN SECRETARY IS AUTHORIZED TO SIGN
ALONE.
failure to complete the above when the Secretary is authorized to sign alone
shall constitute a certification by the Secretary that the Secretary is the sole
Shareholder, Director and Officer of the Corporation.
- --------------------------------------------------------------------------------
CA 00191 (12-94)
<PAGE>
Exhibit G
[LOGO OF COMERICA]
GUARANTY
________________________________________________________________________________
The undersigned, for value received , unconditionally and absolutely
guarantee(s) to COMERICA BANK-CALIFORNIA ("Bank) a, California banking
corporation, and to the Bank's successors and assigns, payment when due, whether
by stated maturity, demand, acceleration or otherwise, of all existing and
future indebtedness to the Bank of SYMMETRICOM INC. ("Borrower") of any
successor in interest, including without limit any debtor-in-possession or
trustee in bankruptcy which succeeds to the interest of this party or person
jointly and severally the "Borrower"), however this indebtedness has been or may
be incurred or evidenced, whether absolute or contingent direct or indirect,
voluntary or involuntary, liquidated or unliquidated, joint or several, and
whether or not known to the undersigned at the time of this Guaranty or at the
time any future indebtedness is incurred (the "Indebtedness").
The Indebtedness guaranteed includes without limit: (a) any and all direct
indebtedness of the Borrower to the Bank, including indebtedness evidenced by
any and all promissory notes; (b) any and all obligations or liabilities of the
Borrower to the Bank arising under any guaranty where the Borrower has
guaranteed the payment of indebtedness owing to the Bank from a third party; (c)
any and all obligations or liabilities of the Borrower to the Bank arising from
applications or agreements for the issuance of letters of credit; (d) any and
all obligations or liabilities of the Borrower to the Bank arising out of any
other agreement by the Borrower including without limit any agreement to
indemnify the Bank for environmental liability or to clean up hazardous waste;
(e) any and all indebtedness, obligations or liabilities for which the Borrower
would otherwise be liable to the Bank were it not for the invalidity,
irregularity or unenforceability of them by reason of any bankruptcy, insolvency
or other law or order of any kind, or for any other reason, including without
limit liability for interest and attorneys' fees on, or in connection with, any
of the Indebtedness from and after the filing by or against the Borrower of a
bankruptcy petition whether an involuntary or voluntary bankruptcy case,
including, without limitation, all attorneys' fees and costs incurred in
connection with motions for relief from stay, cash collateral motions,
nondischargeability motions, preference liability motions, fraudulent conveyance
liability motions, fraudulent transfer liability motions and all other motions
brought by Borrower, Guarantor, Bank or third parties in any way relating to
Bank's rights with respect to such Borrower, Guarantor, or third party and/or
affecting any collateral securing any obligation owed to Bank by Borrower,
Guarantor, or any third party, probate proceedings, on appeal or otherwise; (f)
any and all amendments, modifications, renewals and/or extensions of any of the
above, including without limit amendments, modifications, renewals and/or
extensions which are evidenced by new or additional instruments, documents or
agreements; and (g) all costs of collecting Indebtedness, including without
limit reasonable attorneys' fees and costs.
The undersigned waive(s) notice of acceptance of this Guaranty and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any Indebtedness,
and diligence in collecting any Indebtedness, and agree(s) that the Bank may
modify the terms of any Indebtedness, compromise, extend, increase, accelerate,
renew or forbear to enforce payment of any or all Indebtedness, or permit the
Borrower to incur additional Indebtedness, all without notice to the undersigned
and without affecting in any manner the unconditional obligation of the
undersigned under this Guaranty. The undersigned further waive(s) any and all
other notices to which the undersigned might otherwise be entitled. The
undersigned acknowledge(s) and agree(s) that the liabilities created by this
Guaranty are direct and are not conditioned upon pursuit by the Bank of any
remedy the Bank may have against the Borrower or any other person or any
security. No invalidity, irregularity or unenforceability of any part or all of
the Indebtedness or any documents evidencing the same, by reason of any
bankruptcy, insolvency or other law or order of any kind or for any other
reason, and no defense or setoff available at any time to the Borrower, shall
impair, affect or be a defense or setoff to the obligations of the undersigned
under this Guaranty.
The undersigned deliver(s) this Guaranty based solely on the undersigned's
independent investigation of the financial condition of the Borrower and is
(are) not relying on any information furnished by the Bank. The undersigned
assume(s) full responsibility for obtaining any further information concerning
the Borrower's financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate from time to
time. The undersigned waive(s) any duty on the part of the Bank, and agree(s)
that it is not relying upon nor expecting the Bank to disclose to the
undersigned any fact now or later known by the Bank, whether relating to the
operations or condition of the Borrower, the existence, liabilities or financial
condition of any co-guarantor of the Indebtedness, the occurrence of any default
with respect to the Indebtedness, or otherwise, notwithstanding any effect these
facts may have upon the undersigned's risk under this Guaranty or the
undersigned's rights against the Borrower. The undersigned knowingly accept(s)
the full range of risk encompassed in this Guaranty, which risk includes without
limit the possibility that the Borrower may incur Indebtedness to the Bank after
the financial condition of the Borrower, or its ability to pay its debts as they
mature, has deteriorated.
The undersigned represent(s) and warrant(s) that: (a) the Bank has made no
representation to the undersigned as to the creditworthiness of the Borrower;
and (b) the undersigned has (have) established adequate means of obtaining from
the Borrower on a continuing basis financial and other information pertaining to
the Borrower's financial condition. The undersigned agree(s) to keep adequately
informed of any facts, events or circumstances which might in any way affect the
risks of the undersigned under this Guaranty.
The undersigned grant(s) to the Bank a security interest in and the right of
setoff as to any and all property of the undersigned now or later in the
possession of the Bank. The undersigned subordinate(s) any claim of any nature
that the undersigned now or later has (have) against the Borrower to and in
favor of all Indebtedness and agree(s) not to accept payment or satisfaction of
any claim that the undersigned now or later may have against the Borrower
without the prior written consent of the Bank. Should any payment, distribution,
security, or proceeds, be received by the undersigned upon or with respect to
any claim that the undersigned now or may later have against the Borrower, the
undersigned shall immediately deliver the same to the Bank in the form received
(except for endorsement or assignment by the undersigned where required by the
Bank) for application on the Indebtedness, whether matured or unmatured, and
until delivered the same shall be held in trust by the undersigned as the
property of the Bank. The undersigned further assign(s) to the Bank as
collateral for the obligations of the undersigned under this Guaranty all claims
of any nature that the undersigned now or later has (have) against the Borrower
(other than any claim under a deed of trust or mortgage covering real property)
with full right on the part of the Bank, in its own name or in the name of the
undersigned, to collect and enforce these claims.
The undersigned agree(s) that no security now or later held by the Bank for the
payment of any Indebtedness, whether from the Borrower, any guarantor, or
otherwise, and whether in the nature of a security interest, pledge, lien,
assignment, setoff, suretyship, guaranty, indemnity, insurance or otherwise,
shall affect in any manner the unconditional obligation of the undersigned under
this Guaranty, and the Bank, in its sole discretion, without notice to the
undersigned, may release, exchange, enforce and otherwise deal with any security
without affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledges(s) and agree(s) that the Bank
has no obligation to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of the Indebtedness,
and the undersigned is (are) not relying upon any asset(s) in which the Bank has
or may have a lien or security interest for payment of the Indebtedness.
The undersigned acknowledge(s) that the effectiveness of this Guaranty is not
conditioned on any or all of the Indebtedness being guaranteed by anyone else.
Until the Indebtedness is irrevocably paid in full, the undersigned waive(s) any
and all rights to be subrogated to the position of the Bank or to have the
benefit of any lien, security interest or other guaranty now or later held by
the Bank for the Indebtedness or to enforce any remedy which the Bank now or
later has against the Borrower or any other person. Until the Indebtedness is
irrevocably paid in full, the undersigned shall have no right of reimbursement,
indemnity, contribution or other right of recourse to or with respect to the
Borrower or any other person. The undersigned agree(s) to indemnify and hold
harmless the Bank from and against any and all claims, actions, damages, costs
and expenses, including without limit reasonable attorneys' fees, incurred by
the Bank in connection with the
1.
<PAGE>
undersigned's exercise of any right of subrogation, contribution,
indemnification or recourse with respect to this Guaranty. The Bank has no duty
to enforce or protect any rights which the undersigned may have against the
Borrower or any other person and the undersigned assume(s) full responsibility
for enforcing and protecting these rights.
Notwithstanding any provision of the preceding paragraph or anything else in
this Guaranty to the contrary, if any of the undersigned is or becomes an
"insider" or "affiliate" (as defined in Section 101 of the Federal Bankruptcy
Code, as it may be amended) with respect to the Borrower, then that undersigned
irrevocably and absolutely waives any and all rights of subrogation,
contribution, indemnification, recourse, reimbursement and any similar rights
against the Borrower (or any other guarantor) with respect to this Guaranty,
whether such rights arise under an express or implied contract or by operation
of law. It is the intention of the parties that the undersigned shall not be (or
be deemed to be) a "creditor" (as defined in Section 101 of the Federal
Bankruptcy Code, as it may be amended) of the Borrower (or any other guarantor)
by reason of the existence of this Guaranty in the event that the Borrower
becomes a debtor in any proceeding under the Federal Bankruptcy Code. This
waiver is given to induce the Bank to enter into certain written contracts with
the Borrower included in the Indebtedness. The undersigned warrant(s) and
agree(s) that none of Bank's rights, remedies or interests shall be directly or
indirectly impaired because of any of the undersigned's status as an "insider"
or "affiliate" of the Borrower, and undersigned shall take any action, and shall
execute any document, which the Bank may request in order to effectuate this
warranty to the Bank.
