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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to__________
Commission file number 0-2287
SYMMETRICOM, INC.
(Exact name of registrant as specified in its charter)
California No. 95-1906306
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2300 Orchard Parkway, San Jose, CA 95131-1017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 943-9403
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
----
Applicable Only to Issuers Involved in Bankruptcy Proceedings
During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ______ No_____
Applicable Only to Corporate Issuers:
Indicate number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
CLASS OUTSTANDING AS OF November 1, 1999
----- ----------------------------------
Common Stock 15,151,558
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SYMMETRICOM, INC.
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 30, 1999 and June 30, 1999 3
Consolidated Statements of Operations -
Three months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows -
Three months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMMETRICOM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 50,062 $ 44,897
Short-term investments 12,256 14,300
-------- --------
Cash and investments 62,318 59,197
Accounts receivable, net 10,640 10,915
Inventories 11,087 10,805
Other current assets 3,544 3,762
-------- --------
Total current assets 87,589 84,679
Property, plant and equipment, net 20,307 20,615
Other assets, net 1,236 1,026
-------- --------
$109,132 $106,320
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,431 $ 3,564
Accrued liabilities 14,047 13,929
Current maturities of long-term obligations 618 595
-------- --------
Total current liabilities 18,096 18,088
Long-term obligations 7,978 8,069
Deferred income taxes 624 559
Shareholders' equity:
Preferred stock, no par value;
Authorized - 500 shares
Issued - none -- --
Common stock, no par value;
Authorized - 32,000 shares
Issued and outstanding - 15,148 and 14,926 shares 20,019 18,934
Unrealized gain on securities, net of deferred taxes 2,260 1,400
Retained earnings 60,155 59,270
-------- --------
Total shareholders' equity 82,434 79,604
-------- --------
$109,132 $106,320
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
------- -------
<S> <C> <C>
Net sales $19,617 $18,586
Cost of sales 10,578 9,615
------- -------
Gross profit 9,039 8,971
Operating expenses:
Research and development 3,303 3,287
Selling, general and administrative 5,057 5,108
------- -------
Operating income 679 576
Interest income 677 456
Interest expense (176) (180)
------- -------
Earnings from continuing operations before income
taxes 1,180 852
Income taxes 295 179
------- -------
Earnings from continuing operations 885 673
Loss from discontinued operations, net of tax -- (336)
------- -------
Net earnings $ 885 $ 337
======= =======
Earnings (loss) per share - basic and diluted:
Earnings from continuing operations $ .06 $ .04
Loss from discontinued operations -- (.02)
------- -------
Net earnings $ .06 $ .02
======= =======
Weighted average shares outstanding - basic 15,005 15,801
======= =======
Weighted average shares outstanding - diluted 15,412 15,827
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 885 $ 337
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loss from discontinued operations -- 336
Depreciation and amortization 1,197 1,182
Deferred income taxes 113 188
Changes in assets and liabilities:
Accounts receivable 275 625
Inventories (282) 1,172
Accounts payable (133) (74)
Accrued liabilities 118 462
Other 170 (778)
---------- -----------
Net cash provided by continuing operations 2,343 3,450
Net cash provided by discontinued operations -- 653
---------- -----------
Net cash provided by operating activities 2,343 4,103
---------- -----------
Cash flows from investing activities:
Purchases of short-term investments (10,096) (15,348)
Maturities of short-term investments 13,000 2,000
Purchases of plant and equipment, net (889) (511)
Notes receivable -- 100
Other (210) (347)
---------- -----------
Net cash provided by (used for) investing activities 1,805 (14,106)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations -- 595
Repayment of long-term obligations (68) (50)
Proceeds from issuance of common stock 1,085 402
Repurchase of common stock -- (581)
---------- -----------
Net cash provided by financing activities 1,017 366
---------- -----------
Net increase (decrease) in cash and cash equivalents 5,165 (9,637)
Cash and cash equivalents at beginning of period 44,897 31,369
---------- -----------
Cash and cash equivalents at end of period $ 50,062 $ 21,732
========== ===========
Non-cash investing and financing activities:
Unrealized gain on securities, net $ 860 $ --
Cash payments for:
Interest $ 176 $ 180
Income taxes 219 866
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation. The consolidated financial statements included herein
---------------------
have been prepared by Symmetricom, Inc. ("Symmetricom" or the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such rules and
regulations. Although the Company believes that the disclosures which are made
are adequate to make the information presented not misleading, it is suggested
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended June 30, 1999.
