-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, oBc5aYVCOQwOm+vofe/0zxkIzpWa3MgxmxoPTju2CAtTigiC0rv6WUhdigSe3vnT E7rr9LUiG9UJ7TCGis5isw== 0000082628-94-000005.txt : 19940927 0000082628-94-000005.hdr.sgml : 19940927 ACCESSION NUMBER: 0000082628-94-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940920 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMMETRICOM INC CENTRAL INDEX KEY: 0000082628 STANDARD INDUSTRIAL CLASSIFICATION: 3674 IRS NUMBER: 951906306 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02287 FILM NUMBER: 94549593 BUSINESS ADDRESS: STREET 1: 85 W TASMAN DR CITY: SAN JOSE STATE: CA ZIP: 95134-1703 BUSINESS PHONE: 4089439403 MAIL ADDRESS: STREET 1: 85 WEST TASMAN DRIVE CITY: SAN JOSE STATE: CA ZIP: 95134-1703 FORMER COMPANY: FORMER CONFORMED NAME: SILICON GENERAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: REDCOR CORP DATE OF NAME CHANGE: 19820720 10-K 1 BODY OF 1994 10-K PART I ITEM 1. Business Symmetricom, Inc. (the "Company"), formerly Silicon General, Inc., was incorporated in California in 1956. The Company conducts its business through two separate operations, Telecom Solutions and Linfinity Microelectronics Inc. (LMI). Each operates in a different industry segment. Telecom Solutions principally designs, manufactures and markets telecommunications equipment. LMI principally designs, manufactures and markets linear and mixed signal integrated circuits. Telecom Solutions Telecom Solutions products include telecommunications equipment that synchronizes digital telephone offices and networks, as well as the Integrated Digital Services Terminal (IDST) which provides transmission, monitoring and test access for signaling networks and enhanced intelligent digital services. Synchronization products consist principally of quartz and rubidium based Digital Clock Distributors (DCDs), which provide highly accurate and uninterruptible clocks that meet the synchronization requirements of digital networks. Telecom Solutions has established itself as a leader in telephone digital network synchronization and has introduced a series of DCDs and related products. These products provide the critical timing that permits telephone companies and private network operators to precisely synchronize such diverse telephone network elements as digital switches, digital cross-connect systems and multiplexers for customers who are dependent upon high quality data transmission. Customer requirements for synchronization are changing as telephone companies are using new transmission technologies. In response, Telecom Solutions developed a new platform, the DCD500 Series, which meets the evolving requirements for more accurate synchronization of networks such as the Synchronous Optical Network (SONET) and the Signaling System Seven (SS7) network. The DCD500 Series provides new network management functionality and increased monitoring capabilities, and meets the international standards required for deployment in a Synchronous Digital Hierarchy network. DCD500 Series products were first shipped in fiscal 1994. In addition, a platform was developed, the DCD Local Primary Reference (LPR), which provides the ability to cost effectively use Global Positioning System (GPS) and LOng RAnge Navigation (LORAN-C) satellite and land navigation services to provide direct Stratum 1 traceable synchronization at offices equipped with DCD systems. The DCD LPR was introduced in fiscal 1994. Other new products have been developed to increase the functionality of Telecom Solutions existing products. Also, a primary reference clock was designed as Telecom Solutions first Master Clock for telecommunications networks. Telecom Solutions synchronization systems are typically priced from $5,000 to $40,000. In the first quarter of fiscal 1994, the Company acquired Navstar Limited, a United Kingdom company, and its U.S. affiliate (collectively "Navstar"). Navstar develops and manufactures GPS receivers for the Company's internal use in its synchronization products and for use in the survey positioning and location markets. Navstar products are typically priced from $300 to $10,000. The IDST is a network access system designed for use in telephone company central and end offices. Customers deploy the IDST primarily as a transmission, monitoring and test access vehicle for SS7 networks, which provides maintenance personnel with flexible, centralized remote access to SS7 links for troubleshooting and performance verification. The IDST can also be deployed as an intelligent digital terminal, an intelligent network element providing connectivity between the transport network and customer-serving side of the network. The IDST enhances the network with distributed digital cross-connect functionality and provides subrate, multipoint, test and surveillance capabilities to the subscriber loop. IDST systems are typically priced at less than $75,000 for a small system to more than $300,000 for a large system. Linfinity Microelectronics Inc. During July 1993, substantially all of the assets and liabilities of the Company's Semiconductor Group were transferred to LMI, a newly-formed and wholly-owned subsidiary of the Company. LMI products principally include linear and mixed signal, standard and custom integrated circuits (ICs) primarily for use in intelligent power management, motion control and signal conditioning applications in the commercial, industrial and defense and space markets. LMI derives a substantial portion of its sales from power management products including pulse width modulators, linear voltage regulators, supervisory circuits and power factor correction ICs. A significant portion of LMI sales is attributable to motion control ICs for the computer disk drive industry. Signal conditioning ICs are a new product line for LMI. LMI manufactures linear and mixed signal ICs utilizing bipolar and bipolar complementary metal oxide silicon (BiCMOS) wafer fabrication processes. LMI also sells ICs utilizing CMOS wafer fabrication processes. LMIs new strategy is to develop more market driven standard products which are primarily used in computer and data storage, lighting, automotive, communications and test equipment, instrumentation and defense and space equipment. LMI products are generally priced from $0.30 to $5.00 for commercial and industrial applications, $2.50 to $22.00 for defense applications and $200 to $500 for high reliability defense and space applications. Industry Segment Data Information as to net sales, operating income or loss and identifiable assets attributable to each of the Company's two industry segments for each year in the three year period ended June 30, 1994, is contained in Note N of the Notes to Consolidated Financial Statements included in the Company's 1994 Annual Report (the "Annual Report"), which Note is incorporated herein by reference to Excerpts of the Annual Report. Marketing In the United States, Telecom Solutions markets and sells most of its products through its own sales force to telephone and telecommunications companies. Internationally, Telecom Solutions markets and sells its products through its own sales operation in the United Kingdom and independent sales representatives and distributors elsewhere. In the United States and internationally, LMI sells its products through its own sales force and independent sales representatives to original equipment manufacturers and distributors. Licensing and Patents The Company has several United States patents and patent applications pending covering certain technology used by its Telecom Solutions and LMI 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 Company intends to continue its efforts to obtain patents, whenever possible, but there can be no assurance that any patents 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 are 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 wholly- owned subsidiary in Aguada, Puerto Rico. The LMI manufacturing process consists primarily of bipolar and BiCMOS wafer fabrication, component assembly and final test. Its integrated circuits are principally fabricated in the Company's wafer fabrication facility in Garden Grove, California. However, LMI also utilizes outside services to perform certain operations during the fabrication process. In addition, most of LMI integrated circuits utilizing CMOS wafer processes are currently manufactured by outside semiconductor foundries. Component assembly and final test are performed in the Far East by independent subcontract manufacturers or in Garden Grove by employees. The Company primarily uses standard parts and components and standardsubcontract 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, components and services from its suppliers but there can be no assurance that such problems will not develop in the future. However, the Company maintains a reserve of certain single source components and seeks alternative suppliers where possible as the Company believes that a lack of availability of single source components would have an adverse effect on the Company's operating results. Backlog The Company's backlog was approximately $18,000,000 at June 30, 1994, compared to approximately $18,300,000 at June 30, 1993. Backlog consists of orders which are expected to be shipped within the next twelve months. However, the Company does not believe that current or future backlog levels are necessarily indicative of future operating results. Historically, a substantial portion of Telecom Solutions net sales in any fiscal period have been derived from orders received during that period. Furthermore, most orders in backlog can be rescheduled or canceled without significant penalty. In addition to its dependence on the timing of the receipt of orders, backlog is dependent on the seasonality of telephone company capital spending and on the cyclical nature of customer demand, particularly for semiconductors. Key Customers and Export Sales No customer accounted for 10% or more of net sales in fiscal years 1994 or 1993. One customer, principally a Telecom Solutions customer, AT&T, accounted for 14% of the Company's net sales in fiscal year 1992. Export sales, primarily to Western Europe, Canada and the Far East, accounted for 18%, 12% and 14% of the Company's net sales in fiscal years 1994, 1993 and 1992, respectively. Competition The businesses in which the Company is engaged are highly competitive. A number of the Company's competitors or potential competitors have been in operation for a much longer period of time than the Company, have greater financial, manufacturing, technical and marketing resources, and are able to or could offer much broader lines of products than are presently marketed by the Company. Telecom Solutions competes primarily on product reliability and performance, customer service and, to a lesser extent, price. The Company believes that Telecom Solutions generally competes favorably with respect to these factors. LMI competes primarily on price, product reliability and performance, and customer service. The Company believes that LMI generally competes favorably with respect to these factors. The Company's ability to compete successfully is dependent upon development or acquisition of new products, continued improvement of existing products, cost effectiveness 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 1994, 1993 and 1992, research and development expenditures were $11,454,000, $8,355,000, and $5,919,000, respectively. All research and development expenditures were expensed as incurred. At June 30, 1994, 66 engineering and engineering support employees were engaged in development activities. Telecom Solutions focused its development efforts in fiscal year 1994 on new synchronization platforms and related products. New products which conform with the requirements of the SONET and SS7 network as well