If any Indebtedness is guaranteed by two or more guarantors, the obligation of
the undersigned shall be several and also joint, each with all and also each
with any one or more of the others, and may be enforced at the option of the
Bank against each severally, any two or more jointly, or some severally and some
jointly The Bank, in its sole discretion, may release any one or more of the
guarantors for any consideration which it deems adequate, and may fail or elect
not to prove a claim against the estate of any bankrupt, insolvent, incompetent
or deceased guarantor; and after that, without notice to any other guarantor,
the Bank may extend or renew any or all Indebtedness and may permit the Borrower
to incur additional Indebtedness, without affecting in any manner the
unconditional obligation of the remaining guarantor(s). This action by the Bank
shall not, however, be deemed to affect any right to contribution which may
exist among the guarantors.
Any of the undersigned may terminate their obligation under this Guaranty as to
future Indebtedness (except as provided below) by (and only by) delivering
written notice of termination to an officer of the Bank and receiving from an
officer of the Bank written acknowledgement of delivery; provided, the
termination shall not be effective until the opening of business on the fifth
(5th) day following written acknowledgement of delivery. Any termination shall
not affect in any way the unconditional obligations of the remaining
guarantor(s), whether or not the termination is known to the remaining
guarantor(s). Any termination shall not affect in any way the unconditional
obligations of the terminating guarantor(s) as to any Indebtedness existing at
the effective date of termination or any Indebtedness created after that
pursuant to any commitment or agreement of the Bank or any Borrower loan with
the Bank existing at the effective date of termination (whether advances or
readvances by the Bank are optional or obligatory), or any modifications,
extensions or renewals of any of this Indebtedness, whether in whole or in part,
and as to all of this Indebtedness and modifications, extensions or renewals of
it, this Guaranty shall continue effective until the same shall have been fully
paid. The Bank has no duty to give notice of termination by any guarantor(s) to
any remaining guarantor(s). The undersigned shall indemnify the Bank against all
claims, damages, costs and expenses, including without limit reasonable
attorneys' fees and costs, incurred by the Bank in connection with any suit,
claim or action against the Bank arising out of any modification or termination
of a Borrower loan or any refusal by the Bank to extend additional credit in
connection with the termination of this Guaranty.
Notwithstanding any prior revocation, termination, surrender or discharge of
this Guaranty (or of any lien, pledge or security interest securing this
Guaranty) in whole or part, the effectiveness of this Guaranty, and of all
liens, pledges and security interests securing this Guaranty, shall
automatically continue or be reinstated, as the case may be, in the event that
(a) any payment received or credit given by the Bank in respect of the
Indebtedness is returned, disgorged or rescinded as a preference, impermissible
setoff, fraudulent conveyance, diversion of trust funds, or otherwise under any
applicable state or federal law, including, without limitation, laws pertaining
to bankruptcy or insolvency, in which case this Guaranty, and all liens, pledges
and security interests securing this Guaranty, shall be enforceable against the
undersigned as if the returned, disgorged or rescinded payment or credit had not
been received or given by the Bank, and whether or not the Bank relied upon this
payment or credit or changed its position as a consequence of it; or (b) any
liability is imposed, or sought to be imposed, against the Bank relating to the
environmental condition of, or the presence of hazardous or toxic substances on,
in or about, any property given as collateral to the Bank by the Borrower,
whether this condition is known or unknown, now exists or subsequently arises
(excluding only conditions which arise after any acquisition by the Bank of any
such property, by foreclosure, in lieu of foreclosure or otherwise, to the
extent due to the wrongful act or omission of the Bank), in which case this
Guaranty, and all liens, pledges and security interests securing this Guaranty,
shall be enforceable against the undersigned to the extent of all liability,
costs and expenses (including without limit reasonable attorneys' fees and
costs) incurred by the Bank as the direct or indirect result of any
environmental condition or hazardous or toxic substances. In the event of
continuation or reinstatement of this Guaranty and the liens, pledges and
security interests securing it, the undersigned agree(s) upon demand by the Bank
to execute and deliver to the Bank those documents which the Bank determines are
appropriate to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of the undersigned to do so
shall not affect in any way the reinstatement or continuation. If the
undersigned do(es) not execute and deliver to the Bank upon demand such
documents, the Bank and each Bank officer is irrevocably appointed (which
appointment is coupled with an interest) the true and lawful attorney of the
undersigned (with full power of substitution) to execute and deliver such
documents in the name and on behalf of the undersigned. For purposes of this
Guaranty, "environmental condition" includes, without limitation, conditions
existing with respect to the surface or ground water, drinking water supply,
land surface or subsurface and the air; and "hazardous or toxic substances"
shall include any and all substances now or subsequently determined by any
federal, state or local authority to be hazardous or toxic, or otherwise
regulated by any of these authorities.
Although the intent of the undersigned and the Bank is that California law shall
apply to this Guaranty, regardless of whether California law applies, the
undersigned further agree(s) as follows: With respect to the limitation, if any,
stated in the Additional Provisions below on the amount of principal guaranteed
under this Guaranty, the undersigned agree(s) that (a) this limitation shall not
be a limitation on the amount of Borrower's Indebtedness to the Bank; (b) any
payments by the undersigned shall not reduce the maximum liability of the
undersigned under this Guaranty unless written notice to that effect is actually
received by the Bank at or prior to the time of the payment; and (c) the
liability of the undersigned to the Bank shall at all times be deemed to be the
aggregate liability of the undersigned under this Guaranty and any other
guaranties previously or subsequently given to the Bank by the undersigned and
not expressly revoked, modified or invalidated in writing.
The undersigned waive(s) any right to require the Bank to: (a) proceed against
any person, including without limit the Borrower; (b) proceed against or exhaust
any security held from the Borrower or any other person; (c) give notice of the
terms, time and place of any public or private sale of personal property
security held from the Borrower or any other person, or otherwise comply with
the provisions of Section 9-504 of the California or other applicable Uniform
Commercial Code; (d) pursue any other remedy in the Bank's power; or (e) make
any presentments or demands for performance, or give any notices of
nonperformance, protests, notices of protest, or notices of dishonor in
connection with any obligations or evidences or Indebtedness held by the Bank as
security, in connection with any other obligations or evidences of indebtedness
which constitute in whole or in part Indebtedness, or in connection with the
creation of new or additional Indebtedness.
The undersigned authorize(s) the Bank, either before or after termination of
this Guaranty, without notice to or demand on the undersigned and without
affecting the undersigned's liability under this Guaranty, from time to time to:
(a) apply any security and direct the order or manner of sale of it, including
without limit, a nonjudicial sale permitted by the terms of the controlling
security agreement, mortgage or deed of trust, as the Bank in its discretion may
determine; (b) release or substitute any one or more of the endorsers or any
other guarantors of the Indebtedness; and (c) apply payments received by the
Bank from the Borrower to any indebtedness of the Borrower to the Bank, in such
order as the Bank shall determine in its sole discretion, whether or not this
indebtedness is covered by this Guaranty, and the undersigned waive(s) any
provision of law regarding application of payments which specifies otherwise.
The Bank may without notice assign this Guaranty in whole or in part. Upon the
Bank's request, the undersigned agree(s) to provide to the Bank copies of the
undersigned's financial statements.
2.
<PAGE>
The undersigned waive(s) any defense based upon or arising by reason of (a) any
disability or other defense of the Borrower or any other person; (b) the
cessation or limitation from any cause whatsoever, other than final and
irrevocable payment in full, of the Indebtedness; (c) any lack of authority of
any officer, director, partner, agent or any other person acting or purporting
to act on behalf of the Borrower which is a corporation, partnership or other
type of entity, or any defect in the formation of the Borrower; (d) the
application by the Borrower of the proceeds of any Indebtedness for purposes
other than the purposes represented by the Borrower to the Bank or intended or
understood by the Bank or the undersigned; (e) any act or omission by the Bank
which directly or indirectly results in or aids the discharge of the Borrower or
any Indebtedness by operation of law or otherwise; or (f) any modification of
the Indebtedness, in any form whatsoever including without limit any
modification made after effective termination, and including without limit, the
renewal, extension, acceleration or other change in time for payment of the
Indebtedness, or other change in the terms of any Indebtedness, including
without limit increase or decrease of the interest rate. The undersigned
understands that, absent this waiver, Bank's election of remedies, including but
not limited to its decision to proceed to nonjudicial foreclosure on any real
property securing the Indebtedness, could preclude Bank from obtaining a
deficiency judgment against Borrower and the undersigned pursuant to California
Code of Civil Procedure sections 580a, 580b, 580d or 726 and could also destroy
any subrogation rights which the undersigned has against Borrower. The
undersigned further understands that, absent this waiver, California law,
including without limitation, California Code of Civil Procedure sections 580a,
580b, 580d or 726, could afford the undersigned one or more affirmative defenses
to any action maintained by Bank against the undersigned on this Guaranty.