In the opinion of the management, these unaudited statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of the Company at September 30, 1999, the
results of operations for the three month period then ended and its cash flows
for the three month period then ended. The results of operations for the periods
presented are not necessarily indicative of those that may be expected for the
full year.
2. Acquisition. Sunsequent to the first quarter, Symmetricom acquired certain
-----------
assets of Hewlett-Packard's Communications Synchronization business for
approximately $30.0 million in cash, of which approximately $19.0 million was
paid to Hewlett-Packard at closing. The remaining $11.0 million will be paid
over the next twelve to fifteen months as additional assets, primarily
inventory, are transferred to the Company. The Communications Synchronization
business designs and manufactures network synchronization and timing equipment
for global wireline and wireless telecommunications networks. The acquisition
will be accounted for under the purchase method and goodwill of approximately
$16.0 million will be amortized over a five to ten year period.
3. Inventories. Inventories are stated at the lower of cost (first-in, first-
out) or market. Inventories consist of:
September 30, June 30,
1999 1999
---- ----
(In thousands)
--------------
Raw materials $ 3,542 $ 3,859
Work-in-process 2,787 3,173
Finished goods 4,758 3,773
------- -------
$11,087 $10,805
======= =======
4. Recent Accounting Pronouncements. 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, as amended, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. 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 position and results of operations.
5. Contingencies. In January 1994, a securities class action complaint was filed
-------------
against the Company and certain of its present and former officers or directors
in the United States District Court, Northern District of
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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 trial is scheduled to begin on July 10, 2000. 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 believes that the final
outcome of such matters will not have a material adverse effect on the Company's
financial position and results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Business Outlook and Risk Factors
The trend analyses and other non-historical information contained in this
Quarterly Report on Form 10-Q are "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and are subject to the
safe harbor provisions of those Sections. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and similar
expressions identify such forward looking statements. Such forward looking
statements include, without limitation, statements concerning the payments to
Hewlett-Packard and amortization of goodwill, the outcome of litigation,
fluctuations in operating results, customer concentration, competition and
pricing pressure, the effective tax rate, year 2000 issues, and market risk in
interest rates and foreign currency exchange rates. The Company's actual results
could differ materially from those discussed in the forward looking statements,
due to a number of factors, including the factors listed below.
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, difficulties
in integrating the Communications Synchronization business, products and
employees acquired from Hewlett-Packard with those of Symmetricom, reduced rates
of growth of telecommunications services and high-bandwidth applications, the
volume and timing of orders from customers and shipments to customers, including
current and planned Communications Synchronization products, the cancellation 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 cycle associated with the Company's
products, cyclical conditions in the telecommunications industry, fluctuations
in manufacturing yields and other factors. 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
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
7
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adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company's future results depend in large part on
growth in the markets for the Company's products. The growth in each of these
markets may depend on, among other things, changes in general economic
conditions, or conditions which relate specifically to the markets in which the
Company competes, changes in regulatory conditions, legislation, export rules or
conditions, interest rates and fluctuations in the business cycle for any
particular market segment.
Uncertainty of Timing of Product Sales; 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 days of that 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.
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. No
customer accounted for 10% or more of the Company's net sales in fiscal 1999.
Two customers, although not the same two customers in each year, accounted for
23% and 39% of the Company's net sales in fiscal years 1998 and 1997,
respectively. 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 were $22.5 million in fiscal 1997 but
decreased to $8.1 million and $4.4 million in fiscal 1998 and 1999,
respectively. 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.
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.
8
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Competition; Pricing Pressure. The Company believes that competition in the
telecommunications industry 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.