as the emerging international standards went into production during fiscal year 1994. Telecom Solutions research and development expenditures were $7,821,000, $6,374,000 and $4,600,000 in fiscal years 1994, 1993 and 1992, respectively. LMI focused its development efforts in fiscal year 1994 on improving its design capabilities and bipolar and BiCMOS process technologies, and new product development. New products for use in power management, motion control and signal conditioning applications are currently in the development stage. LMI research and development expenditures were $3,633,000, $1,981,000 and $1,319,000 in fiscal years 1994, 1993 and 1992, respectively. There can, of course, be no assurance that the Company will be able to continue to develop proprietary products which will be accepted in its markets. Environmental Regulation The Company's operations are subject to numerous federal, state and local environmental regulations. Failure to comply with such regulations could result in suspension or cessation of the Company's operations, could require significant capital expenditures, or could subject the Company to significant future liabilities. Employees At June 30, 1994, the Company had 616 employees, including 377 in manufacturing, 92 in engineering and 147 in sales, marketing and administration. At June 30, 1994, Telecom Solutions had 398 employees and LMI had 218 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 performance incentive and stock plans for certain of its 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. Operating Results and Stock Price Volatility Future operating results will largely depend upon the Company's ability to implement new technologies and develop and market new products, changes in product mix and manufacturing efficiencies. Future Telecom Solutions operating results will continue to be highly dependent on receipt of orders during the applicable fiscal period. Future LMI operating results will also be subject to the cyclical nature of the semiconductor industry. The Company's future earnings and stock price may be subject to significant volatility. 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. ITEM 2. Properties The following are the principal facilities of the Company as of June 30, 1994: Approximate Owned/Lease Principal Floor Area Expiration Location Operations (Sq. Ft.) Date ________ __________ ___________ ___________ San Jose, California Corporate Offices, and Telecom Solutions administration, sales, engineering and manufacturing 47,000 July 1997 Aguada, Puerto Rico Telecom Solutions manufacturing 22,000 September 2000 Aguada, Puerto Rico Telecom Solutions manufacturing 23,000 September 1999 Northampton, Navstar administration, England sales, engineering and manufacturing 28,000 April 1999 Guildford, Surrey, Telecom Solutions England sales and service 2,000 April 1995 Garden Grove, LMI administration, California sales, engineering and manufacturing 96,000 Owned Garden Grove, LMI wafer California fabrication 9,000 Owned The 96,000 square foot facility located in Garden Grove, California is subject to an encumbrance as described in Note F of the Notes to Consolidated Financial Statements which information is incorporated herein by reference to Excerpts of the Annual Report. The Company believes that its current facilities are well maintained and generally adequate to meet short-term requirements. ITEM 3. Legal Proceedings On January 11, 1994, a securities class action complaint was filed in the United States District Court for the Northern District of California against the Company, three of its officers and two unaffiliated parties, by one of the Company's shareholders. The complaint requests that the court certify a class of plaintiffs consisting of persons who purchased shares of the Company's common stock during a specified period in 1993. The complaint alleges that false and misleading statements made during that period artificially inflated the price of the common stock in violation of federal securities laws. There is no specific amount of damages requested in the complaint. The Company and its officers believe that the complaint is entirely without merit, and intend to vigorously defend against the action. The Company is also a party to certain other claims which are normal in the course of its operations. While the results of such claims cannot be predicted with certainty, management 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, 1994. Executive Officers of the Company Following is a list of the executive officers of the Company and brief summaries of their business experience. All officers, including executive officers, are elected annually by the Board of Directors at its meeting following the annual meeting of shareholders. The Company is not aware of any officer who was elected to the office pursuant to any arrangement or understanding with another person. Name Age Position William D. Rasdal 61 Chairman of the Board and Chief Executive Officer Paul N. Risinger 61 Vice Chairman and Assistant Secretary J. Scott Kamsler 46 Vice President, Finance, Chief Financial Officer and Secretary D. Ronald Duren 51 President and Chief Operating Officer, Telecom Solutions Dale Pelletier 43 Vice President, Operations, Telecom Solutions Brad P. Whitney 40 President and Chief Operating Officer, Linfinity Microelectronics Inc. Mr. Rasdal has served as Chairman of the Board of the Company since July 1989 and as Chief Executive Officer since joining the Company in November 1985. From November 1985 until July 1989, Mr. Rasdal was President and a Director of the Company. From March 1980 until March 1985, Mr. Rasdal was associated with Granger Associates, a manufacturer of telecommunications products. His last position with Granger Associates was President and Chief Operating Officer. From November 1972 to January 1980, Mr. Rasdal was employed by Avantek as Vice President and Division Manager for Avantek's microwave integrated circuit and semiconductor operations. For the thirteen years prior to joining Avantek, he was associated with TRW in various management positions. His last position there was General Manager of TRW's Semiconductor Division. Mr. Risinger has served as Vice Chairman of the Company since August 1990 and as a Director of the Company since March 1989. From November 1985, when Mr. Risinger joined the Company, until August 1990, he served as Executive Vice President, Advanced Marketing and Technology (AMAT). From April 1981 to May 1985, Mr. Risinger served as Executive Vice President, AMAT, for Granger Associates and was responsible for the development of new businesses for the Digital Signal Processing Division. For four years prior thereto, he served as Executive Vice President and Chief Operating Officer of the Safariland Companies, a manufacturer of equipment and accessories in the public safety field. Prior to joining Safariland, Mr. Risinger was associated with TRW in various management roles in marketing, research and development, and general management for seventeen years. Mr. Kamsler has served as Vice President, Finance, Chief Financial Officer and Secretary since joining the Company in October 1989. Mr. Kamsler has also served as a Director of DSP Technology Inc., a manufacturer of computer automated measurement and control instrumentation, since November 1988. Prior to October 1989, Mr. Kamsler served as Vice President, Finance and Chief Financial Officer of Solitec, Inc. (January 1984 to September 1989), a manufacturer of semiconductor production equipment, DSP Technology Inc. (April 1984 to September 1989), a former affiliate of Solitec and E-H International, Inc. (March 1982 to January 1984), a manufacturer of automatic test equipment, disk and tape drive controllers, and printed circuit boards. From November 1977 until January 1982, Mr. Kamsler held various finance positions with Intel Corporation. Mr. Duren has served as President and Chief Operating Officer, Telecom Solutions since August 1990. From August 1988 until August 1990, Mr. Duren served as Vice President, Sales, Telecom Solutions. From July 1986, when Mr. Duren joined the Company, until August 1988, he held the position of Director of Marketing and Sales, Telecom Solutions. For three years prior to joining the Company, Mr. Duren served as Vice President, Telco Sales for Granger Associates. Previously, Mr. Duren served in various management positions with AT&T for seventeen years. Mr. Pelletier has served as Vice President, Operations, Telecom Solutions since July 1993. From July 1992 until July 1993, Mr. Pelletier served as General Manager, Synchronization Division, Telecom Solutions. From August 1990 until July 1992, he served as Synchronization Division Manager, Telecom Solutions. From August 1989 until August 1990, Mr. Pelletier served as Operations Manager, Telecom and Analog Solutions Divisions. From August 1986, when Mr. Pelletier joined the Company, until August 1989, he held the position of Manufacturing Manager, Telecom Solutions. Previously, Mr. Pelletier served in various finance and manufacturing positions for nine years with several manufacturing companies. Mr. Whitney joined the Company in November 1992 as President and Chief Operating Officer for Linfinity Microelectronics Inc. and has served in such capacity since that date. He joined the Company after twelve years with Texas Instruments (TI), a semiconductor company. From November 1990 to November 1992, Mr. Whitney was the Standard Linear Products Manager, Semiconductor Group at TI. From December 1985 to November 1990, Mr. Whitney was the Op Amps Product Manager, Semiconductor Group. From November 1983 through November 1985, Mr. Whitney held various positions within the Voltage Regulator Product Group at TI. For the three years prior to working in the Semiconductor Group, Mr. Whitney was associated with the Consumer Products Group. His last position in this Group was as IC Development Manager, Home Computer Division. Prior to joining TI, Mr. Whitney was an Engineering Supervisor and Instructor for the University of Southwestern Louisiana Departments of Computer Science and Electrical Engineering. PART II ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters The information set forth under the caption "Quarterly Results and Stock Market Data (unaudited)" is incorporated herein by reference to Excerpts of the Annual Report. ITEM 6. Selected Financial Data The information set forth under the captions "Financial Highlights," "Five Year Selected Financial Data" and the fourth sentence of footnote B to the information set forth under the caption "Quarterly Results and Stock Market Data (unaudited)" is incorporated herein by reference to Excerpts of the Annual Report. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated herein by reference to Excerpts of the Annual Report. ITEM 8. Financial Statements and Supplementary Data The Consolidated Financial Statements, together with the report thereon of Deloitte & Touche LLP dated July 28, 1994, are incorporated herein by reference to Excerpts of the Annual Report. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III ITEM 10. Directors and Executive Officers of the Registrant Information regarding directors appearing under the caption "Proposal No. One - Election of Directors--Nominees" on pages 2 and 3 of the Company's Proxy Statement for the 1994 Annual Meeting of Shareholders filed with the Commission on September 16, 1994, (the "Proxy Statement") is incorporated herein by reference. Information regarding executive officers is incorporated herein by reference from 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 first paragraph of the section entitled "Other Information--Compliance with Section 16 of the Securities Exchange Act of 1934" appearing on page 7 of the Proxy Statement. ITEM 11. Executive Compensation Incorporated herein by reference to the Proxy Statement under the captions "Proposal No. One - Election of Directors--Nominees" on pages 2 and 3, "Executive Officer Compensation" on pages 9, 10 and 11, "Proposal No. One - Election of Directors--Director Compensation" on page 4 and "Certain Transactions" on pages 11 and 12. ITEM 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to the Proxy Statement under the caption "Other Information--Share Ownership by Principal Shareholders and Management" on page 7. ITEM 13. Certain Relationships and Related Transactions Incorporated herein by reference to the Proxy Statement under the caption "Certain Transactions" on pages 11 and 12. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements and Financial Statement Schedules The following documents are filed as part of this report: 1. Financial Statements*: Consolidated Balance Sheets at June 30, 1994 and 1993 Consolidated Statements of Operations for the years ended June 30, 1994, 1993 and 1992 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1994, 1993 and 1992 Consolidated Statements of Cash Flows for the years ended June 30, 1994, 1993 and 1992 Notes to Consolidated Financial Statements Independent Auditors' Report * Incorporated herein by reference to Excerpts of the Company's 1994 Annual Report 2. Financial Statement Schedules: Independent Auditors' Report For the three fiscal years ended June 30, 1994 II Amounts Receivable from Related Parties and Underwriters, Promoters and Employees other than Related Parties V Property, Plant and Equipment VI Accumulated Depreciation and Amortization of Property, Plant and Equipment VIII 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, 1994. (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. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Symmetricom, Inc. We have audited the consolidated financial statements of Symmetricom, Inc., formerly Silicon General, Inc., and subsidiaries as of June 30, 1994 and 1993, and for each of the three years in the period ended June 30, 1994, and have issued our report thereon dated July 28, 1994; such financial statements and report are included in your 1994 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of Symmetricom, Inc. and subsidiaries listed in Item 14(a)2. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP San Jose, California July 28, 1994 SCHEDULE II SYMMETRICOM, INC. _________________ AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES (In thousands) Balance at Name of Debtor Beginning Amounts of Year Additions Collected Current Noncurrent ______________ _________ _________ _________ _______ __________ Year ended June 30, 1994: Brad P. Whitney (1) $ 95 $ -- $ -- $ -- $ 95 Brad P. Whitney (2) $ 10 $ 4 $ -- $ 14 $ -- Year ended June 30, 1993: Brad P. Whitney (1) $ -- $ 95 $ -- $ -- $ 95 Brad P. Whitney (2) $ -- $ 10 $ -- $ 10 $ -- (1) Unsecured loan bearing interest at the rate of 5.34% per annum, due April 1998. The Company collected $71,570 in August 1994. (2) Short-term advance collected by the Company in August 1994. SCHEDULE V SYMMETRICOM, INC. _________________ PROPERTY, PLANT AND EQUIPMENT (In thousands) Balance at Balance Beginning Additions Retire- at End of Year at Cost ments of Year _________ _________ ________ ________ Year ended June 30, 1994: Land $ 1,247 $ -- $ -- $ 1,247 Buildings 8,938 109 1,056 7,991 Machinery and equipment 26,928 3,650 4,126 26,452 Leasehold improvements 2,051 219 2 2,268 ________ ________ ________ ________ $ 39,164 $ 3,978 $ 5,184 $ 37,958 ======== ======== ======== ======== Year ended June 30, 1993: Land $ 1,247 $ -- $ -- $ 1,247 Buildings 8,454 563 79 8,938 Machinery and equipment 27,039 3,820 3,931 26,928 Leasehold improvements 1,861 190 -- 2,051 ________ ________ ________ ________ $ 38,601 $ 4,573 $ 4,010 $ 39,164 ======== ======== ======== ======== Year ended June 30, 1992: $ 1,247 $ -- $ -- $ 1,247 Buildings 8,454 -- -- 8,454 Machinery and equipment 28,385 1,628 2,974 27,039 Leasehold improvements 1,620 267 26 1,861 ________ ________ ________ ________ $ 39,706 $ 1,895 $ 3,000 $ 38,601 ======== ======== ======== ======== SCHEDULE VI SYMMETRICOM, INC. _________________ ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (In thousands) Additions Balance Charged at to Cost Balance Beginning and Retire- at End of Year Expenses ments of Year _________ _________ ________ ________ Year ended June 30, 1994: Buildings $ 2,430 $ 297 $ 451 $ 2,276 Machinery and equipment 19,490 4,356 4,673 19,173 Leasehold improvements 1,302 279 2 1,579 ________ ________ ________ ________ $ 23,222 $ 4,932 $ 5,126 $ 23,028 ======== ======== ======== ======== Year ended June 30, 1993: Buildings $ 2,202 $ 307 $ 79 $ 2,430 Machinery and equipment 19,449 3,972 3,931 19,490 Leasehold improvements 1,035 267 -- 1,302 ________ ________ ________ ________ $ 22,686 $ 4,546 $ 4,010 $ 23,222 ======== ======== ======== ======== Year ended June 30, 1992: Buildings $ 1,921 $ 281 $ -- $ 2,202 Machinery and equipment 19,214 3,188 2,953 19,449 Leasehold improvements 809 238 12 1,035 ________ ________ ________ ________ $ 21,944 $ 3,707 $ 2,965 $ 22,686 ======== ======== ======== ======== 1994 1993 1992 ____ ____ ____ Depreciation and amortization of property, plant and equipment charged to costs and expenses (as shown above) $ 4,932 $ 4,546 $ 3,707 Amortization of other assets 857 399 234 ________ ________ ________ Total depreciation and amortization for the years as shown in the Consolidated Statements of Cash Flows $ 5,789 $ 4,945 $ 3,941 ======== ======== ======== SCHEDULE VIII SYMMETRICOM, INC. _________________ VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands) Charges Balance (Credits) at to Costs Balance Beginning and Deductions at End of Year Expenses (1) of Year _________ _________ __________ ________ Year ended June 30, 1994: Accrued warranty expense $ 2,136 $ 386 $ 451 $ 2,071 Allowance for doubtful accounts$ 114 $ 155 $ 27 $ 242 Year ended June 30, 1993: Accrued warranty expense $ 1,047 $ 1,646 $ 557 $ 2,136 Allowance for doubtful accounts$ 109 $ 8 $ 3 $ 114 Year ended June 30, 1992: Accrued warranty expense $ 632 $ 1,221 $ 806 $ 1,047 Allowance for doubtful accounts$ 211 $ (41) 61 $ 109 (1) Deductions represent amounts written off against the reserve or allowance. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYMMETRICOM, INC. Date: September 19, 1994 By: /s/ J. Scott Kamsler __________________________ (J. Scott Kamsler) Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ William D. Rasdal Chairman of the Board and Chief Executive Officer ______________________ (Principal Executive Officer) September 19, 1994 (William D. Rasdal) /s/ J. Scott Kamsler Vice President, Finance and Chief Financial Officer _____________________ (Principal Financial (J. Scott Kamsler) and Accounting Officer) September 19, 1994 /s/ Howard Anderson Director September 19, 1994 ____________________ (Howard Anderson) /s/ Paul N. Risinger Director September 19, 1994 _____________________ (Paul N. Risinger) /s/ Robert M. Wolfe Director September 19, 1994 ____________________ (Robert M. Wolfe) Exhibit Number Index of Exhibits 3.1(1) Restated Articles of Incorporation. 3.2(2) Certificate of Amendment to Restated Articles of Incorporation filed December 11, 1990. 3.3 Certificate of Amendment to Restated Articles of Incorporation filed October 27, 1993. 3.4 By-Laws, as amended July 21, 1993. 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) Amended and Restated Employees' Stock Option Plan (1980), with form of Stock Option Agreement (1980 Plan). 10.2(5) Amended and Restated Non-Qualified Stock Option Plan (1982), with form of Employee Non-Qualified Stock Option (1982 Plan). 10.3(5) Amended and Restated Employee Stock Option Plan (1983), with form of Stock Option Under Incentive Stock Option Plan 1983. 10.4(5) 1990 Director Option Plan, with form of Director Option Agreement. 10.5(5) 1990 Employee Stock Plan, with forms of Stock Option Agreement, Restricted Stock Purchase Agreement, Tandem Stock Option/SAR Agreement, and Stock Appreciation Right Agreement. 10.6(2) Loan Agreements between the Company and the John Hancock Mutual Life Insurance Company, dated October 18, 1990, including exhibits thereto. 10.7(6) Lease Agreement by and between the Company and Menlo Tasman Investment Company dated June 16, 1986, and Amendment to Lease dated March 27, 1987. 10.8(7) Lease Agreement by and between Zeltex Puerto Rico, Inc., a subsidiary of the Company, and Puerto Rico Industrial Development Company dated June 29, 1984. 10.9(2) Lease Agreement by and between Zeltex Puerto Rico, Inc., a subsidiary of the Company, and Puerto Rico Industrial Development Company dated January 22, 1991. 10.10 Lease Agreement by and between Telecom Solutions Puerto Rico, Inc., a subsidiary of the Company, and Puerto Rico Industrial Development dated August 9, 1994. 10.11 Lease Agreement by and between Navstar Systems Limited, a subsidiary of the Company, and Baker Hughes Limited dated April 22, 1994. 10.12 Revolving Credit Loan Agreement between the Company and Comerica Bank-Detroit dated December 1, 1993. 10.13(8) Form of Indemnification Agreement. 10.14(10) Linfinity Microelectronics Inc. Common Stock and Series A Preferred Stock Purchase Agreement dated June 28, 1993. 10.15(10) Tax Sharing Agreement between Linfinity Microelectronics Inc. and the Company dated June 28, 1993. 10.16(10) Intercompany Services Agreement between Linfinity Microelectronics Inc. and the Company dated June 28, 1993. 10.17(10) Linfinity Microelectronics Inc. 1993 Stock Option Plan with form of Stock Option Agreement. 10.18(10) Linfinity Microelectronics Inc. Form of Indemnification Agreement. 10.19(10) Employment offer letter by and between the Company and Brad P. Whitney, President and Chief Operating Officer, Linfinity Microelectronics Inc. dated November 20, 1992. 10.20(9) Agreement for Sale and Purchase of the Navstar Business of Radley Services Limited. 10.21(9) Agreement for the Sale and Purchase of Certain Assets of Navstar Electronics, Inc. 13.1 Symmetricom, Inc. Excerpts of the 1994 Annual Report. 21.1 Subsidiaries of the Company. 23.1 Independent Auditors' Consent. Footnotes to Exhibits (1) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended July 2, 1989. (2) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1991. (3) Incorporated by reference from Exhibits to Registration Statement on Form 8-A filed with the Securities and Exchange Commission on December 8, 1990. (4) Incorporated by reference from Exhibits to Registration Statement on Form 8-A filed with the Securities and Exchange Commission on February 11, 1993. (5) Incorporated by reference from Exhibits to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on December 24, 1990. (6) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 28, 1987. (7) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1990. (8) Incorporated by reference from Exhibits to the 1990 Proxy Statement. (9) Incorporated by reference from Exhibits to Current Report on Form 8-K filed with the Securities and Exchange Commission on September 2, 1993. (10) Incorporated by reference from Exhibits to Annual Report on Form 10-K for the fiscal year ended June 30, 1993. EX-3.3 2 EXHIBIT 3.3 AMENDED ARTICLES CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF SILICON GENERAL, INC. William D. Rasdal and J. Scott Kamsler certify that: 1. They are the Chairman of the Board and Secretary, respectively, of Silicon General, Inc., a California corporation. 2. Article 1 of the Articles of Incorporation of this corporation is amended to read in full as follows: "(1) The name of this corporation is Symmetricom, Inc." 3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of Common Stock of the corpora- tion entitled to vote with respect to this matter is 13,841,870. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding shares of Common Stock. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Date: October 21, 1993 William D. Rasdal, Chairman of the Board J. Scott Kamsler, Secretary EX-3.4 3 EXHIBIT 3.4 AMENDED BYLAWS BYLAWS OF SYMMETRICOM, INC. (a California corporation) ARTICLE I OFFICES; Section 1. PRINCIPAL OFFICES;. The board of directors shall fix the location of the principal executive office of the corpora-tion at any place within or outside the State of California. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the board of directors shall fix and designate a principal business office in the State of California. Section 2. OTHER OFFICES;. The board of directors or officers of the corporation may at any time establish branch or subordinate offices at any place or places wherein such board or officers shall deem advisable. ARTICLE II MEETINGS OF SHAREHOLDERS; Section 1. PLACE OF MEETINGS;. Meetings of shareholders shall be held at any place within or outside of the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. Section 2. ANNUAL MEETING;. The annual meeting of share-holders shall be held each year on the date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held on the third Thursday of October in each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At each annual meeting directors shall be elected, and any other proper business may be transacted. Section 3. SPECIAL MEETING;. A special meeting of share-holders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by regis-tered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders enti-tled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty- five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. Section 4. NOTICE OF SHAREHOLDERS' MEETING;. All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) (or, if sent by third-class mail pursuant to Section 5 of this Article II, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted), or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the share-holders (but subject to the provisions of the following paragraph of this Section 4 of Article II, any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) an amendment to the articles of incorporation, pursuant to Section 902 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of that Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Code, the notice shall also state the general nature of that proposal. Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE;. Written notice of any meeting of shareholders given shall be given either (i) personally or (ii) by first-class mail or (iii) by third-class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, or (iv) telegraphic or other written com-muni-cation. Notices not personally delivered shall be sent charges prepaid, addressed to the shareholder at the address of that share-holder appearing on the books of the corpora- tion or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that share-holder by mail or telegraphic or other written communication to the corporation's principal execu- tive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice. An affidavit of mailing or other means of giving any notice of any shareholders' meeting shall be executed by the secretary, assistant secretary, or any transfer agent of the corporation giving the notice, and shall be filed and maintained in the minute book of the corporation, and shall be prima facie evidence of the giving of such notice. Section 6. QUORUM;. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the trans-action of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 7. ADJOURNED MEETING; NOTICE;. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 6 of this Article II. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting, in which case the board of directors shall set a new record date. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 4 and 5 of this Article II. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. Section 8. VOTING;. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 11 of this Article II, subject to the provi-sions of Sections 702 to 704, inclusive of the Corporations Code of California (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any share-holder before the voting has begun. Except as provided in the last paragraph of this Section 8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. On any matter other than elections of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and voting on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes or cumulative voting is required by California General Corporation Law or by the articles of incorporation or by these bylaws. At a shareholders' meeting at which directors are to be elected, no shareholder shall be entitled to cumulate votes (i.e., cast for any one or more candidates a number of votes greater than the number of the shareholder's shares) unless the candidates' names have been placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are entitled, or distribute the share- holder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect. Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHARE-HOLDERS;. The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of the shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Sec-tion 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consent, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any busi- ness because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting. Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING;. Any action which may be taken at any annual or special meting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time to fill a vacancy on the board of directors (provided that the vacancy was not created by removal of a director and that it has not been filled by the directors) by a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the secretary of the corpora-tion and shall be maintained in the corpo- rate records. Any share-holder giving a written consent, or the shareholders' proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corpora-tion before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. This notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 5 of this Article II. In the case of approval of (i) contracts or trans-actions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) indemnification of agents of the corporation, pursuant to Section 317 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in dissolution other than in accor-dance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS;. For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in this event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the California General Corporation Law. If the board of directors does not so fix a record date: (a) The record date for determining shareholders enti-tled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining shareholders enti-tled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the board has been taken, shall be at the close of business on the day on which the board adopts the reso-lu-tion relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these bylaws. Section 12. PROXIES;. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, type- writing, telegraphic transmission, or otherwise) by the share- holder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subse-quent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Corporations Code of California. Section 13. INSPECTORS OF ELECTION;. Before any meeting of shareholders, the board of directors may appoint any person or persons other than nominees for office to act as an inspector or inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meet-ing may, and on the request of any shareholder or a share-holder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS; Section 1. POWERS;. Subject to the provisions of the California General Corporation Law and any limitations in the articles of incorporation and these bylaws relating to the action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Section 2. NUMBER OF DIRECTORS;. (a) The number of directors shall be not less than a minimum of three nor more than a maximum of five. After adoption or amendment of this bylaw by the shareholders, the exact number of directors shall be fixed, within the limits specified in this bylaw, by the following bylaw which may be amended from time to time by the Board of Directors. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). (b) The number of directors of the corporation shall be five. Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS;. Directors shall be elected at each annual meeting of the share- holders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. No reduction of the authorized number of directors shall have the effect of removing any director before the director's term of office expires. Section 4. VACANCIES;. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each director so elected shall hold office until the next annual meeting of shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist in the event of the death, resignation, or removal of any director, or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of directors is increased, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary, or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director before that director's terms of office expires. Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE;. Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting. Section 6. ANNUAL MEETING;. Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization, any desired elec-tion of officers, and the transaction of other business. Notice of this meeting shall not be required. Section 7. OTHER REGULAR MEETINGS;. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Such regular meetings may be held without notice. Section 8. SPECIAL MEETINGS;. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4,) days before the time of the holding of the meeting. In case notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Section 9. QUORUM;. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 11 of this Article III. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Corporations Code of California (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of that Code (as to appointment of commit- tees), and Section 317(e) of that Code (as to indemnification of directors), the articles of incorporation, and other applicable laws. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. Section 10. WAIVER OF NOTICE;. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting before or at its commencement, the lack of notice to that director. Section 11. ADJOURNMENT;. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 12. NOTICE OF ADJOURNMENT;. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 8 of this Article III, to the directors who were not present at the time of adjournment. Section 13. ACTION WITHOUT MEETING;. Any action required or permitted to be taken by the board of directors may be taken with-out a meeting, if all members of the board shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as an unani-mous vote of the board of directors. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Section 14. FEES AND COMPENSATION OF DIRECTORS;. Directors and members of committees may receive such compensation, if any, for their services, and reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. This Section 14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services. ARTICLE IV COMMITTEES; Section 1. COMMITTEE OF DIRECTORS;. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the General Corporation Law of California, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or on any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corpora-tion, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of these committees. Section 2. MEETINGS AND ACTION OF COMMITTEES;. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 5 (place of meetings) Section 7 (regular meetings), Section 8 (special meetings and notice), Section 9 (quorum), Section 10 (waiver of notice), Section 11 (adjournment), Section 12 (notice of adjournment) and Section 13 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee; special meetings of committees may also be called by resolution of the board of directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS; Section 1. OFFICERS;. The officers of the corporation shall be a chairman of the board or a president, or both, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chief executive officer, a chief operating officer, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provi-sions of Section 3 of this Article V. Any number of offices may be held by the same person. Section 2. ELECTION OF OFFICERS;. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Any contract of employ-ment with an officer shall be unenforceable unless in writing and specifically authorized by the board of directors. Section 3. SUBORDINATE OFFICERS;. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS;. Subject to the rights, if any, of any officer under any contract of employ-ment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting of the board, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES;. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. Section 6. CHAIRMAN OF THE BOARD;. The chairman of the board, if such officer be elected, shall, if present, preside at meeting of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or prescribed by the bylaws. If there is no president or chief executive officer, the chairman of the board shall act as chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V. Section 7. PRESIDENT;. Subject to any supervisory powers, if any, as may be given by the board of directors to the chairman of the board and/or chief executive officer, if there be such an officer or officers, the president shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the affairs of the corporation. In the absence of the chairman of the board, or if there be none, he shall preside at all meetings of the shareholders and at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws. Section 8. VICE PRESIDENTS;. In the absence or disability of the chairman of the board, the chief executive officer and the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice presi-dent designated by the board of directors, shall perform all the duties of the such officers, and when so acting shall have all the powers of, and be subject to all the restrictions upon, such officers. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, the chairman of the board, the chief executive officer, or the president. Section 9. SECRETARY;. The secretary shall keep or cause to be kept, at the principal executive office or such other place as the board of directors may direct, a book of minutes of all meetings and action of the directors, committees of directors, and shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice given, the names of those present at directors' meetings or committee meet-ings, the number of shares present or represented at shareholders' meetings, and the proceedings. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the bylaws. Section 10. CHIEF FINANCIAL OFFICER; TREASURER;. The chief financial officer or, if there be none, the treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and busi-ness transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer (or the treasurer) shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He shall disburse the funds of the corpora- tion as may be ordered by the board of directors, shall render to the chairman of the board, the chief executive officer, the president and board of directors, whenever they request it, an account of all of his transactions as chief financial officer (or treasurer) and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or the bylaws. Should there be no one serving in the capacity of chief finan--cial officer, the treasurer (or, in his absence, the assistant treasurer) shall exercise all of the duties and assume all of the responsibilities of the chief financial officer. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS; Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS;. The corporation shall, to the maximum extent and in the manner per-mitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. Section 2. INDEMNIFICATION OF OTHERS;. The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. Section 3. PAYMENT OF EXPENSES IN ADVANCE;. Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. Section 4. INDEMNITY NOT EXCLUSIVE;. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation. Section 5. INSURANCE INDEMNIFICATION;. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. Section 6. CONFLICTS.; No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the Articles of Incorporation, these bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. ARTICLE VII RECORDS AND REPORTS; Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER;. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the board of directors, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who holds at least once percent (1%) of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors may (i) inspect and copy the records of the shareholders' names and addresses and shareholdings during usual business hours on five (5) days' prior written demand on the corporation and (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. This list shall be made available to any shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. Section 2. MAINTENANCE AND INSPECTION OF BYLAWS;. The corporation shall keep at its principal executive office, or if its principal office is not in the State of California, at its principal business office in this state, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business in this state, the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of the bylaws as amended to date. Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS;. The accounting books and records and minutes of proceedings of the shareholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interest as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary corporation of the corporation. Section 4. INSPECTION BY DIRECTORS;. Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the corporation and each of its subsidiary corpora- tions. This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents. Section 5. ANNUAL REPORT TO SHAREHOLDERS;. The corporation shall prepare and send to its shareholders an annual report to shareholders as required by Section 1501 of the California General Corporation Law. ARTICLE VIII GENERAL CORPORATE POWERS; Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING;. For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action, and in that case only shareholders of record on the date so fixed are entitled to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the California General Corporation Law. If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS;. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED;. The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 4. CERTIFICATE FOR SHARES;. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of these shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid. All certificates shall be signed in the name of the corporation by the chairman of the board or vice chairman of the board or the president or vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent, or registrar at the date of issue. Section 5. LOST CERTIFICATES;. Except as provided in this Section 5, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft, or destruction of the certificate or the issuance of the replacement certificate. Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS;. The chairman of the board, the president, or any vice president, or any other person authorized by resolution of the board of directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to these officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corpo-ra- - - -tions may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers. Section 7. CONSTRUCTION AND DEFINITIONS;. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS; Section 1. AMENDMENTS BY SHAREHOLDERS;. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation. Section 2. AMENDMENT BY DIRECTORS;. Subject to the rights of the shareholders as provided in Section 1 of this Article IX, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended, or repealed by the board of directors. CERTIFICATE OF AMENDMENT NO. 1 OF THE BYLAWS OF SYMMETRICOM, INC. 1. Article III, Section 15, was added to the Bylaws of this corporation, effective July 21, 1993 by the Board of Directors to read in its entirety as follows: "Section 15. APPROVAL OF LOANS TO OFFICERS. The corporation may, upon the approval of the board of directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the board of directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the California Corporations Code) on the date of approval by the board of directors, and (iii) the approval of the board of directors is by a vote sufficient without counting the vote of any interested director or directors." BYLAWS OF SYMMETRICOM, INC. BYLAWS OF SYMMETRICOM, INC. TABLE OF CONTENTS Page ARTICLE I - OFFICES 1 Section 1. PRINCIPAL OFFICES 1 Section 2. OTHER OFFICES 1 ARTICLE II - MEETINGS OF SHAREHOLDERS 1 Section 1. PLACE OF MEETINGS 1 Section 2. ANNUAL MEETING 1 Section 3. SPECIAL MEETING 1 Section 4. NOTICE OF SHAREHOLDERS' MEETING 2 Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE 3 Section 6. QUORUM 3 Section 7. ADJOURNED MEETING; NOTICE 4 Section 8. VOTING 4 Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHARE-HOLDERS 5 Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING 5 Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS 6 Section 12. PROXIES 7 Section 13. INSPECTORS OF ELECTION 8 ARTICLE III - DIRECTORS 8 Section 1. POWERS 8 Section 2. NUMBER OF DIRECTORS 9 Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS 9 Section 4. VACANCIES 9 Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE 10 Section 6. ANNUAL MEETING 10 Section 7. OTHER REGULAR MEETINGS 10 Section 8. SPECIAL MEETINGS 11 Section 9. QUORUM 11 Section 10. WAIVER OF NOTICE 11 Section 11. ADJOURNMENT 12 Section 12. NOTICE OF ADJOURNMENT 12 Section 13. ACTION WITHOUT MEETING 12 Section 14. FEES AND COMPENSATION OF DIRECTORS 12 ARTICLE IV - COMMITTEES 12 Section 1. COMMITTEE OF DIRECTORS 12 Section 2. MEETINGS AND ACTION OF COMMITTEES 13 ARTICLE V - OFFICERS 14 Section 1. OFFICERS 14 Section 2. ELECTION OF OFFICERS 14 Section 3. SUBORDINATE OFFICERS 14 Section 4. REMOVAL AND RESIGNATION OF OFFICERS 14 Section 5. VACANCIES IN OFFICES 14 Section 6. CHAIRMAN OF THE BOARD 15 Section 7. PRESIDENT 15 Section 8. VICE PRESIDENTS 15 Section 9. SECRETARY 15 Section 10. CHIEF FINANCIAL OFFICER; TREASURER 16 ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 16 Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS 16 Section 2. INDEMNIFICATION OF OTHERS 17 Section 3. PAYMENT OF EXPENSES IN ADVANCE 17 Section 4. INDEMNITY NOT EXCLUSIVE 17 Section 5. INSURANCE INDEMNIFICATION 18 Section 6. CONFLICTS. 