The undersigned waives any and all rights and provisions of California Code of
Civil Procedure sections 580a, 580b, 580d and 726, including, but not limited to
any provision thereof that: (i) may limit the time period for Bank to commence a
lawsuit against Borrower or the undersigned to collect any Indebtedness owing by
Borrower or the undersigned to Bank; (ii) may entitle Borrower or the
undersigned to a judicial or nonjudicial determination of any deficiency owed by
Borrower or the undersigned to Bank, or to otherwise limit Bank's right to
collect a deficiency based on the fair market value of such real property
security; (iii) may limit Bank's right to collect a deficiency judgment after a
sale of any real property securing the Indebtedness; (iv) may require Bank to
take only one action to collect the Indebtedness or that may otherwise limit the
remedies available to Bank to collect the Indebtedness.
The undersigned waives all rights and defenses arising out of an election of
remedies by Bank even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
the undersigned's rights of subrogation and reimbursement against Borrower by
the operation of Section 580d of the Code of Civil Procedure or otherwise.
The undersigned acknowledges and agrees that this is a knowing and informed
waiver of the undersigned's rights as discussed above and that Bank is relying
on this waiver in extending credit to Borrower.
The undersigned acknowledge(s) that the Bank has the right to sell, assign,
transfer, negotiate, or grant participations in all or any part of the
Indebtedness and any related obligations, including without limit this Guaranty.
In connection with that right, the Bank may disclose any documents and
information which the Bank now or later acquires relating to the undersigned and
this Guaranty, whether furnished by the Borrower, the undersigned or otherwise.
The undersigned further agree(s) that the Bank may disclose these documents and
information to the Borrower. The undersigned agree(s) that the Bank may provide
information relating to this Guaranty or to the undersigned to the Bank's
parent, affiliates, subsidiaries and service providers.
The total obligation under this Guaranty shall be UNLIMITED unless specifically
limited in the Additional Provisions of this Guaranty, and this obligation
(whether unlimited or limited to the extent indicated in the Additional
Provisions) shall include, IN ADDITION TO any limited amount of principal
guaranteed, any and all interest on all Indebtedness and any and all costs and
expenses of any kind, including without limit reasonable attorneys' fees and
costs, incurred by the Bank at any time(s) for any reason in enforcing any of
the duties and obligations of the undersigned under this Guaranty or otherwise
incurred by the Bank in any way connected with this Guaranty, the Indebtedness
or any other guaranty of the Indebtedness (including without limit reasonable
attorneys' fees and other expenses incurred in any suit involving the conduct of
the Bank, the Borrower or the undersigned). All of these costs and expenses
shall be payable immediately by the undersigned when incurred by the Bank,
without demand, and until paid shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Guaranty to attorneys' fees shall be
deemed a reference to fees, charges, costs and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorneys'
fees or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise. Any reference in
the Additional Provisions or elsewhere (a) to this Guaranty being secured by
certain collateral shall NOT be deemed to limit the total obligation of the
undersigned under this Guaranty or (b) to this Guaranty being limited in any
respect shall NOT be deemed to limit the total obligation of the undersigned
under any prior or subsequent guaranty given by the undersigned to the Bank.
The undersigned unconditionally and irrevocably waive(s) each and every defense
and setoff of any nature which, under principles of guaranty or otherwise, would
operate to impair or diminish in any way the obligation of the undersigned under
this Guaranty, and acknowledge(s) that each such waiver is by this reference
incorporated into each security agreement, collateral assignment, pledge and/or
other document from the undersigned now or later securing this Guaranty and/or
the Indebtedness, and acknowledge(s) that as of the date of this Guaranty no
such defense or setoff exists. The undersigned acknowledge(s) that the
effectiveness of this Guaranty is subject to no conditions of any kind.
This Guaranty shall remain effective with respect to successive transactions
which shall either continue the Indebtedness, increase or decrease it, or from
time to time create new Indebtedness after all or any prior Indebtedness has
been satisfied, until this Guaranty is terminated in the manner and to the
extent provided above.
The undersigned warrant(s) and agree(s) that each of the waivers set forth above
are made with the undersigned's full knowledge of their significance and
consequences, and that under the circumstances, the waivers are reasonable and
not contrary to public policy or law If any of these waivers are determined to
be contrary to any applicable law or public policy, these waivers shall be
effective only to the extent permitted by law.
This Guaranty constitutes the entire agreement of the undersigned and the Bank
with respect to the subject matter of this Guaranty. No waiver, consent,
modification or change of the terms of this Guaranty shall bind any of the
undersigned or the Bank unless in writing and signed by the waiving party or an
authorized officer of the waiving party, and then this waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given. This Guaranty shall inure to the benefit of the Bank
and its successors and assigns. This Guaranty shall be binding on the
undersigned and the undersigned's heirs, legal representatives, successors and
assigns including, without limit, any debtor in possession or trustee in
bankruptcy for any of the undersigned. The undersigned has (have) knowingly and
voluntarily entered into this Guaranty in good faith for the purpose of inducing
the Bank to extend credit or make other financial accommodations to the
Borrower, and the undersigned acknowledge(s) that the terms of this Guaranty are
reasonable. If any provision of this Guaranty is unenforceable in whole or in
part for any reason, the remaining provisions shall continue to be effective.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.
Additional Provisions (if any):
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
3.
<PAGE>
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS GUARANTY OR THE INDEBTEDNESS.
IN WITNESS WHEREOF, the undersigned has (have) signed this Guaranty on JUNE 29,
1998
TELECOM SOLUTIONS PUERTO RICO, INC.
GUARANTOR(S)____________________________________
By: /s/ Mary A. Rorabaugh
---------------------------------------------
Signature of Mary A. Rorabaugh
Its: Vice President, Finance
------------------------------------
(If Applicant)
By: /s/ Thomas W. Steipp
---------------------------------------------
Signature of Thomas W. Steipp
Its: Chief Operating Officer
------------------------------------
(If Applicable)
GUARANTOR'S ADDRESS
Industrial Park, Building 7
------------------------------------------------
Street Address
P.O. Box 1046 Aguada Puerto Rico 00602-1046
------------------------------------------------
City State Zip Code
BORROWER(S):
SYMMETRICOM, INC.
4.
<PAGE>
[LOGO OF COMERICA]
EXHIBIT H
CORPORATE RESOLUTIONS AND INCUMBENCY CERTIFICATION -
AUTHORITY TO SUPPORT ANOTHER'S BORROWINGS
________________________________________________________________________________
I certify that am the duly elected and qualified Secretary of TELECOM SOLUTIONS
PUERTO RICO, INC a CALIFORNIA corporation ("Corporation") and the keeper of the
records of the Corporation; that the following is a true and correct copy of
resolutions duly adopted by its Board of Directors in accordance with its bylaws
and applicable statutes on or as of the 29 day of June, 1998;
Copy of Resolutions:
Whereas, this Corporation is financially interested in the affairs of
SYMMETRICOM, INC. ("Borrower"); and
Whereas, there has been presented to the Board of Directors of this Corporation
certain documents and instruments including but not limited to the following:
GUARANTY
[insert type(s) of support, e.g. Guaranty, Subordination Agreement, Security,
Agreement, etc.] collectively referred to as ("Agreement"), as yet unexecuted,
in favor of COMERICA BANK-CALIFORNIA ("Bank"), pertaining to the existing and/or
future indebtedness of the Borrower to the Bank; and
Whereas, in order to induce the Bank to extend credit or other financial
accommodations to the Borrower, the Board of Directors deems it advisable,
desirable, and in the best interests of this Corporation and its shareholders
that this Corporation enter into the Agreement;
Be It Resolved, That:
1. This Corporation approves, adopts, and enters into the Agreement.
2. The Chief Operating Officer, Vice President, Finance (or any one of them) of
this Corporation be, and they are, and each is, authorized, empowered and
directed to execute the Agreement, for and on behalf of this Corporation and in
its name, with such changes or additions to it as any such officer may, in that
officer's sole and absolute discretion, approve, and to deliver the same to
Bank.
3. The above-named officers be, and they are, and each is, authorized, empowered
and directed for and on behalf of this Corporation and in its name, to do all
acts and things, to give security for the liabilities of the Corporation as the
Bank shall request, and to sign, seal, execute, acknowledge, file, record and/or
deliver all certificates, financing statements and other instruments, papers and
documents from time to time necessary, desirable or appropriate to be done,
signed, sealed, executed, acknowledged, filed, recorded and/or delivered in
order to effectuate the purposes of the Agreement and of these Resolutions.
4. Any and all agreements, instruments and documents previously executed, and
acts and things previously done, to carry out the purposes of these Resolutions
are ratified, confirmed and approved as the act or acts of this Corporation.
5. These Resolutions shall continue in force, and the Bank may consider the
holders of said offices and their signatures to be and continue to be as set
forth in a certified copy of these Resolutions delivered to the Bank, until
notice to the contrary in writing is duly served on the Bank (such notice to
have no effect on any action previously taken by the Bank in reliance on these
Resolutions).