The Company believes that its primary competitor is Datum Inc. In addition, due
in part to the enactment of The Telecommunications Act of 1996, which permits
Incumbent Local Exchange Carriers (ILECs), among the Company's largest
customers, to manufacture telecommunications equipment, ILECs may increasingly
become significant competitors of the Company. 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 pricing pressures in all of its markets and has experienced price
erosion in several product lines. 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 and adversely affect 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 that cover
certain technology used by its 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 industry is 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.
Acquisition Integration. The acquisition of Hewlett-Packard's
Communications Synchronization business by the Company will result in the use of
significant amounts of cash, dilutive issuances of stock options, and
amortization expense related to goodwill and other intangible assets. In
addition, the acquisition involves numerous risks, including difficulties in the
assimilation of the operations, technologies and products of the acquired
company, potential disruption in sales and marketing, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, and the
potential loss of key employees of the acquired company.
9
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There can be no assurance as to the effect thereof on the Company's business,
financial condition and results of operations.
Potential Acquistions and Dispositions. An important element of the
Company's strategy is to identify acquisition and disposition alternatives that
would complement or enhance its existing product offerings, augment its market
coverage, enhance its technological capabilities or offer growth opportunities.
Future acquisitions by the Company could result in potentially dilutive
issuances of equity securities, use of cash, the incurring of debt and the
assumption of contingent liabilities. Future dispositions could result in
significant one-time write-offs or contingent liabilities. Any of the factors
above could have a material adverse effect on the Company's business, financial
condition, results of operations and/or the price of the Company's common stock.
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 and 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. Similar government oversight also exists
in the international market. 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.
Risks Associated with International Sales. The Company's export sales,
which were primarily to Western Europe, Latin America, the Far East, and Canada
accounted for 29%, 22% and 13% of the Company's net sales in fiscal years 1999,
1998 and 1997, respectively. International sales subject the Company to
increased risks associated with political and economic instability and changes
in diplomatic and trade relationships.
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
10
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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 and 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. 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
results of operations may be materially and adversely affected, if significant
inventories become obsolete or are otherwise not able to be sold at favorable
prices.
Changes to Effective Tax Rate. The Company's effective tax rate is affected
by the percentage of qualified Puerto Rico earnings compared to total earnings
as most of the Company's Puerto Rico earnings are taxed under Section 936 of the
U.S. Internal Revenue Code, which exempts qualified Puerto Rico earnings from
federal income taxes. This results in an overall lower effective tax rate for
the Company. 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.
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 is
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 calendar 1999. The Company has
also initiated discussions with its significant suppliers and service providers
regarding their plans to investigate and remedy their Year 2000 issues. 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 significant internal or external Year
2000 issues could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Results of Operations---Year
2000 Issue."
The statements set forth above regarding Year 2000 matters are "Year 2000
Readiness Disclosures," as defined in the Year 2000 Readiness Disclosure Act of
1998, enacted October 19, 1998 (Public Law 105-271).
11
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Results of Operations
The Company designs, manufactures and markets advanced network
synchronization and timing products and intelligent access systems for global
telecommunications markets. Synchronization is an essential requirement for
modern telecommunications service providers as they move to high capacity and
high-speed digital transmission technologies. The Company's core synchronization
products consist of Digital Clock Distributors based on quartz, rubidium and
Global Positioning System (GPS) technologies, which provide highly accurate and
uninterruptible timing. The Company's products are marketed to public network
providers, Incumbent Local Exchange Carriers (ILECs), Post Telephone and
Telegraph companies (PTTs), Competitive Local Exchange Carriers (CLECs), other
telephone companies, wireless service providers, cable TV operators, Internet
Service Providers (ISPs) and communications OEMs.
On September 30, 1999, Symmetricom acquired certain assets of Hewlett-
Packard's Communications Synchronization business for approximately $30.0
million in cash, of which approximately $19.0 million was paid to Hewlett-
Packard at closing. The remaining $11.0 million will be paid over the next
twelve to fifteen months as additional assets, primarily inventory, are
transferred to the Company. The Communications Synchronization business designs
and manufactures network synchronization and timing equipment for global
wireline and wireless telecommunications networks. The acquisition will be
accounted for under the purchase method and goodwill of approximately $16.0
million will be amortized over a five to ten year period.