I further certify that the foregoing Resolutions are in full force and effect as
of the date of this Certificate; that such Resolutions have been properly noted
in the corporate books and records and have not been rescinded, annulled,
revoked or modified; that neither the foregoing Resolutions nor any actions to
be taken pursuant to them are or will be in violation of any provision of the
articles of incorporation or bylaws of the Corporation or of any agreement, or
other instrument to which the Corporation is a party or by which it is bound;
and that neither the articles of incorporation nor bylaws of the Corporation nor
any agreement or other instrument to which the Corporation is a party or by
which it is bound require the vote or consent of shareholders of the Corporation
to authorize any act, matter or thing described in the foregoing Resolutions.
I further certify that the following named persons have been duly elected to the
offices set opposite their respective names, that they continue to hold these
offices at the present time, and that the signatures which appear below are the
genuine, original signatures of each respectively:
(PLEASE SUPPLY GENUINE SIGNATURES BELOW)
NAME(Type or Print) TITLE
Thomas W. Steipp Chief Operating Officer /s/ Thomas W. Steipp
- ---------------------- --------------------------- ----------------------
Mary A. Rorabaugh Vice President, Finance /s/ Mary A. Rorabaugh
- ---------------------- --------------------------- ----------------------
In Witness whereof, I have affixed my name as Secretary and have caused the
corporate seal of said Corporation to be affixed this 29 day of June, 1998.
/s/ Mary A. Rorabaugh
----------------------------------
SECRETARY
- --------------------------------------------------------------------------------
The Above Statements are Correct._______________________________________________
SIGNATURE OF OFFICER OR DIRECTOR OR, IF
NONE, A SHAREHOLDER, OTHER THAN
SECRETARY, WHEN SECRETARY IS AUTHORIZED
TO SIGN ALONE
Failure to complete the above when the Secretary is authorized to sign alone
shall constitute a certification by the Secretary that the Secretary is the sole
Shareholder, Director and Officer of the Corporation.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.19
[LETTERHEAD OF SYMMETRICOM APPEARS HERE]
February 19, 1998
Mr. Thomas W. Steipp
6220 Costa Lake Point
Flowery Branch, GA 30542
Dear Tom,
I am pleased to confirm SymmetriCom, Inc.'s offer of employment according to the
terms we discussed on the telephone last week.
Your starting position will be President and Chief Operating Officer of Telecom
Solutions, a division of SymmetriCom, Inc. reporting to me. Subject to approval
by the Board of Directors, you will become President and Chief Executive Officer
of SymmetriCom, Inc. in July, 1998.
Your starting base salary will be $4,807.69 per week ($250,000 on an annualized
basis). We will review your compensation once each year, at the first regularly
scheduled meeting of the Company's Board of Directors. This meeting normally
occurs in late July or early August.
In addition to your base salary, you will participate in the Company's
Management Incentive Plan, the terms of which are determined each fiscal year by
the Board of Directors.
For Fiscal 1999, beginning July 1, 1998, and ending June 30, 1999, you will have
the opportunity to earn up to 130% of your base salary. We will guarantee an
incentive payment of $162,500 for fiscal 1999, which is 50% of your maximum. The
balance of your incentive for fiscal 1999, will be funded from profit on a
formula to be determined by the Company's Board of Directors at its first
regularly scheduled meeting in fiscal 1999.
Since you will be involved in making decisions which will have a considerable
effect on the productivity and profitability of the Company, we are pleased to
recommend an option of 250,000 shares of SymmetriCom, Inc. stock to you. Upon
becoming an employee and subject to approval by the Board of Directors, you will
receive this option under the terms and conditions of the Company's Stock Option
Plans; at the fair market value on the day of the grant. This grant will consist
of Incentive Stock Options (ISO's) to the extent permitted by law. The balance
will be Non-Qualified Options (NSO's). The options vest 25% after one year, 50%
after two years, and 100% after three years. The term of the options is ten
years. A description of the SymmetriCom, Inc. Stock Option Plan is enclosed,
along with a sample Stock Option Agreement.
<PAGE>
Page 2
February 19, 1998
To assist you and your family in relocating to the bay area, we will:
1. Loan you $400,000 with an interest rate of 6.0%. We will forgive this loan,
and the interest due in four equal installments. The first installment will
be forgiven on June 30, 1998, with remaining installments to be forgiven on
June 30, 1999, 2000 and 2001. You are responsible for taxes owed due to
loan forgiveness. Please see the termination provision listed below.
2. Loan you an additional $500,000, interest free. This loan is intended to
qualify as a relocation loan pursuant to Section 7872 of the Internal
Revenue Code and applicable regulations and must be repaid in ten years. We
may require a security interest in some of your assets, including the home
you purchase in California. Please see termination provision listed below.
If you are no longer an employee of SymmetriCom, Inc. this loan must become
interest bearing.
3. We will pay closing costs on the home you purchase in California, but loan
points are not included.
4. We will pay closing costs on the house you sell in Atlanta, but not
including real estate commission.
5. We will pay for an apartment for you in California for up to six months
while you are finding a home in California and selling your home in
Atlanta. In addition, we will pay for you to travel to Atlanta up to twice
each month during the relocation period or for your wife to travel to
California. We will pay for a rental car in California during the
relocation period.
6. We will pay reasonable costs for moving your household goods to California.
We understand you will move your household goods to California in two
phases.
7. We will pay airfare for you and your family to relocate to California. If
you choose to drive, we will reimburse you for mileage at the allowable
limit set by the Internal Revenue Service for up to two vehicles.
8. If any of the relocation costs outlined in paragraphs 3, 4, 5, 6 and 7
result in taxable income reported on your W2, that amount will be grossed
up for federal income taxes and any state and local income taxes at the
then current supplementary wage withholding rates. Gross up will not
include amounts for non-income taxes such as FICA, Medicare or disability.
<PAGE>
Page 3
February 19, 1998
You will participate in the Company's Executive Medical Plan. A description is
enclosed.
You will accrue vacation at the rate of four weeks per year.
We will pay for a car allowance of $917.00 per month (which is $11,000
annualized). The enclosed program document covers details. Please read, sign and
return this with your acceptance.
In the unlikely event we terminate your employment, other than for cause
(defined as commission of a felony, a breach of fiduciary duty, or willful
failure to follow a directive of the Company or the Board of Directors), we will
continue your base salary for up to twelve months or until you accept other
employment. Medical benefits and car allowance remain in effect during the
continuation period. In addition, we will continue to honor the loan agreements
described above. If you resign, or are terminated for cause, any loan balance
becomes immediately due and payable. Stock option vesting stops according to the
Stock Option Plan and the Option Agreement if your employment by SymmetriCom,
Inc. ceases.
A description of benefits is enclosed, in addition to agreements covering
Invention Assignment and Secrecy and Insider Trading. Please sign and return
these with your acceptance.
This offer is valid until February 27, 1998 and is conditional on proof of
eligibility to legally work in the United States under the Immigration Reform
and Control Act of 1986 ("IRCA"). Please refer to the enclosed document titled
I-9 Explanation, which explains IRCA and the documents you will need to bring
with you when you report to work.
It is understood that your employment with SymmetriCom, Inc. is voluntarily
entered into and is for no specific term. As a result, you are free to resign at
any time, for any reason or for no reason. Similarly, the Company is free to
conclude its at will employment with you at any time, with or without cause.
Conditions outlined above apply to any termination.
Tom, I look forward to working with you. I believe we have a very exciting
opportunity, although also very challenging. I think your skills and capability
can make a big difference to SymmetriCom, Inc. and I think we can offer you
considerable personal growth.
With regards,
SymmetriCom, Inc.
/s/ WILLIAM D. RASDAL
_____________________________
William D. Rasdal
Chairman of the Board and CEO
WDR/jw
<PAGE>
OFFER AGREED TO AND ACCEPTED
I understand that this agreement sets forth our entire agreement respecting the
terms of my employment with SymmetriCom, Inc. and supersedes any prior
representation or agreements, whether written or oral. I further understand
that this agreement may not be modified, except in writing signed by the Chief
Executive Officer of SymmetriCom, Inc. and me, or approved by the Board of
Directors in case I am Chief Executive Officer.
By: /s/ THOMAS W. STEIPP
_____________________________________________________________
Start Date: 15 MAR 98
_____________________________________________________________
Attachments: Employment Application (to be completed and returned)
Equal Employment Opportunity Questionnaire
I-9 Immigration and Reform Act of 1986
Insider Trading Agreement (signature required)
Invention Assignment and Secrecy (signature required)
Description of Benefits
Automobile Allowance Plan (signature required)
Executive Medical Plan
1990 Employee Stock Plan
1990 Stock Option Agreement (example)
<PAGE>
EXHIBIT 10.22
PROMISSORY NOTE SECURED BY DEED OF TRUST
----------------------------------------
$500,000 San Jose, California
March 24, 1998
FOR VALUE RECEIVED, the undersigned, Thomas W. Steipp ("Employee") and
Debra L. Steipp, husband and wife ("Borrowers"), promise to pay to Symmetricom,
Inc., a California corporation (the "Company"), or order, the principal amount
of Five Hundred Thousand Dollars ($500,000). The outstanding principal amount
shall not bear interest except as otherwise provided below with respect to a
default.
The outstanding principal amount shall be due and payable to the holder
hereof at 2300 Orchard Parkway, San Jose, California 95131, or such other place
as the holder hereof may designate, upon the earlier of the following dates
(collectively, "Maturity Events"):
(i) Five (5) days following the date that Employee resigns from the
Company.
(ii) Five (5) days following the date that Employee's employment with the
Company is terminated for cause. The term "termination for cause" includes,
without limitation, dishonesty, commission of a felony, a breach of Employee's
fiduciary duty or willful failure to follow a directive of the Company or the
Board of Directors of the Company.
(iii) Three hundred sixty (360) days following the date that Employee's
employment with the Company is terminated without cause.
(iv) The date of any sale, conveyance, assignment, alienation or any other
form of transfer, whether voluntary or involuntary, of that certain real
property commonly known as 15560 Shannon Road, Los Gatos, California (the
"Property"), or any part thereof or interest therein; except that the following
transfers of the Property shall not be deemed to be a Maturity Event:
a) A transfer upon the death of Employee to Employee's surviving
spouse (provided the surviving spouse is an obligor hereunder) or to Employee
upon the death of Employee's surviving spouse;
b) A transfer by an obligor hereof whereby such obligor's spouse
becomes a co-owner of the Property;
c) A transfer resulting from a decree of dissolution of the marriage
or legal separation of Employee and Debra L. Steipp or from a property
settlement agreement incidental to such a decree which requires the obligor
spouse to assume responsibility for the obligations under this Note and the Deed
of Trust (hereinafter defined) and pursuant to which Employee or Debra L. Steipp
(whoever is the obligor) becomes the sole owner of the Property; or
<PAGE>
d) A transfer by one or both obligors under the Note into an inter
vivos trust in which one or both obligors are beneficiaries.
(v) March 25, 2008.
In the event that any of the following occurs, then unless otherwise
prohibited by law, the holder hereof shall have the option, without demand or
notice, to declare the entire outstanding principal balance of this Note,
together with all accrued and unpaid interest thereon to be immediately due and
payable: (i) Borrowers default in the payment of principal or interest when due
pursuant to the terms hereof; (ii) Borrowers default in their performance of any
obligation contained in the deed of trust encumbering the Property and securing
this Note (the "Deed of Trust") or any other deed of trust, security agreement
or other agreement (including any amendment, modification or extension thereof)
which may hereafter be executed by Borrowers for the purpose of securing this
Note; (iii) any representation or warranty contained in this Note, the Deed of
Trust, or any other agreement or instrument executed in connection with the loan
proves to have been false or misleading in any material respect; (iv) Borrowers
default in their obligation to pay any indebtedness or to perform any other
obligation which is secured by a deed of trust or other lien on the Property or
default under any deed of trust securing such indebtedness; or (v) Borrowers
default in their obligation to pay any indebtedness evidenced by any promissory
note executed by Borrowers and payable to the holder hereof or there occurs any
other default under any deed of trust, mortgage or other document securing
repayment of such indebtedness.
The principal amount evidenced by this Note shall be used by Borrowers to
purchase the Property which shall become the primary residence of Borrowers.
This Note shall be secured by a deed of trust given by Borrowers to the Company
(the "Deed of Trust"). The Deed of Trust shall be a first-priority deed of
trust.
In addition to causing the execution and delivery of the Deed of Trust,
Borrowers shall take any and all further actions that may from time to time be
required to ensure that the Deed of Trust creates a valid first-priority lien on
the Property in favor of the Company, which shall secure this Note. Borrowers
shall furnish evidence reasonably satisfactory to the Company that as of the
date of the close of escrow for the Property: (i) Borrowers shall have good and
marketable title to the Property; (ii) the consent of no other person or entity
shall be required to grant a security interest in the Property to the Company;
and (iii) there shall be no deed of trust, mortgage or other encumbrance against
the Property or other title defect unless approved by the Company, which
approval may be withheld in the Company's sole discretion. If it should
hereafter be determined that there are defects against title or matters which
could result in defects against title to the Property or that the consent of
another person or entity is required to grant to, and perfect in, the Company a
valid first-priority lien on the Property, Borrowers shall, promptly on demand
by the Company, take all actions necessary to remove such defects and to obtain
such consent and grant (or cause to be granted) and perfect such lien on the
Property. Failure of Borrowers to comply with the provisions of this paragraph
shall be deemed a default under this Note and the Deed of Trust.
2
<PAGE>
In the event any amount owed by Borrowers pursuant to this Note is not paid
when due, such unpaid amount shall bear interest from the due date until paid at
a rate equal to the lower of: (i) ten percent (10%) per annum; or (ii) the
maximum rate permitted by law. After such due date, all payments shall be
credited first to accrued interest and then to principal.
If an action is instituted for collection of this Note, the Borrowers agree
to pay court costs and reasonable attorneys' fees incurred by the holder
thereof.
This Note may be amended or modified, and provisions hereof may be waived,
only by the written agreement of Borrowers and the holder hereof. No delay or
failure by the holder hereof in exercising any right, power or remedy hereunder
shall operate as a waiver of such right, power or remedy, and a waiver of any
right, power or remedy on any one occasion shall not operate as a bar or waiver
of any such right, power or remedy on any other occasion. Without limiting the
generality of the foregoing, the delay or failure by the holder hereof for any
period of time to enforce collection of any amounts due hereunder shall not be
deemed to be a waiver of any rights of the holder hereof under contract or under
law. The rights of the Company under this Note are in addition to any other
rights and remedies which the holder hereof may have.
This Note shall be governed by and construed in accordance with the laws of
the State of California, without regard to the principles of conflicts of laws
of that State.
This Note may be prepaid at any time without penalty.
THIS NOTE, THE DEED OF TRUST AND ALL RELATED DOCUMENTATION ARE EXECUTED
VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE ON THE PART OR BEHALF OF
THE PARTIES HERETO, WITH THE FULL INTENT OF CREATING THE OBLIGATIONS AND
SECURITY INTERESTS DESCRIBED HEREIN AND THEREIN. THE PARTIES ACKNOWLEDGE THAT:
(a) THEY HAVE READ SUCH DOCUMENTATION; (b) THEY HAVE BEEN REPRESENTED IN THE
PREPARATION, NEGOTIATION AND EXECUTION OF SUCH DOCUMENTATION BY LEGAL COUNSEL OF
THEIR OWN CHOICE OR THAT THEY HAVE VOLUNTARILY DECLINED TO SEEK SUCH COUNSEL;
(c) THEY UNDERSTAND THE TERMS AND CONSEQUENCES OF THIS NOTE, THE DEED OF TRUST
AND ALL RELATED DOCUMENTATION AND THE OBLIGATIONS THEY CREATE; AND (d) THEY ARE
FULLY AWARE OF THE LEGAL AND BINDING EFFECT OF THIS NOTE, THE DEED OF TRUST AND
THE OTHER DOCUMENTS CONTEMPLATED BY THIS AGREEMENT. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, BORROWERS HEREBY ACKNOWLEDGE THAT THE COMPANY HAS
MADE NO REPRESENTATION OR WARRANTY TO BORROWERS CONCERNING THE INCOME TAX
CONSEQUENCES OF THE LOAN TO BORROWERS, AND BORROWERS SHALL BE SOLELY RESPONSIBLE
FOR ASCERTAINING AND BEARING SUCH TAX CONSEQUENCES. BORROWERS FURTHER
ACKNOWLEDGE THAT (i) THE COMPANY MAY, IN ITS SOLE DISCRETION, DETERMINE THAT IT
IS REQUIRED UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"),
AND THE RULES AND REGULATIONS PROMULGATED BY THE INTERNAL REVENUE SERVICE
("IRS")
3
<PAGE>
THEREUNDER, TO IMPUTE INTEREST ON THE PRINCIPAL OF THIS NOTE AT THE RATE
SET BY THE IRS, (ii) THE AMOUNT OF ANY SUCH IMPUTED INTEREST WOULD BE DEEMED TO
BE COMPENSATION INCOME TO EMPLOYEE WHICH WOULD BE SUBJECT TO TAX WITHHOLDING,
AND (iii) IF SO DETERMINED BY THE COMPANY, THE COMPANY WOULD REPORT AND WITHHOLD
THE REQUIRED AMOUNT OUT OF THE CURRENT COMPENSATION PAID TO EMPLOYEE IN
ACCORDANCE WITH THE CODE AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
BORROWERS:
/s/ Thomas W. Steipp
-------------------------------------
Thomas W. Steipp
/s/ Debra L. Steipp
by Thomas W. Steipp Attorney-in-Fact
-------------------------------------
Debra L. Steipp
4
<PAGE>
PROMISSORY NOTE SECURED BY DEED OF TRUST
----------------------------------------
$400,000 San Jose, California
24 March, 1998
FOR VALUE RECEIVED, the undersigned, Thomas W. Steipp ("Employee") and
Debra L. Steipp, husband and wife ("Borrowers"), promise to pay to Symmetricom,
Inc., a California corporation (the "Company"), or order, the principal amount
of Four Hundred Thousand Dollars ($400,000) together with interest on the
outstanding principal balance at the rate of six percent (6%) per annum.
The outstanding principal amount and all accrued and unpaid interest on the
outstanding principal amount, to the extent not forgiven pursuant to the terms
hereof, shall be due and payable to the holder hereof at 2300 Orchard Parkway,
San Jose, California 95131, or such other place as the holder hereof may
designate, upon the earlier of the following dates (collectively, "Maturity
Events"):
(i) Five (5) days following the date that Employee resigns from the
Company.