The Company sold its Linfinity Microelectronics Inc. ("Linfinity")
semiconductor subsidiary to Microsemi Corporation for $24.1 million in cash, of
which $1.1 million is subject to an escrow agreement. The sale of Linfinity
closed on April 14, 1999. The per share consideration paid to shareholders of
Linfinity was $2.96 per Preferred Share and $1.46 per Common Share. The
outstanding capital stock of Linfinity was comprised of 6,000,000 shares of
Preferred Stock and 4,197,824 shares of Common Stock. There were stock options
outstanding to purchase 121,449 and 109,000 shares of Linfinity's Common Stock
at $0.50 and $0.80 per share, respectively. The holders of these options were
entitled to receive in cash the difference between $1.46 and the option exercise
price. Of the $24.1 million aggregate purchase price, $23.6 million was payable
to Symmetricom (including amounts currently held in escrow) and $0.5 million was
payable to the former minority shareholders and option holders of Linfinity.
The Linfinity business has been accounted for as a discontinued operation
and, accordingly, its net assets disposed have been segregated from continuing
operations in the consolidated balance sheets and the results of operations have
been excluded for all periods from the results discussed below, except where
specifically stated otherwise.
The Company's net sales increased by $1.0 million (6%) to $19.6 million in
the first quarter of fiscal 2000 from $18.6 million in the first quarter of
fiscal 1999. The increase in net sales in the first quarter of fiscal 2000
compared to the corresponding period of fiscal 1999 was primarily due to higher
sales of synchronization products, partially offset by lower sales of
transmission products.
The Company's gross profit, as a percentage of net sales, decreased to 46% in
the first quarter of fiscal 2000, compared to 48% in the first quarter of fiscal
1999 primarily due to less favorable manufacturing efficiencies and less
favorable product mix.
12
<PAGE>
Research and development expense was $3.3 million (or 17% of net sales) in
the first quarter of fiscal 2000, compared to $3.3 million (or 18% of net sales)
in the first quarter of fiscal 1999. These expenses were primarily due to the
Company's continued focus on investment in new products and core technology.
Selling, general and administrative expense was flat at $5.1 million (or
26% of net sales) in the first quarter of fiscal 2000, compared to $5.1 million
(or 27% of net sales) in the first quarter of fiscal 1999.
Interest income increased by $0.2 million to $0.7 million in the first
quarter of fiscal 2000, compared to $0.5 million in the first quarter of fiscal
1999, primarily due to the increase in cash, cash equivalents and short-term
investments from the $23.0 million in proceeds from the sale of Linfinity.
Interest expense was flat at $0.2 million for the first quarters of fiscal
2000 and fiscal 1999.
The Company's effective tax rate was 25% in the first quarter of fiscal
2000, compared to 21% in the corresponding period of fiscal 1999. The effective
tax rate for fiscal 2000 is expected to be lower than the federal tax rate due
to the benefit of lower income tax rates on Puerto Rico earnings. The Company's
effective tax rate is affected by the percentage of qualified Puerto Rico
earnings compared to total earnings as most of the Company's Puerto Rico
earnings are taxed under Section 936 of the U.S. Internal Revenue Code, which
exempts qualified Puerto Rico earnings from federal income taxes. This exemption
is subject to wage-based limitations and expires at the end of fiscal 2006. In
addition, this exemption will be further limited, based on certain prior year
Puerto Rico earnings during fiscal years 2003 through 2006.
As a result of the factors discussed above, earnings from continuing
operations were $0.9 million or $.06 per share (diluted) in the first quarter of
fiscal 2000, compared to $0.7 million or $.04 per share (diluted) in the same
period of fiscal 1999.
As a result of the factors discussed above, net loss from discontinued
operations was zero and $0.2 million or $.02 per share (diluted) in the first
quarters of fiscal 2000 and fiscal 1999, respectively.
As a result of the factors discussed above, net earnings were $0.9 million
or $.06 per share (diluted) in the first quarter of fiscal 2000, compared to
$0.3 million or $.02 per share (diluted) in the same period of fiscal 1999.
Liquidity and Capital Resources
Working capital increased to $69.5 million at September 30, 1999 from $66.6
million at June 30, 1999, and the current ratio increased to 4.8 to 1.0 from 4.7
to 1.0. The increase in the current ratio resulted primarily from increases in
cash, cash equivalents and short-term investments. During the same period, cash,
cash equivalents and short-term investments increased to $62.3 million from
$59.2 million, primarily due to $2.3 million in cash provided by operating
activities, $1.1 million in proceeds from issuance of common stock and $0.9
million in unrealized gain on securities, offset by $0.9 million used for
capital expenditures and $0.3 million used for other expenditures. At September
30, 1999, the Company had $6.5 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 less funds used in the acquisition of Hewlett-Packard's Communications
Synchronization business will be sufficient to satisfy working capital
requirements and capital expenditures over the near term. At September 30, 1999,
the Company had no material outstanding commitments to purchase capital
equipment.
13
<PAGE>
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 is 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
calendar 1999. The Company has also initiated discussions with its significant
suppliers and service providers regarding their plans to investigate and remedy
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, telecommunications
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, the Company 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
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 and 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
14
<PAGE>
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 calendar year 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.
The statements set forth above regarding Year 2000 matters are "Year 2000
Readiness Disclosures," as defined in the Year 2000 Readiness Disclosure Act of
1998, enacted October 19, 1998 (Public Law 105-271).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to fluctuations in interest
rates and in foreign currency exchange rates:
Interest Rate Exposure. The Company's exposure to market risk due to
fluctuations in interest rates relates primarily to its short-term investment
portfolio, which consists of corporate debt securities, which are classified as
available-for-sale and were reported at an aggregate fair value of $12.3 million
as of September 30, 1999. 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 September 30, 1999, 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 with various foreign countries, settlement amounts are
usually based on U.S. currency. Transaction gains or losses have not been
significant in the past and there is no hedging activity on sterling or other
currencies. Based on the intercompany balance of $1.4 million at September 30,
1999, 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 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 and adversely affect the Company.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information required by this Item is disclosed in Note 5 of Notes to
Consolidated Financial Statements set forth in Item 1 of Part I, above. The text
of such Note is hereby incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on October 25,
1999.
(b) All director candidates: Richard W. Oliver, Thomas W. Steipp, Robert
M. Neumeister, Krish A. Prabhu, William D. Rasdal and Richard N.
Snyder were duly elected.
(c)(i) The votes for the director candidates were as follows:
Nominee Votes For Votes Withheld
------- --------- --------------
Richard W. Oliver 14,089,496 235,705
Thomas W. Steipp 14,080,316 244,885
Robert M. Neumeister 14,082,866 242,335
Krish A. Prabhu 13,530,117 795,084
William D. Rasdal 13,890,628 434,573
Richard N. Snyder 14,089,028 236,173
There were no abstentions or broker non-votes with respect to
election of directors.
(c)(ii) The Company's 1999 Employee Stock Plan and the reservation of 900,000
shares of the Company's Common Stock for issuance thereunder was
approved. The votes were as follows:
Broker
For Against Abstain non-votes
--- ------- ------- ---------
5,692,128 1,358,425 379,162 7,594,093
(c)(iii) The Company's 1999 Director Stock Option Plan and the reservation of
300,000 shares of the Company's Common Stock for issuance thereunder
was approved. The votes were as follows:
Broker
For Against Abstain non-votes
--- ------- ------- ---------
5,713,412 1,268,494 545,982 7,495,920
16
<PAGE>
(c)(iv) shareholders ratified the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the current fiscal year. The votes
were as follows:
Broker
For Against Abstain non-votes
--- ------- ------- ---------
13,958,972 196,592 40,637 827,607
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.36 Employment offer letter by and between the Company and
Maurice Austin dated August 9, 1999.