(ii) Five (5) days following the date that Employee's employment with the
Company is terminated for cause. The term "termination for cause" includes,
without limitation, dishonesty, commission of a felony, a breach of Employee's
fiduciary duty or willful failure to follow a directive of the Company or the
Board of Directors of the Company.
(iii) Three hundred sixty (360) days following the date that Employee's
employment with the Company is terminated without cause.
(iv) The date of any sale, conveyance, assignment, alienation or any other
form of transfer, whether voluntary or involuntary, of that certain real
property commonly known as 15560 Shannon Road, Los Gatos, California (the
"Property"), or any part thereof or interest therein; except that the following
transfers of the Property shall not be deemed to be a Maturity Event:
a) A transfer upon the death of Employee to Employee's surviving
spouse (provided the surviving spouse is an obligor hereunder) or to Employee
upon the death of Employee's surviving spouse;
b) A transfer by an obligor hereof whereby such obligor's spouse
becomes a co-owner of the Property;
c) A transfer resulting from a decree of dissolution of the marriage
or legal separation of Employee and Debra L. Steipp or from a property
settlement agreement incidental to such a decree which requires the obligor
spouse to assume responsibility for the obligations under
<PAGE>
this Note and the Deed of Trust (hereinafter defined) and pursuant to which
Employee or Debra L. Steipp (whoever is the obligor) becomes the sole owner of
the Property; or
d) A transfer by one or both obligors under the Note into an inter
vivos trust in which one or both obligors are beneficiaries.
(v) March 25, 2008.
Notwithstanding the foregoing to the contrary, on each of June 25, 1998,
June 25, 1999, June 25, 2000 and June 25, 2001 (each, a "Forgiveness Date"), so
long as there is then no uncured default hereunder or a default under the Deed
of Trust (hereinafter defined), that certain Promissory Note between Borrower
and the Company of even date herewith with an original principal amount of
$500,000 (the "Other Note"), or the deed of trust securing the Other Note,
Employee is still employed by the Company, and no Maturity Event shall have
occurred, the principal amount hereof shall be automatically reducedby the sum
of One Hundred Thousand Dollars ($100,000) and all accrued and unpaid interest
on the outstanding principal amount shall be automatically foregiven, without
fee or penalty, and on each such date Borrowers shall be released and relieved
from the obligation to repay such amounts to the holder hereof.
Any portion of the outstanding principal amount and all accrued and unpaid
interest which is not forgiven pursuant to this paragraph shall be due and
payable as otherwise set forth in this Note.
In the event that any of the following occurs, then unless otherwise
prohibited by law, the holder hereof shall have the option, without demand or
notice, to declare the entire outstanding principal balance of this Note,
together with all accrued and unpaid interest thereon to be immediately due and
payable: (i) Borrowers default in the payment of principal or interest when due
pursuant to the terms hereof; (ii) Borrowers default in their performance of any
obligation contained in the deed of trust encumbering the Property and securing
this Note (the "Deed of Trust") or any other deed of trust, security agreement
or other agreement (including any amendment, modification or extension thereof)
which may hereafter be executed by Borrowers for the purpose of securing this
Note; (iii) any representation or warranty contained in this Note, the Deed of
Trust, or any other agreement or instrument executed in connection with the loan
proves to have been false or misleading in any material respect; (iv) Borrowers
default in their obligation to pay any indebtedness or to perform any other
obligation which is secured by a deed of trust or other lien on the Property or
default under any deed of trust securing such indebtedness; or (v) Borrowers
default in their obligation to pay any indebtedness evidenced by any promissory
note executed by Borrowers and payable to the holder hereof or there occurs any
other default under any deed of trust, mortgage or other document securing
repayment of such indebtedness.
The principal amount evidenced by this Note shall be used by Borrowers to
purchase the Property which shall become the primary residence of Borrowers.
This Note shall be secured by a deed of trust given by Borrowers to the Company
(the "Deed of Trust"). The Deed of Trust shall be a second-priority deed of
trust, subject only to that certain Deed of Trust made by Borrowers to the
Company securing that certain Promissory Note Secured by Deed of Trust made by
Borrowers in
2
<PAGE>
favor of the Company with an original principal amount of Five Hundred Thousand
Dollars ($500,000).
In addition to causing the execution and delivery of the Deed of Trust,
Borrowers shall take any and all further actions that may from time to time be
required to ensure that the Deed of Trust creates a valid second-priority lien
on the Property in favor of the Company, which shall secure this Note.
Borrowers shall furnish evidence reasonably satisfactory to the Company that as
of the date of the close of escrow for the Property: (i) Borrowers shall have
good and marketable title to the Property; (ii) the consent of no other person
or entity shall be required to grant a security interest in the Property to the
Company; and (iii) there shall be no deed of trust, mortgage or other
encumbrance against the Property or other title defect unless approved by the
Company, which approval may be withheld in the Company's sole discretion. If it
should hereafter be determined that there are defects against title or matters
which could result in defects against title to the Property or that the consent
of another person or entity is required to grant to, and perfect in, the Company
a valid second-priority lien on the Property, Borrowers shall, promptly on
demand by the Company, take all actions necessary to remove such defects and to
obtain such consent and grant (or cause to be granted) and perfect such lien on
the Property. Failure of Borrowers to comply with the provisions of this
paragraph shall be deemed a default under this Note and the Deed of Trust.
In the event any amount owed by Borrowers pursuant to this Note is not paid
when due, such unpaid amount shall bear interest from the due date until paid at
a rate equal to the lower of: (i) ten percent (10%) per annum; or (ii) the
maximum rate permitted by law. After such due date, all payments shall be
credited first to accrued interest and then to principal.
If an action is instituted for collection of this Note, the Borrowers agree
to pay court costs and reasonable attorneys' fees incurred by the holder
thereof.
This Note may be amended or modified, and provisions hereof may be waived,
only by the written agreement of Borrowers and the holder hereof. No delay or
failure by the holder hereof in exercising any right, power or remedy hereunder
shall operate as a waiver of such right, power or remedy, and a waiver of any
right, power or remedy on any one occasion shall not operate as a bar or waiver
of any such right, power or remedy on any other occasion. Without limiting the
generality of the foregoing, the delay or failure by the holder hereof for any
period of time to enforce collection of any amounts due hereunder shall not be
deemed to be a waiver of any rights of the holder hereof under contract or under
law. The rights of the Company under this Note are in addition to any other
rights and remedies which the holder hereof may have.
This Note shall be governed by and construed in accordance with the laws of
the State of California, without regard to the principles of conflicts of laws
of that State.
This Note may be prepaid at any time without penalty.
THIS NOTE, THE DEED OF TRUST AND ALL RELATED DOCUMENTATION ARE EXECUTED
VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE ON
3
<PAGE>
THE PART OR BEHALF OF THE PARTIES HERETO, WITH THE FULL INTENT OF CREATING THE
OBLIGATIONS AND SECURITY INTERESTS DESCRIBED HEREIN AND THEREIN. THE PARTIES
ACKNOWLEDGE THAT: (a) THEY HAVE READ SUCH DOCUMENTATION; (b) THEY HAVE BEEN
REPRESENTED IN THE PREPARATION, NEGOTIATION AND EXECUTION OF SUCH DOCUMENTATION
BY LEGAL COUNSEL OF THEIR OWN CHOICE OR THAT THEY HAVE VOLUNTARILY DECLINED TO
SEEK SUCH COUNSEL; (c) THEY UNDERSTAND THE TERMS AND CONSEQUENCES OF THIS NOTE,
THE DEED OF TRUST AND ALL RELATED DOCUMENTATION AND THE OBLIGATIONS THEY CREATE;
AND (d) THEY ARE FULLY AWARE OF THE LEGAL AND BINDING EFFECT OF THIS NOTE, THE
DEED OF TRUST AND THE OTHER DOCUMENTS CONTEMPLATED BY THIS AGREEMENT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, BORROWERS HEREBY ACKNOWLEDGE THAT THE
COMPANY HAS MADE NO REPRESENTATION OR WARRANTY TO BORROWERS CONCERNING THE
INCOME TAX CONSEQUENCES OF THE LOAN TO BORROWERS, AND BORROWERS SHALL BE SOLELY
RESPONSIBLE FOR ASCERTAINING AND BEARING SUCH TAX CONSEQUENCES. BORROWERS
FURTHER ACKNOWLEDGE THAT (i) THE COMPANY MAY, IN ITS SOLE DISCRETION, DETERMINE
THAT IT IS REQUIRED UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), AND THE RULES AND REGULATIONS PROMULGATED BY THE INTERNAL REVENUE
SERVICE ("IRS") THEREUNDER, TO IMPUTE INTEREST ON THE PRINCIPAL OF THIS NOTE AT
THE RATE SET BY THE IRS, (ii) THE AMOUNT OF ANY SUCH IMPUTED INTEREST WOULD BE
DEEMED TO BE COMPENSATION INCOME TO EMPLOYEE WHICH WOULD BE SUBJECT TO TAX
WITHHOLDING, AND (iii) IF SO DETERMINED BY THE COMPANY, THE COMPANY WOULD REPORT
AND WITHHOLD THE REQUIRED AMOUNT OUT OF THE CURRENT COMPENSATION PAID TO
EMPLOYEE IN ACCORDANCE WITH THE CODE AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
BORROWERS:
/s/ Thomas W. Steipp
-------------------------------------
Thomas W. Steipp
/s/ Debra L. Steipp
by Thomas W. Steipp Attorney-in-Fact
--------------------------------------
Debra L. Steipp
4
<PAGE>
EXHIBIT 10.23
INTERCOMPANY
REVOLVING LOAN AGREEMENT
------------------------
This INTERCOMPANY REVOLVING LOAN AGREEMENT ("Loan Agreement"), dated as of
--------------------
August 15, 1998, is entered into by and between:
(1) SymmetriCom, Inc. ("Lender"); and
(2) Linfinity Microelectronics Inc. ("Borrower").