10.37 Employment offer letter by and between the Company and
Murli Thirumale dated August 4, 1999.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
A current report on Form 8-K dated October 14, 1999 was filed to disclose
on September 30, 1999, the Company's acquisition of certain of Hewlett-
Packard's assets, operations and the business related to the design,
manufacture, and marketing of network synchronization and timing equipment
for global communications networks for approximately $30.0 million in cash
of which approximately $19.0 million was paid to Hewlett-Packard at closing.
The remaining $11.0 million will be paid over the next twelve to fifteen
months as additional assets are transferred to the Registrant.
17
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
DATE: November 5, 1999 By:
/s/ Maurice Austin
-------------------
Maurice Austin
Chief Financial Officer
Registrant and as Principal Financial
and Accounting Officer)
18
<PAGE>
EXHIBIT 10.36
August 9, 1999
Maury Austin
via hand delivered
Dear Maury:
I am pleased to confirm Symmetricom's, offer of employment to you. The position
we offer is Chief Financial Officer.
If you accept our offer, you will join a team that is the world's leading
provider of network synchronization equipment, using atomic clocks, quartz and
GPS technologies to time over 21,000 nodes, or central offices, in more than
1,000 telecommunications networks in over 60 countries around the globe.
The decision to join Symmetricom is a two way one - believing you will be
successful here is as important to your future as to ours. From the interview
process you should have gained an understanding of the culture at our company
and the expectations and competencies required for the position being offered.
Our employees are a key component of the company's future growth, therefore, if
there needs to be further clarification please feel free to contact us.
Symmetricom has developed a set of core values that are key to our success (see
attached document - Guided by Values). Each employee has the responsibility of
exhibiting these values in day-to-day work behaviors. Prior to accepting this
offer, it is important that you understand and agree to uphold these values as
an integral part of your employment with Symmetricom.
Other terms and conditions of this offer of employment:
. Your starting base salary will be $4,807.70 per week (which on an
annualized basis is approximately $250,000.). Formal performance
evaluations are normally conducted on an annual basis beginning one year
from your date of hire. Salary increases may be granted commensurate with
your level of performance and in accordance with company guidelines.
. In this position you will also be eligible for participation in our
Incentive Compensation Program (ICP) with an opportunity to earn up to 67%
of your base salary. ICP is funded from pre-tax profit and the teams' level
of accomplishment of the annual plan. Details of the FY00 Plan will be
provided once approved by the Board of Directors.
. Since you will be involved in making decisions that have considerable
affect on the productivity and profitability of the Company, we are pleased
to recommend an option of 200,000 shares of Symmetricom, Inc. stock for
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.
. You will be eligible to participate in our Executive Medical plan. Please
refer to the enclosed plan summary for details.
Maury Austin
August 9, 1999
Page 2
Maury, we look forward to your joining us on October 4, 1999 or shortly
thereafter. This offer is valid until August 23, 1999 and is conditional upon
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 I-9
Explanation which explains IRCA and the documents you must bring to orientation
on your first day of work. In addition, it is understood that your employment
with Symmetricom is voluntarily entered into and is for no specified 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 make changes in any aspect or to conclude its
at will employment relationship with you at any time, with or without cause. It
is also understood that you will not violate any
1
<PAGE>
previously signed agreements covering proprietary information and that you will
exercise utmost diligence to protect and guard the confidential information of
our company as stated in the enclosed Invention Assignment and Secrecy
Agreement.
Maury, enclosed you will find a copy of this letter on which you my signify your
acceptance by signing it along with the Invention Assignment and Secrecy
Agreement and returning both to me.
I look forward to working with you and having you as a member of my team. I
believe that the growth we have before us, combined with your desire to succeed,
provides opportunities for professional growth and personal challenge. Please
feel free to contact me at (408) 428-7802 if you have questions.
Sincerely,
Symmetricom, Inc.
Thomas W. Steipp
CEO and President
Enclosures: Letter Copy
Invention Assignment & Secrecy Agreement
EEO Form
Guided by Values
Employee Handbook (Benefits)
I-9 Explanation
Insider Trading Policy
Employee Handbook (Employment Guidelines)
Exec-u-care summary
cc: Debbie Mackie
Human Resources File
Maury Austin
August 9, 1999
Page 3
EMPLOYMENT OFFER
AGREED TO AND ACCEPTED
I understand that this offer letter and enclosures noted sets forth our entire
agreement respecting these matters and supersedes any prior representations 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.
In consideration of my employment, I agree to conform to the policies and
procedures of the Company as well as those matters set forth in the enclosures
noted.
In addition, I understand that my employment with Symmetricom is voluntarily
entered into and is for no specified term. As a result, I am free to resign at
any time, for any reason or for no reason. Similarly, the company is free to
make changes in any aspect or to conclude it's at will employment relationship
with me at any time, with or without cause. I further understand that for all
employers for whom I have worked I may not violate any previously signed
agreements
2
<PAGE>
covering proprietary information and that I will exercise utmost diligence to
protect and guard the confidential information of Symmetricom as stated in the
Invention assignment and Secrecy Agreement.
[_] Checking this box and signing below indicates I have received, understood
and agreed to comply with the following enclosed company policies:
[X] Invention Assignment and Secrecy Agreement, and
[X] Insider Trading Policy.
[X] Employee Handbook (Employment Guidelines)
[X] Guided by Values
BY [X] /s/ Maurice Austin___________________________
(Please sign full name)
START DATE [X]____________________________________
(October 4, 1999 or later)
3
<PAGE>
EXHIBIT 10.37
August 4, 1999
Murli Thirumale
13538 Ronnie Way
Saratoga, CA 95070
Dear Murli:
I am pleased to confirm Symmetricom's, offer of employment to you. The position
we offer is Vice President, Marketing and New Business Development.
If you accept our offer, you will join a team that is the world's leading
provider of network synchronization equipment, using atomic clocks, quartz and
GPS technologies to time over 21,000 nodes, or central offices, in more than
1,000 telecommunications networks in over 60 countries around the globe.
The decision to join Symmetricom is a two way one - believing you will be
successful here is as important to your future as to ours. From the interview
process you should have gained an understanding of the culture at our company
and the expectations and competencies required for the position being offered.
Our employees are a key component of the company's future growth, therefore, if
there needs to be further clarification please feel free to contact us.
Symmetricom has developed a set of core values that are key to our success (see
attached document - Guided by Values). Each employee has the responsibility of
exhibiting these values in day-to-day work behaviors. Prior to accepting this
offer, it is important that you understand and agree to uphold these values as
an integral part of your employment with Symmetricom.
Other terms and conditions of this offer of employment:
. Your starting base salary will be $3,462.00 per week (which on an
annualized basis is approximately $180,000.00). Formal performance
evaluations are normally conducted on an annual basis beginning one year
from your date of hire. Salary increases may be granted commensurate with
your level of performance and in accordance with company guidelines.
. You will be eligible for two bonus payments. The first is a "sign on"
payment of $180,000.00, less legally required withholdings. This payment
will be issued with your first paycheck. The second bonus payment will be
issued at the successful completion of one year of employment. This payment
will be $180,00.00, less legally required deductions.
. In this position you will also be eligible for participation in our
Incentive Compensation Program (ICP) at a level up to 67%. For Fiscal Year
00 we guarantee a minimum payment of $40,000 contingent upon your being on
the payroll at time of payout; which is normally at the end of the first
month of the next fiscal year. Future participation while holding the VP
Marketing and New Business Development position will be as a part of the
Executive ICP and of course is dependant upon the Company sponsoring such a
plan.
Murli Thirumale
August 4, 1999
Page 2
. Since you will be involved in making decisions that have considerable
affect on the productivity and profitability of the Company, we are pleased
to recommend an option of 180,000 shares of Symmetricom, Inc. stock for
you. Upon becoming an employee (whether full-time or part-time) 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. We expect the day of the grant to be
the date you begin employment; which can be the day prior to the second set
of offers being extended or any day thereafter. We have agreed that the
vesting schedule for this option will be as follows: after the first year
25 percent vest, after the second year an additional 25 percent vest and
after the third year from date of grant the remaining 50 percent vest.
. If you begin your employment as a part-time employee working a minimum
of fifteen (15) hours per week you will be eligible for prorated salary only.
Employees working fifteen hours or less per week are not eligible for benefits.