--------
In consideration of the covenants, conditions and agreements set forth herein,
the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Advance" shall have the meaning given in Section 2.1 of the Loan
-------
Agreement.
1.2 "Business Day" shall mean any day on which commercial banks are not
------------
authorized or required to close in San Jose, -California.
1.3 "Commitment" shall mean an amount equal to Five Million Dollars
----------
($5,000,000).
1.4 "Default" shall mean any event or circumstance not yet constituting an
-------
Event of Default but which, with the giving of any notice or the lapse of any
period of time or both, would become an Event of Default.
1.5 "Event of Default" shall have the meaning given to that term in
----------------
Section 5.1.
1.6 "GAAP" shall mean generally accepted accounting principles and
----
practices as promulgated by the Financial Accounting Standards Board and as in
effect in the United States of America from time to time, consistently applied.
Unless otherwise indicated in this Loan Agreement, all accounting terms used in
this Loan Agreement shall be construed, and all accounting and financial
computations hereunder or thereunder shall be computed, in accordance with GAAP.
1.7 "Governmental Authority" shall mean any domestic or foreign national,
----------------------
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
1.8 "Indebtedness" of any Person shall mean and include the aggregate
------------
amount of, without duplication (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (c) all obligations of such Person to pay the
deferred purchase price of property or services (other than accounts payable
incurred in the ordinary course of business determined in accordance with
generally accepted accounting principles), (d) all obligations under capital
leases of such Person, (e) all obligations or liabilities of others secured by a
lien on any asset of such Person, whether or not such obligation or liability is
assumed, (f) all guaranties of such Person of the obligations of another
<PAGE>
Person; (g) all obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even if the rights and remedies of the seller or lender under such agreement
upon an event of default are limited to repossession or sale of such property),
(h) net exposure under any interest rate swap, currency swap, forward, cap,
floor or other similar contract that is not entered to in connection with a bona
fide hedging operation that provides offsetting benefits to such Person, which
agreements shall be marked to market on a current basis, (i) all reimbursement
and other payment obligations, contingent or otherwise, in respect of letters of
credit.
1.9 "Prime Rate" shall mean the Prime Rate as quoted in the "Money Rates"
----------
column of The Wall Street Journal on the first Business Day of each calendar
month. All computations of such interest shall be based on a year of 360 days
and actual days elapsed. Such Prime Rate shall remain in effect until it is
adjusted on the first Business Day of the following calendar month.
1.10 "Loan Agreement" shall have the meaning set forth in the opening
--------------
paragraph of this document.
1.11 "Loan Documents" shall mean and include this Loan Agreement and any
--------------
other documents, instruments and agreements delivered to Lender in connection
with this Loan Agreement.
1.12 "Obligations" shall mean and include all Advances, debts, liabilities,
-----------
and financial obligations, howsoever arising, owed by Borrower to Lender of
every kind and description (whether or not evidenced by any note or instrument),
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising pursuant to the terms of any of the Loan Documents,
including, without limitation, all interest, fees, charges, expenses, reasonable
attorneys' fees (and expenses) and accountants' fees (and expenses) chargeable
to Borrower or payable by Borrower hereunder or thereunder.
1.13 "Person" shall mean and include an individual, a partnership, a
------
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a Governmental Authority.
1.14 "Termination Date" shall mean the first anniversary of the date of
----------------
this Loan Agreement.
ARTICLE 2
ADVANCES
2.1 Terms. Subject to the terms and conditions of this Loan Agreement,
-----
Lender agrees to advance to Borrower from time to dine and until the Termination
Date, such sums as Borrower may request (the "Advances") but which shall not
exceed, in the aggregate principal amount at any one time outstanding, the
Commitment. Advances shall be made in lawful currency of the United States of
America and shall be made in same day or immediately available funds. Each
advance shall be in an amount equal to at least $500,000 or any integral
multiple of $100,000 in excess thereof and shall be made three Business Days
after written request (or telephonic request confirmed in writing). Subject to
the terms and conditions hereof, Borrower may borrow pursuant to this Section
2.1, prepay the Advances and reborrow pursuant to this Section 2. 1.
2.2 Payment of Principal upon Maturity. If not paid earlier, the
----------------------------------
outstanding principal balance of all Advances shall be due and payable to the
Lender on the Termination Date.
-2-
<PAGE>
2.3 Interest Payments. Interest on the outstanding principal balance under
-----------------
the Advances shall accrue at the Prime Rate in effect. All computations of such
interest shall be based on a year of 360 days and actual days elapsed for each
day on which any principal balance is outstanding under the terms of the Loan
Agreement.
2.4 Interest Payments. All accrued and unpaid interest shall be due on the
-----------------
first Business Day of each month. If not paid earlier, all outstanding accrued
interest hereunder shall be due and payable to the Lender on the Termination
Date.
2.5 Other Payment Terms.
-------------------
(a) Place and Manner. Borrower shall make all payments due to Lender
hereunder in lawful money of the United States and in same day or immediately
available funds.
(b) Date. Whenever any payment due hereunder shall fall due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.
(c) Default Rate. From and after the occurrence of an Event of Default
and during the continuance thereof, Borrower shall pay interest on all
Obligations not paid when due, from the date due thereof until such amounts are
paid in full at a per annum. rate equal to the two (2) percentage points in
excess of the rate otherwise applicable to Advances. All computations of such
interest shall be based on a year of 360 days and actual days elapsed.
2.6 Loan Account. The Obligations of Borrower to Lender hereunder shall be
------------
evidenced by one or more accounts or records maintained by Lender in the
ordinary course of business. The accounts or records maintained by Lender shall
be presumptive evidence of the amount of such Obligations, and the interest and
principal payments thereon. Any failure so to record or any error in so doing
shall not, however, limit, increase or otherwise affect the obligation of
Borrower hereunder to pay any amount owning hereunder. Upon Lender's request,
Borrower shall execute a promissory note in favor of Lender.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BORROWER
To induce Lender to enter into this Loan Agreement and to make Advances
hereunder, Borrower represents and warrants to Lender as follows:
3.1 Due Incorporation, Qualification, etc. Borrower is a corporation duly
-------------------------------------
organized, validly existing and in good standing under the laws of its state of
incorporation.
3.2 Authority. The execution, delivery and performance by Borrower of each
---------
Loan Document to be executed by Borrower and the consummation of the
transactions contemplated thereby (i) are within the power of Borrower and (ii)
have been duly authorized by all necessary actions on the part of Borrower.
-3-
<PAGE>
3.3 Enforceability. Each Loan Document executed, or to be executed, by
--------------
Borrower has been, or will be, duly executed and delivered by Borrower and
constitutes, or will constitute, a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights generally and general
principles of equity.
ARTICLE 4
CONDITIONS TO MAKING ADVANCES
Lender's obligation to make the initial Advance and each subsequent Advance
is subject to the prior satisfaction or waiver of all the conditions set forth
in this Article 4.
4.1 Principal Loan Documents. Borrower shall have duly executed and
------------------------
delivered to Lender: (a) the Loan Agreement; and (b) such other documents,
instruments and agreements as Lender may reasonably request.
4.2 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by Borrower in Article 3 hereof shall be true and correct as of
the date on which each Advance is made and after giving effect to the making of
the Advance. The submission by Borrower to Lender of a request for an Advance
shall be deemed to be a certification by the Borrower that as of the date of
borrowing, the representations and warranties made by Borrower in Article 3
hereof are true and correct.
4.3 No Event of Default or Default. No Event of Default or Default has
------------------------------
occurred or is continuing.
4.4 Total Outstanding Advances. The total aggregate principal amount of
--------------------------
outstanding Advances does not exceed the Commitment.
ARTICLE 5
EVENTS OF DEFAULT
5.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an "Event of Default" under this Loan Agreement and the Note:
(a) Failure to Pay. Borrower shall fail to pay (i) the principal
amount of all outstanding Advances on the Termination Date hereunder; (ii) any
interest, Obligation or other payment required under the terms of this Loan
Agreement or any other Loan Document on the date due and such failure shall
continue for ten (10) Business Days after Borrower's receipt of Lender's written
notice thereof to Borrower; or (iii) any Indebtedness (excluding Obligations)
owed by Borrower to Lender on the date due and such failure shall continue for
ten (10) Business Days after Borrower's receipt of Lender's written notice
thereof to Borrower.
(b) Breaches of Covenants. Borrower shall fail to observe or perform
any other covenant, obligation, condition or agreement contained in this Loan
Agreement or any other Loan Document and (i) such failure shall continue for ten
(10) Business Days, or (ii) if such failure is not curable within such ten (10)
Business Day period, but is reasonably capable of cure within thirty (30)
Business Days, either (A) such failure
-4-
<PAGE>
shall continue for thirty (30) Business Days or (B) Borrower shall not have
commenced a cure in a manner reasonably satisfactory to Lender within the
initial ten (10) Business Day period; or
(c) Representations and Warranties. Any representation, warranty,
certificate, or other statement (financial or otherwise) made or furnished by or
on behalf of Borrower to Lender in writing in connection with any of the Loan
Documents, or as an inducement to Lender to enter into this Loan Agreement,
shall be false, incorrect, incomplete or misleading in any material respect when
made or furnished; or
(d) Voluntary Bankruptcy or Insolvency Proceedings. Borrower shall (i)
apply for or consent to the appointment of a receiver, trustee, liquidation or
custodian of itself or of all or a substantial part of its property, (ii) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of its or any of its
creditors, (iv) be dissolved or liquidated in full or in part, (v) become
insolvent (as such term is defined in 11 U.S. C. (S) 10 1 (32), as amended from
time to time), (vi) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of
its property by any official in an involuntary case or other proceeding
commenced against it, or (vii) take any action for the purpose of effecting any
of the foregoing; or
(e) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for
the appointment of a receiver, trustee, liquidator or custodian of Borrower or
of all or a substantial part of the property thereof, or an involuntary case or
other proceedings seeking liquidation, reorganization or other relief with
respect to Borrower or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced and an order for
relief entered or such proceeding shall not be dismissed or discharged within
sixty (60) calendar days of commencement.
5.2 Rights of Lender upon Default.
-----------------------------
(a) Acceleration. Upon the occurrence or existence of any Event of
Default described in Sections 5. 1(d) and 5. l(e), automatically and without
notice or, at the option of Lender, upon the occurrence of any other Event of
Default, all outstanding Obligations payable by Borrower hereunder shall become
immediately due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the other Loan Documents to the contrary notwithstanding.
(b) Cumulative Rights, etc. The rights, powers and remedies of Lender
under this Loan Agreement shall be in addition to all rights, powers and
remedies given to Lender by virtue of any applicable law, rule or regulation of
any Governmental Authority, any transaction contemplated thereby or any other
agreement, all of which rights, powers, and remedies shall be cumulative and may
be exercised successively or concurrently without impairing Lender's rights
hereunder.
ARTICLE 6
MEERGER, ASSET SALE OR OTHER DISPOSITION
6.1 Rights of Lender Upon Merger, Asset Sale or Other Disposition of the
--------------------------------------------------------------------
Borrower. In the event of a merger of the Borrower with or into another
- --------
corporation, or the sale of substantially all of the assets of the Borrower, or
any other disposition of the Borrower, automatically and without notice, all
outstanding
-5-
<PAGE>
Obligations payable by Borrower hereunder shall become immediately due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived, anything contained herein or in the
other Loan Documents to the contrary notwithstanding.
ARTICLE 7
MISCELLANEOUS
7.1 Notices. Except as otherwise provided herein, all notices, requests,
-------
demands, consents, instructions or other communications to or upon Lender or
Borrower under this Agreement or the other Loan Documents shall be in writing
and telecopier, mailed or delivered to each party at its telecopier number or
address set forth below (or to such other telecopier number or address for any
party as indicated in any notice given by that party to the other party). All
such notices and communications shall be effective (a) when sent by Federal
Express or other overnight service of recognized standing, on the Business Day
following the deposit with such service; (b) when mailed by registered or
certified mail, first class postage prepaid and addressed as aforesaid through
the United States Postal Service, upon receipt; (c) when delivered by hand, upon
delivery; and (d) when telecopier, upon confirmation of receipt; provided,
---------
however, that any notice delivered to Lender under Article 2 shall not be
- -------
effective until received by Lender.
LENDER: SymmetriCom, Inc.
2300 Orchard Parkway
San Jose, CA 95131
Attention: Mary Rorabaugh
BORROWER: Linfinity Microelectronics Inc.
11861 Western Avenue
Garden Grove, CA 92841
Attention: Linda Reddick
7.2 Waivers; Amendments. Any term, covenant, agreement or condition of
-------------------
this Loan Agreement or any other Loan Document may be amended or waived if such
amendment or waiver is in writing and is signed by Borrower and Lender. No
failure or delay by lender in exercising any right hereunder shall operate as a
waiver thereof or of any other right nor shall any single or partial exercise of
any such right preclude any other further exercise thereof or of any other
right. A waiver or consent given hereunder shall be effective only if in writing
and in the specific instance and for the specific purpose for which given.
7.3 Successors and Assigns. This Loan AGREEMENT AND THE OTHER Loan
----------------------
Documents shall be binding upon and inure to the benefit of Borrower, Lender and
their respective successors and permitted assigns, except that Borrower may not
assign or transfer (and any such attempted assignment or transfer shall be void)
any of its rights or obligations under any Loan Document without the prior
written consent of Lender.
7.4 Set-off. In addition to any rights and remedies of Lender provided by
-------
law, Lender shall have the right, without prior notice to Borrower, any such
notice being expressly waived by Borrower to the extent permitted by applicable
law, upon the occurrence and during the continuance of a Default or an Event of
Default, to set-off and apply against any Indebtedness, whether matured or
unmatured, of Borrower to Lender (including, without limitation, the
Obligations), any amount owing from Lender to Borrower. The aforesaid
-6-
<PAGE>
right of set-off may be exercised by Lender against Borrower or against any
trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, receiver or execution, judgment or attachment creditor of Borrower or
against anyone else claiming through or against Borrower or such trustee in
bankruptcy, debtor-in-possession, assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off shall not have been exercised by Lender prior to
the occurrence of a Default or an Event of Default. Lender agrees promptly to
notify Borrower after any such set-off and application made by Lender, provided
--------
that the failure to give such notice shall not affect the validity of such set-
off and application.
7.5 No Third Party Rights. Nothing expressed in or to be implied from this
---------------------
Agreement or any other Loan Document is intended to give, or shall be construed
to give, any Person, other than the parties hereto and thereto and their
permitted successors and assigns, any benefit or legal or equitable right,
remedy or claim under or by virtue of this Agreement or any other Loan Document.
7.6 Partial Invalidity. If at any time any provision of this Loan
------------------
Agreement or any of the Loan Documents is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions of the Loan
Agreement or such other Loan Documents, nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction, shall
in any way be affected or impaired thereby.
7.7 Governing Law. This Loan Agreement and each of the other Loan
-------------
Documents shall be governed by and construed in accordance with the laws of the
State of California without reference to conflicts of law rules.
7.8 Construction. Each of this Loan Agreement and the other Loan Documents
------------
is the result of negotiations among, and has been reviewed by, Borrower, Lender
and their respective counsel. Accordingly, this Loan Agreement and the other
Loan Documents shall be deemed to be the product of all parties hereto, and no
ambiguity shall be construed in favor of or against Borrower or Lender.
7.9 Entire Agreement. This Loan Agreement and the other Loan Documents,
----------------
taken together, constitute and contain the entire agreement of Borrower and
Lender with respect to the subject matter hereby and supersede any and all prior
agreements, negotiations, correspondence, understandings and communications
among the parties, whether written or oral, respecting the subject matter
hereof.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of the
date first set forth above.
BORROWER:
Linfinity Microelectronics Inc.
By: /s/ James Peterson
-----------------------------------------
Name: James Peterson
Title: President & Chief Operating Officer
LENDER:
SymmetriCom, Inc.
By: /s/ Mary A. Rorabaugh
-----------------------------------------
Name: Mary Rorabaugh
Title: Vice President, Finance
-8-
<PAGE>
EXHIBIT 10.24
PROMISSORY NOTE
$150,000.00 Garden Grove, California
July 13, 1998
FOR VALUE RECEIVED, James Peterson ("Maker") promises to pay Linfinity
Microelectronics Inc., a Delaware corporation (the "Company"), or order, the
principal sum of One Hundred Fifty Thousand U.S. Dollars ($150,000.00).
Principal on this note shall be due and payable on demand.
Maker may at any time prepay, without penalty, all or any portion of the
principal owing hereunder. If Maker files a petition in bankruptcy or is the
subject of any proceeding under any bankruptcy or insolvency laws, then this
Promissory Note shall be immediately due and payable.
Neither the failure of the Company to promptly exercise any rights or
remedies under this Promissory Note or with respect hereto, nor the failure of
the Company to demand strict performance of any obligation of Maker hereunder
shall constitute a waiver of any of the Company's rights or remedies. Maker
waives presentment for payment, demand, protest and notice of protest for
nonpayment of this Promissory Note. Maker agrees to pay all costs and expenses,
including without limitation attorneys' fees, expended or incurred by the
Company in connection with the enforcement of this Promissory Note and the
collection of amounts due hereunder.
This Promissory Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of
California.
"MAKER"
/s/ James Peterson
----------------------------
James Peterson
<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 Nos. 33-
38384, 33-3456, 33-11317, 2-70291, 33-56042, 33-57163, 333-00333, 333-21815, and
333-47369 on Form S-8 of our report dated July 22, 1998 (September 3, 1998 as to
the last sentence of Note I), appearing in this Annual Report on Form 10-K of
Symmetricom, Inc. for the year ended June 30, 1998.
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 21, 1998
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