1
<PAGE>
. You will be eligible to participate in our Executive Medical plan once
you are a full-time employee. Please refer to the enclosed plan summary for
details.
. For the purpose of vacation time accrual your length of service with
Starbuck will be counted. Eligibility in all other benefit plans will be based
on your date of hire with Symmetricom. Enclosed is a summary of our Benefit
Program.
. 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 CEO), we will continue your base
salary for up to twelve months or until you accept other employment; whichever
is sooner. Your outstanding shares under the Company Program will become fully
vested at the end of the twelve-month period or the date you accept other
employment; again, whichever is sooner. No other benefits will continue during
the pay continuation period.
Murli, enclosed you will find a copy of this letter on which you my signify your
acceptance by signing it along with the Invention Assignment and Secrecy
Agreement and returning both to me. The effectiveness of this letter and the
compensation and benefits described in this letter are specifically subject to
and conditioned upon consummation of the successful closing of the purchase of
the Hewlett Packard ComSync business.
This offer is additionally conditional upon proof of eligibility to legally work
in the United States under the Immigration Reform and Control Act of 1986
(IRCA). Please refer to the I-9 Explanation which explains IRCA and the
documents you must bring to orientation on your first day of work. In addition,
it is understood that your employment with Symmetricom is voluntarily entered
into and is for no specified 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 make
changes in any aspect or to conclude its at will employment relationship with
you at any time, with or without cause. It is also understood that you will not
violate any previously signed agreements covering proprietary information and
that you will exercise utmost diligence to protect and guard the confidential
information of our company as stated in the enclosed Invention Assignment and
Secrecy Agreement.
Murli Thirumale
August 4, 1999
Page 3
We are excited about the future that the integration of these two teams of
successful individuals holds. We also feel that combined with your desire to
succeed this opportunity provides you career growth and personal challenge.
Please feel free to contact me at (408) 428-7802 if you have questions. We look
forward to closing the deal and officially welcoming you to the team.
Sincerely,
Symmetricom, Inc.
Thomas W. Steipp
CEO and President
Enclosures: Letter Copy
Invention Assignment & Secrecy Agreement
EEO Form
Guided by Values
Employee Handbook (Benefits)
I-9 Explanation
Insider Trading Policy
Employee Handbook (Employment Guidelines)
Vacation Balance Action Request
Exec-u-care summary
2
<PAGE>
cc: Debbie Mackie
Human Resources File
3
<PAGE>
Murli Thirumale
August 4, 1999
Page 4
EMPLOYMENT OFFER
AGREED TO AND ACCEPTED
I understand that this offer letter and enclosures noted sets forth our entire
agreement respecting these matters and supersedes any prior representations 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.
In consideration of my employment, I agree to conform to the policies and
procedures of the Company as well as those matters set forth in the enclosures
noted.
In addition, I understand that my employment with Symmetricom is voluntarily
entered into and is for no specified term. As a result, I am free to resign at
any time, for any reason or for no reason. Similarly, the company is free to
make changes in any aspect or to conclude it's at will employment relationship
with me at any time, with or without cause. I further understand that part of
Symmetricom's acquisition of Hewlett Packard's ComSync business includes the
trade secrets and other proprietary information of Hewlett Packard ComSync
business that may be within my knowledge and possession. Thus, as to those
matters, I understand that I am free to, and expected to, utilize such
information in the performance of my duties for Symmetricom. As to all other
employers for whom I have worked I understand that I may not violate any
previously signed agreements covering proprietary information and that I will
exercise utmost diligence to protect and guard the confidential information of
Symmetricom as stated in the Invention assignment and Secrecy Agreement.
[_] Checking this box and signing below indicates I have received, understood
and agreed to comply with the following enclosed company policies:
[X] Invention Assignment and Secrecy Agreement, and
[X] Insider Trading Policy.
[X] Employee Handbook (Employment Guidelines)
[X] Guided by Values
BY [X] /s/ Murli Thirumale________________________
Please sign full name
START DATE [X] August 10, 1999____________________
Please indicate your start date
4
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<NET-INCOME> 885
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