18 ARTICLE VII - RECORDS AND REPORTS 18 Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER 18 Section 2. MAINTENANCE AND INSPECTION OF BYLAWS 19 Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS 19 Section 4. INSPECTION BY DIRECTORS 20 Section 5. ANNUAL REPORT TO SHAREHOLDERS 20 ARTICLE VIII - GENERAL CORPORATE POWERS 20 Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING 20 Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS 20 Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED 20 Section 4. CERTIFICATE FOR SHARES 21 Section 5. LOST CERTIFICATES 21 Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS 21 Section 7. CONSTRUCTION AND DEFINITIONS 22 ARTICLE IX - AMENDMENTS 22 Section 1. AMENDMENTS BY SHAREHOLDERS 22 Section 2. AMENDMENT BY DIRECTORS 22 EX-13.1 4 EXHIBIT 13.1 EXCERPTS OF THE 1994 ANNUAL REPORT 1 SYMMETRICOM, INC. FINANCIAL HIGHLIGHTS (In thousands, except per share amounts) Year ended June 30, 1994 1993 1992 _______ _______ _______ Net sales: Telecom Solutions $59,215 $57,031 $42,094 Linfinity Microelectronics 39,170 30,882 26,704 _______ _______ _______ Total 98,385 87,913 68,798 Operating income 8,331 7,940 3,136 Earnings before income taxes 8,125 7,724 2,825 Net earnings 6,551 6,001 2,194 Net earnings per common and common equivalent share .43 .40 .16 Cash and cash equivalents 21,250 18,232 10,146 Working capital 38,503 29,348 20,661 Total assets 69,054 58,954 48,231 Shareholders' equity 46,786 38,102 30,185 SYMMETRICOM, INC. CONSOLIDATED BALANCE SHEETS (In thousands) June 30, 1994 1993 _______ _______ ASSETS Current assets: Cash and cash equivalents $21,250 $18,232 Accounts receivable, net of allowance for doubtful accounts of $242 and $114 12,277 10,905 Inventories 15,811 12,937 Other current assets 2,405 216 _______ _______ Total current assets 51,743 42,290 Property, plant and equipment, net 14,930 15,942 Other assets, net 2,381 722 _______ _______ $69,054 $58,954 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,224 $ 2,914 Accrued liabilities 8,969 9,986 Current maturities of long-term debt 47 42 _______ _______ Total current liabilities 13,240 12,942 Long-term debt, less current maturities 5,818 5,865 Deferred rent 430 604 Deferred income taxes 2,780 1,441 Commitments and contingencies Shareholders' equity: Preferred stock, no par value: Authorized - 500 shares Issued - none -- -- Common stock, no par value: Authorized - 32,000 shares Issued and outstanding - 14,071 and 13,728 shares 16,069 13,936 Retained earnings 30,717 24,166 _______ _______ Total shareholders' equity 46,786 38,102 _______ _______ $69,054 $58,954 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year ended June 30, 1994 1993 1992 _______ _______ _______ Net sales $98,385 $87,913 $68,798 Cost of sales 57,165 52,984 45,350 _______ _______ _______ Gross profit 41,220 34,929 23,448 Operating expenses: Research and development 11,454 8,355 5,919 Selling, general and administrative 21,435 18,634 14,393 _______ _______ _______ Operating income 8,331 7,940 3,136 Interest income 397 392 300 Interest expense (603) (608) (611) _______ _______ _______ Earnings before income taxes 8,125 7,724 2,825 Income taxes 1,574 1,723 631 _______ _______ _______ Net earnings $ 6,551 $ 6,001 $ 2,194 ======= ======= ======= Net earnings per common and common equivalent share $ .43 $ .40 $ .16 ======= ======= ======= Weighted average common and common equivalent shares outstanding 15,370 15,036 13,654 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Total Common Stock Retained Shareholders' Shares Amount Earnings Equity ______ _______ _______ _______ Balances at June 30, 1991 12,508 $11,293 $15,971 $27,264 Stock option exercises 361 727 -- 727 Net earnings -- -- 2,194 2,194 ______ _______ _______ _______ Balances at June 30, 1992 12,869 12,020 18,165 30,185 Stock option exercises, net of shares tendered upon exercise 859 1,916 -- 1,916 Net earnings -- -- 6,001 6,001 ______ _______ _______ _______ Balances at June 30, 1993 13,728 13,936 24,166 38,102 Stock option exercises, including tax benefits of $1,156 arising from stock option plans 343 2,133 -- 2,133 Net earnings -- -- 6,551 6,551 ______ _______ _______ _______ Balances at June 30, 1994 14,071 $16,069 $30,717 $46,786 ====== ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. SYMMETRICOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year ended June 30, 1994 1993 1992 _______ _______ _______ Cash flows from operating activities: Cash received from customers $97,514 $85,433 $66,499 Cash paid to suppliers and employ (87,805) (73,446) (61,689) Interest received 407 359 306 Interest paid (603) (608) (611) Income taxes paid (1,273) (896) (444) _______ _______ _______ Net cash provided by operating activities 8,240 10,842 4,061 _______ _______ _______ Cash flows from investing activities: Purchase of Navstar (2,012) -- -- Capital expenditures, net (3,606) (4,573) (1,860) Acquisition of other assets (539) (61) (230) _______ _______ _______ Net cash used for investing activities (6,157) (4,634) (2,090) _______ _______ _______ Cash flows from financing activities: Repayment of long-term debt (42) (38) (34) Proceeds from issuance of common stock 977 1,916 727 _______ _______ _______ Net cash provided by financing activities 935 1,878 693 _______ _______ _______ Net increase in cash and cash equivalents 3,018 8,086 2,664 Cash and cash equivalents at beginning of year 18,232 10,146 7,482 _______ _______ _______ Cash and cash equivalents at end of year $21,250 $18,232 $10,146 ======= ======= ======= Reconciliation of net earnings to net cash provided by operating activities: Net earnings $ 6,551 $ 6,001 $ 2,194 Adjustments (net of effects of Navstar purchase): Depreciation and amortization 5,789 4,945 3,941 Net deferred income taxes (656) 674 -- (Increase) in accounts receivable (1,060) (2,516) (1,969) (Increase) in inventories (2,430) (515) (2,311) Decrease (increase) in other current assets (194) 83 (41) Increase (decrease) in accounts payable 275 (323) 702 Increase in accrued liabilities 139 2,634 1,635 (Decrease) in deferred rent (174) (141) (90) _______ _______ _______ Net cash provided by operating activities $ 8,240 $10,842 $ 4,061 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A--Summary of Significant Accounting Policies Business. Symmetricom, Inc., formerly Silicon General, Inc., conducts its business through two separate operations, Telecom Solutions and Linfinity Microelectronics Inc. (LMI). Each operates in a different industry segment. Telecom Solutions principally designs, manufactures and markets telecommunications equipment. LMI designs, manufactures and markets linear and digital integrated circuits. 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's fiscal year ends on the Sunday closest to June 30. For presentation purposes, however, each fiscal year is presented as if it ended on June 30. All references to years refer to the Company's fiscal years. Fiscal year 1994 consisted of 53 weeks and fiscal years 1993 and 1992 consisted of 52 weeks. Cash Equivalents. The Company considers all highly liquid debt investments purchased with an original maturity of three months or less to be cash equivalents. 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. Intangible Assets. Intangible assets, primarily purchased technology, are included in other assets and amortized over five years Revenue Recognition. Sales are recognized upon shipment. Provisions are made for warranty costs, sales returns and price protection. Foreign Currency Translation. Foreign currency translation gains and losses and the effect of foreign currency exchange rate fluctuations have not been significant. Concentrations of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and accounts receivable. The Company places its investments with high-credit-quality financial institutions. Accounts receivable are derived primarily from sales to telecommunications companies and original equipment manufacturers. Management believes that any risk of accounting loss is significantly reduced by the Company's credit evaluation process. Income Taxes. The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires an asset and liability approach to account for income taxes. Net Earnings Per Common and Common Equivalent Share. Net earnings per common and common equivalent share is computed using the weighted average number of common shares outstanding and dilutive stock options and warrants, using the treasury stock method. Reclassifications. Certain 1993 balances have been reclassified to conform to the 1994 presentation. Note B--Acquisition In August 1993, the Company acquired, in a purchase transaction, substantially all the assets of Navstar Limited, a U.K. company, and its U.S. affiliate (collectively "Navstar") for $2,012,000 in cash and the assumption of $1,035,000 in liabilities. The fair value of assets acquired included purchased technology of $1,756,000, tangible assets of $1,071,000 and goodwill of $220,000. Navstar designs, manufactures and markets Global Positioning System receivers. The operating results of Navstar have been included in the consolidated statements of operations since the date of acquisition and have not been material to consolidated operations. Unaudited pro forma combined results of operations of the Company for the year ended June 30, 1993, assuming the acquisition of Navstar had occurred on July 1, 1992, are as follows: net sales, $90,342,000, net earnings, $5,052,000 and net earnings per common and common equivalent share, $0.34. Note C--Linfinity Microelectronics Inc. At July 1, 1993, substantially all of the assets and liabilities of the Silicon General Semiconductor Group were transferred to LMI, a newly-formed and wholly-owned subsidiary. At July 1, 1993, LMI common shares were reserved for issuance under the LMI stock option plan which would represent 20% ownership of LMI if stock options to purchase all reserved shares were granted and exercised. Stock options granted will vest at 25% per year from date of grant. At June 30, 1994, 893,600 shares were available for grant under the LMI stock option plan, options to purchase 1,106,400 shares of LMI common stock were outstanding and options to purchase 222,500 shares were exercisable. Note D--Inventories Inventories consist of: June 30, 1994 1993 _______ _______ (In thousands) Raw materials $ 7,677 $ 4,115 Work-in-process 5,110 5,424 Finished goods 3,024 3,398 _______ _______ $15,811 $12,937 ======= ======= Note E--Property, Plant and Equipment Property, plant and equipment consist of: June 30, 1994 1993 _______ _______ (In thousands) Land $ 1,247 $ 1,247 Buildings and improvements 7,991 8,938 Machinery and equipment 26,452 26,928 Leasehold improvements 2,268 2,051 _______ _______ 37,958 39,164 Accumulated depreciation and amortization (23,028) (23,222) _______ _______ $14,930 $15,942 ======= ======= Maintenance and repairs expense was $1,268,000 in 1994, $1,077,000 in 1993 and $854,000 in 1992. Note F--Borrowing Arrangements The Company has a $7,000,000 unsecured bank line of credit which expires in December 1995 and bears interest at the bank's prime rate, 7.25% at June 30, 1994. The line of credit agreement requires that the Company maintain certain financial ratios and prohibits an operating loss in two consecutive quarters. At June 30, 1994, the Company had available credit of $7,000,000. Long-term debt consists of a 10.25% note, payable in monthly installments of approximately $54,000, including interest, until November 1997 when the balance of the principal is due. The note is collateralized by land, building and related personal property. At June 30, 1994, maturities of long-term debt were $47,000 in 1995, $52,000 in 1996, $57,000 in 1997 and $5,709,000 in 1998. Note G--Accrued Liabilities Accrued liabilities consist of: June 30, 1994 1993 _______ _______ (In thousands) Employee compensation and benefits $ 3,769 $ 5,533 Accrued warranty expense 2,071 2,136 Other 3,129 2,317 _______ _______ $ 8,969 $ 9,986 ======= ======= Note H--Income Taxes Income tax expense consists of: Year ended June 30, 1994 1993 1992 _______ _______ _______ (In thousands) Current: Federal $ 1,366 $ 183 $ 102 State 778 151 265 Puerto Rico 86 715 264 _______ _______ _______ 2,230 1,049 631 _______ _______ _______ Deferred: Federal (1,144) (767) -- State 104 370 -- Puerto Rico 384 1,071 -- _______ _______ _______ (656) 674 -- _______ _______ _______ $ 1,574 $ 1,723 $ 631 ======= ======= ======= Deferred income tax expense (benefit) is recorded when income and expenses are recognized in different periods for financial reporting and tax purposes. The significant components of deferred income tax expense (benefit) are as follows: Year ended June 30, 1994 1993 1992 _______ _______ _______ (In thousands) Net operating loss and credit carryforwards $ 642 $ 421 $ 306 Reserves and accruals (600) (850) (65) Deferred rent 52 35 33 Depreciation and amortization (639) (678) (839) Reduction of taxes provided in prior y -- (767) -- Deferred taxes on unremitted Puerto Rico earnings 1,339 1,441 -- Change in valuation allowance (1,450) 1,072 565 _______ _______ _______ $ (656) $ 674 $ -- ======= ======= ======= The Company's effective income tax rate differs from the federal statutory income tax rate as follows: Year ended June 30, 1994 1993 1992 _______ _______ _______ Federal statutory income tax rate 35.0% 34.0% 34.0% Change in valuation allowance (17.8) (9.5) -- State income taxes, net of federal benefi 4.6 1.3 6.2 Net tax expense (benefit) of Puerto Rico operations (1.8) 6.3 (17.9) Other (0.6) 0.1 -- Reduction of taxes provided in prior yea -- (9.9) -- _______ _______ _______ Effective income tax 19.4% 22.3% 22.3% ======= ======= ======= The net tax expense of Puerto Rico operations in 1993 includes a non-recurring provision of approximately $980,000 for taxes on unremitted Puerto Rico earnings for prior years. The principal components of the Company's deferred tax assets and liabilities are as follows: June 30, 1994 1993 _______ _______ (In thousands) Deferred tax assets: Net operating loss and credit carryforwards $ 4,591 $ 5,233 Reserves and accruals 3,077 2,477 Deferred rent 278 330 _______ _______ 7,946 8,040 Valuation allowance (4,780) (6,230) _______ _______ 3,166 1,810 _______ _______ Deferred tax liabilities: Depreciation and amortization 1,171 1,810 Unremitted Puerto Rico earnings 2,780 1,441 _______ _______ 3,951 3,251 _______ _______ Net deferred tax liability $ 785 $ 1,441 ======= ======= A valuation allowance is provided due to the uncertainty of realization of certain temporary differences and tax credit carryforwards, based on the Company's assessment of future realizability of these deferred tax assets. Approximately $1,477,000 of the valuation allowance is attributable to the tax benefit of stock option transactions, which will be credited to common stock when realized. At June 30, 1994, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $610,000 which expire in 2004, research and development and investment tax credit carryforwards of approximately $2,415,000 which expire in the years 1999 through 2001 and alternative minimum tax credit carryforwards of approximately $1,970,000 which have no expiration date. The Company operates a subsidiary in Puerto Rico under a grant providing for partial exemption from Puerto Rico taxes through the year 2008. During 1993, the Company elected to have this subsidiary taxed under Section 936 of the Internal Revenue Code which exempts qualified Puerto Rico source earnings from federal income taxes. Income taxes have been provided on this subsidiary's unremitted earnings since 1993, as the Company anticipates that such earnings will ultimately be distributed in a taxable transaction. At June 30, 1994, total unremitted earnings and the related income tax liability of this subsidiary were $19,000,000 and $2,840,000, respectively. Certain provisions of the Omnibus Budget Reconciliation Act of 1993 may result in less favorable tax treatment for the Puerto Rico operation in future years. During 1993, the Company resolved all outstanding Internal Revenue Service examinations. Accordingly, the Company reduced previously provided federal taxes by $767,000 in 1993. Note I--Commitments The Company leases certain facilities and equipment under operating lease agreements which expire at various dates through September 2000. Rental expense charged to operations was $1,859,000 in 1994, $2,015,000 in 1993 and $1,958,000 in 1992. Future minimum payments due under noncancelable leases at June 30, 1994, were $1,486,000 in 1995, $1,444,000 in 1996, $1,175,000 in 1997, $295,000 in 1998, $208,000 in 1999 and $626,000 thereafter. Note J--Contingencies In January 1994, a complaint was filed in the United States District Court for the Northern District of California against the Company, three of its officers and two unaffiliated parties, by one of the Company's shareholders. The complaint requests that the court certify a class of plaintiffs consisting of persons who purchased shares of the Company's common stock during a specified period in 1993. The complaint alleges that false and misleading statements made during that period artificially inflated the price of the common stock in violation of federal securities laws. There is no specific amount of damages requested in the complaint. The Company and its officers believe that the complaint is entirely without merit, and intend to vigorously defend against the action. The Company is also a party to certain other claims which are normal in the course of its operations. While the results of such claims cannot be predicted with certainty, management, after consultation with counsel, believes that the final outcome of such matters will not have a material adverse effect on the Company's financial position or results of operations. Note K--Related Party Transactions During 1993, the Company made a $95,000 unsecured loan to an executive officer. The loan bears interest at approximately 5% per annum which is payable quarterly. The loan is due and payable in April 1998. Note L--Employee Benefit 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 $89,000, $63,000 and $57,000 in 1994, 1993 and 1992, respectively. Note M--Shareholders' Equity Stock Options. The Company has an employee stock option plan under which employees and consultants may be granted non-qualified and incentive options to purchase shares of the Company's authorized but unissued common stock. Stock appreciation rights may also be granted under this plan, however, none have been granted. In addition, the Company has a director stock option plan under which non-employee directors are automatically granted annual options to purchase 10,000 shares of the Company's authorized but unissued common stock. Three previous option plans have been closed to future grants. All options have been granted at the fair market value of the Company's common stock on the date of grant. Options expire no later than ten years from the date of grant and are generally exercisable in annual installments of 25%, 25% and 50% at the end of each of the first three years following the date of grant. In July 1994, the Company's Board of Directors approved a program under which employees, other than executive officers, may exchange options to purchase shares of the Company's common stock with exercise prices greater than $8.9375 per share for new options with an exercise price of $8.9375. A total of 286,500 shares were eligible for exchange. New options would begin re-vesting in July 1994. Stock option activity for the three years ended June 30, 1994, is as follows: Shares Options Outstanding Available Number Price For Grant of Shares Per Share _________ _________ ______________ (In thousands, except per share amounts) Balances at June 30, 1991 619 2,875 $1.50 to 3.75 Granted (440) 440 3.13 to 5.69 Exercised -- (361) 1.75 to 3.75 Canceled 15 (15) 1.94 to 3.75 Canceled under closed plan -- (75) 1.75 to 3.75 _____ _____ ______________ Balances at June 30, 1 194 2,864 1.50 to 5.69 Authorized 1,000 -- -- -- Granted (316) 316 4.88 to 13.00 Exercised -- (867) 1.50 to 5.69 Canceled 58 (58) 1.50 to 10.13 Canceled under closed pl -- (24) 1.63 to 3.63 _____ _____ ______________ Balances at June 30, 199 936 2,231 1.50 to 13.00 Granted (489) 489 7.63 to 17.75 Exercised -- (343) 1.50 to 7.50 Canceled 92 (92) 2.50 to 17.75 _____ _____ ______________ Balances at June 30, 1994 539 2,285 $1.50 to 17.75 ===== ===== ============== Exercisable at June 30, 1994 1,480 $1.63 to 13.00 ===== ============== Employee Stock Purchase Plan. During July 1994, subject to shareholder approval, the Company's Board of Directors approved an employee stock purchase plan under which 450,000 shares of common stock have been reserved for issuance. Under this plan, qualified employees may purchase shares of common stock at 85% of the fair market values at certain dates. Common Share Purchase Rights. The Company's shareholder rights plan (the Plan) was adopted in December 1990 and amended in January 1993. The Plan authorizes the issuance of one common share purchase right for each share of common stock. The rights expire in December 2000 and are not exercisable or transferable apart from the common stock until the occurrence of certain events. Such events include the acquisition of 20% or more of the Company's outstanding common stock or the commencement of a tender or exchange offer for 30% or more of the Company's outstanding common stock. If the rights become exercisable, each right entitles its holder to purchase one new share of common stock at an exercise price of $25.00, subject to certain antidilution adjustments. Additionally, if the rights become exercisable, a holder will be entitled, under certain circumstances, to purchase, for the exercise price, shares of common stock of the Company or in other cases, of the acquiring company, having a market value of twice the exercise price of the right. Under certain conditions, the Company may redeem the rights for a price of $.01 per right or exchange each right not held by the acquirer for one share of the Company's common stock. Warrants. At June 30, 1994, a warrant was outstanding to purchase 125,000 shares of the Company's common stock at $3.375 per share. The warrant expires in April 1995. Note N--Business Segment Information Industry Segment Information. Information relating to the Company's industry segments is as follows: Year ended June 30, 1994 1993 1992 _______ _______ _______ (In thousands) Net sales: Telecom Solutions $59,215 $57,031 $42,094 LMI 39,170 30,882 26,704 _______ _______ _______ $98,385 $87,913 $68,798 ======= ======= ======= Operating income (loss): Telecom Solutions $ 3,588 $ 7,877 $ 4,636 LMI 4,743 63 (1,500) _______ _______ _______ $ 8,331 $ 7,940 $ 3,136 ======= ======= ======= Identifiable assets: Telecom Solutions $43,223 $37,258 $25,957 LMI 25,831 21,696 22,274 _______ _______ _______ $69,054 $58,954 $48,231 ======= ======= ======= Depreciation and amortization expense: Telecom Solutions $ 2,917 $ 1,965 $ 1,395 LMI 2,872 2,980 2,546 _______ _______ _______ $ 5,789 $ 4,945 $ 3,941 ======= ======= ======= Capital expenditures: Telecom Solutions $ 2,017 $ 2,475 $ 1,401 LMI 1,589 2,098 494 _______ _______ _______ $ 3,606 $ 4,573 $ 1,895 ======= ======= ======= Major Customers and Export Sales. No customer accounted for 10% or more of net sales in 1994 or 1993. One of Telecom Solutions' customers accounted for 14% of the Company's net sales in 1992. Export sales, primarily to Western Europe, Canada and the Far East, accounted for 18%, 12% and 14% of the Company's net sales in 1994, 1993 and 1992, respectively. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Symmetricom, Inc. We have audited the accompanying consolidated balance sheets of Symmetricom, Inc., formerly Silicon General, Inc., and subsidiaries as of June 30, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1994 in conformity with generally accepted accounting principles. San Jose, California July 28, 1994 Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. Results of Operations The Company conducts its business through two separate operations, Telecom Solutions, which designs, manufactures and markets telecommunications equipment, and Linfinity Microelectronics Inc. (LMI), which designs, manufactures and markets linear and digital integrated circuits. Net sales of $98.4 million in fiscal 1994 increased by $10.5 million (12%) from fiscal 1993 net sales of $87.9 million, which in turn increased by $19.1 million (28%) from fiscal 1992 net sales. The increase in fiscal 1994 sales was primarily due to higher unit volume at LMI and to sales at Navstar, which was acquired by the Company in August 1993. The increase in fiscal 1993 sales was primarily due to higher unit volume at both Telecom Solutions and LMI. Telecom Solutions net sales increased by $2.2 million (4%) to $59.2 million in fiscal 1994 and by $14.9 million (35%) to $57.0 million in fiscal 1993. The increase in fiscal 1994 sales was due to Navstar sales; as Integrated Digital Services Terminal (IDST) and Analog sales were slightly higher in fiscal 1994, and only partially offset a decline in Synchronization sales. The Telecom Solutions increase in fiscal 1993 sales was primarily due to higher Synchronization and IDST unit volume. LMI's net sales increased by $8.3 million (27%) to $39.2 million in fiscal 1994 and by $4.2 million (16%) to $30.9 million in fiscal 1993 primarily due to higher unit volume. Gross profit margin, as a percentage of net sales, was 42%, 40% and 34% in fiscal 1994, 1993 and 1992, respectively. In fiscal 1994, the higher gross profit margin percentage resulted primarily from increased unit volume and other manufacturing efficiencies at LMI which offset a shift to lower margin products and decreased manufacturing efficiencies at Telecom Solutions. In fiscal 1993, the gross profit margin improvement was attributable to increased unit volume, other manufacturing efficiencies and a shift to higher margin products for both operations. Future gross profit margins will largely depend on product mix and manufacturing efficiencies. Research and development expense increased to $11.5 million (or 12% of sales) in fiscal 1994 from $8.4 million (10% of sales) and $5.9 million (or 9% of sales) in fiscal 1993 and 1992, respectively. The increase in fiscal 1994 was primarily due to research and development employee additions at both operations. In fiscal 1993, the increase in research and development expense was primarily attributable to employee additions at Telecom Solutions. Selling, general and administrative expense increased by 15% to $21.4 million (or 22% of sales) in fiscal 1994 from $18.6 million (or 21% of sales) in fiscal 1993 and by 29% in fiscal 1993 from $14.4 million (or 21% of sales) in fiscal 1992. The increase in fiscal 1994 was due to continued development of a Telecom Solutions international presence, establishment of a LMI marketing department and higher selling expenses associated with increased sales. In fiscal 1993, the dollar increase was principally due to higher selling expenses associated with higher sales. Operating income of $8.3 million in fiscal 1994 increased by 5% from fiscal 1993 operating income of $7.9 million which increased by 155% from fiscal 1992 operating income of $3.1 million. The increase in fiscal 1994 was due to higher LMI operating income which more than offset the decrease in Telecom Solutions operating income, and the increase in fiscal 1993 was due to higher operating income from both operations. See Note N of Notes to Consolidated Financial Statements Interest expense was $0.6 million in fiscal 1994, 1993 and 1992. Interest income, attributable to interest earned on cash and cash equivalents, was $0.4 million in fiscal 1994 and 1993 and $0.3 million in fiscal 1992. The Company's effective tax rate was 19% in fiscal 1994 and 22% in fiscal 1993 and 1992. The effective tax rate was lower than the statutory tax rate due to a reduction in the valuation allowance for deferred tax assets based on the Company's assessment of future realizability of such assets, and the benefit of having a portion of the Company's income taxed at lower rates in Puerto Rico. In addition, during fiscal 1993, the Company recorded a provision for taxes on prior years unremitted earnings of its Puerto Rico subsidiary which was substantially offset by the reduction of previously provided taxes as a result of resolving all outstanding Internal Revenue Service examinations. The effective tax rate may be higher in future years as the rate is dependent on the Company's ability to realize its deferred tax assets and the percentage of Puerto Rico earnings to total earnings. In addition, certain provisions of the Omnibus Budget Reconciliation Act of 1993 may result in less favorable tax treatment for Puerto Rico earnings. As a result of the factors discussed above, net income in fiscal 1994 was $6.6 million, or $.43 per share, compared to net income of $6.0 million, or $.40 per share, in fiscal 1993 and net income of $2.2 million, or $.16 per share, in fiscal 1992. Management does not believe inflation has had a significant effect on operations. Future Company operating results will largely depend upon the Company's ability to implement new technologies and products, changes in product mix and manufacturing efficiencies. Future Telecom Solutions operating results will continue to be highly dependent on receipt of orders during the applicable fiscal period. Future LMI operating results will also be subject to the cyclical nature of the semiconductor industry. The Company's future earnings and stock price may be subject to significant volatility. 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. Liquidity and Capital Resources Working capital increased by $9.2 million to $38.5 million at June 30, 1994, from $29.3 million at June 30, 1993, while the current ratio increased to 3.9 to 1.0 from 3.3 to 1.0. During the same period, cash and cash equivalents increased to $21.3 million from $18.2 million primarily due to $8.2 million in cash provided by operating activities and $1.0 million in cash received from stock option exercises, offset by $3.6 million used for capital expenditures and $2.0 million used for the acquisition of Navstar. Inventory increased $2.4 million substantially due to the purchase of certain components by the Company's Telecom Solutions operation in anticipation of possible shortages. At June 30, 1994, the Company had $7.0 million of unused credit available under its bank line of credit which expires in December 1995. The Company believes that cash and cash equivalents, funds generated from operations and funds available under its bank line of credit will be sufficient to satisfy working capital and capital equipment requirements in fiscal 1995. At June 30, 1994, the Company had no material outstanding commitments to purchase capital equipment. QUARTERLY RESULTS AND STOCK MARKET DATA (UNAUDITED) First Second Third Fourth Total Quarter Quarter Quarter Quarter Year (A) _______ _______ _______ _______ _______ (In thousands, except per share amounts) Fiscal Year 1994: Net sales $24,034 $25,011 $24,368 $24,972 $98,385 Gross profit 10,420 10,811 9,911 10,078 41,220 Operating income 2,428 2,402 2,100 1,401 8,331 Earnings before income taxes 2,380 2,307 2,032 1,406 8,125 Net earnings 1,723 1,670 1,471 1,687 6,551 Net earnings per common and common equivalent share .11 .11 .10 .11 .43 Common stock price range (B): High 18-1/8 17 10-1/2 8-5/8 18-1/8 Low 13-1/2 7-7/8 7-1/2 6-5/8 6-5/8 Fiscal Year 1993: Net sales $21,116 $21,646 $22,067 $23,084 $87,913 Gross profit 7,565 8,596 9,130 9,638 34,929 Operating income 1,656 1,880 2,142 2,262 7,940 Earnings before income taxes 1,608 1,813 2,094 2,209 7,724 Net earnings 1,301 1,467 1,523 1,710 6,001 Net earnings per common and common equivalent share .09 .10 .10 .11 .40 Common stock price range (B): High 5-1/4 10-3/8 14-7/8 17-3/8 17-3/8 Low 4-1/8 4-3/4 8-7/8 12-1/8 4-1/8 (A) The 1994 fourth quarter includes a reduction of income taxes of approximately $670,000, $.04 per share, resulting in a decrease of the Company's annual effective tax rate from 27.6% to 19.4%. (B) The Company's common stock trades on the Nasdaq Stock Market System under the symbol SYMM. At June 30, 1994, there were approximately 1,639 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. FIVE YEAR SELECTED FINANCIAL DATA Year ended June 30, 1994 1993 1992 1991 1990 _______ _______ _______ _______ _______ (In thousands, except per share amounts) Operating Results: Net sales: Telecom Solutions $59,215 $57,031 $42,094 $28,950 $22,491 Linfinity Microelectronics Inc. 39,170 30,882 26,704 33,018 35,715 _______ _______ _______ _______ _______ Total 98,385 87,913 68,798 61,968 58,206 Operating income 8,331 7,940 3,136 2,574 2,317 Earnings before income taxes 8,125 7,724 2,825 2,055 1,146 Net earnings 6,551 6,001 2,194 1,801 1,146 Net earnings per common and common equivalent share .43 .40 .16 .14 .09 Balance Sheet: Cash and cash equivalents 21,250 18,232 10,146 7,482 955 Working capital 38,503 29,348 20,661 16,092 10,768 Total assets 69,054 58,954 48,231 43,097 41,253 Non-mortgage debt -- -- -- -- 851 Long-term debt 5,818 5,865 5,907 5,945 4,884 Shareholders' equity 46,786 38,102 30,185 27,264 25,098 CORPORATE DIRECTORY Directors Telecom Solutions Officers William D. Rasdal 1 D. Ronald Duren Chairman of the Board President and Chief Operating and Chief Executive Officer Officer Symmetricom, Inc M.J. Narasimha, Ph.D. Vice President, Technology Paul N. Risinger Vice Chairman Dale Pelletier Symmetricom, Inc. Vice President, Operations Howard Anderson 2,3 Managing Director Rick Stroupe The Yankee Group Vice President, Sales Allen M. Peterson 1,2,3 Toney C. Warren Professor (emeritus), Vice President, Strategic Electrical Electrical Planning Stanford University Linfinity Microelectronics Inc. Officers Robert M. Wolfe 1,2,3 Brad P. Whitney Telecommunications President and Chief Operating Network Consultant Officer 1 Member, Executive Committee Ralph Brandi 2 Member, Audit Committee Vice President, Sales 3 Member, Stock Option and Compensation Committee Shufan Chan Corporate Officers Vice President, Development William D. Rasdal Chairman of the Board Mark Granahan and Chief Executive Officer Vice President, Marketing Paul N. Risinger Kelly Jones Vice Chairman Vice President, Manufacturing J. Scott Kamsler Vice President, Finance, Corporate Counsel Chief Financial Officer and Secretary Wilson, Sonsini, Goodrich & Rosati Palo Alto, California Independent Auditors Deloitte & Touche LLP San Jose, California Transfer Agent & Registrar Chemical Trust Company of California San Francisco, California Locations Symmetricom, Inc. Corporate Headquarters 85 West Tasman Drive San Jose, California 95134-1703 Telephone: 408-943-9403 Fax: 408-428-7896 Telecom Solutions 85 West Tasman Drive San Jose, California 95134-1703 Telephone: 408-433-0910 Fax: 408-428-7897 NavSymm 85 West Tasman Drive San Jose, California 95134-1703 Telephone: 408-486-6338 Fax: 408-428-7998 Linfinity Microelectronics Inc. 11861 Western Avenue Garden Grove, California 92641-2119 Telephone: 714-898-8121 Fax: 714-898-2781 Telecom Solutions Puerto Rico, Inc. Industrial Park, Building 7 P.O. Box 1046 Aguada, Puerto Rico 00602-1046 Telephone: 809-868-3535 Fax: 809-868-4466 Telecom Solutions (Europe) Limited 3 The Billings Walnut Tree Close Guildford, Surrey, GU1 4UL England Telephone: 44-483-451122 Fax: 44-483-451133 Navstar Systems Ltd. Mansard Close Westgate Northampton NN5 5DL England Telephone: 44-604-585588 Fax: 44-604-585599 Form 10-K Shareholders may obtain a copy of Symmetricom's 1994 annual report on Form 10-K as filed with the Securities and Exchange Commission, without charge, by writing to: Investor Relations, Symmetricom, Inc., 85 West Tasman Drive, San Jose, California 95134-1703 EX-10.11 5 EXHIBIT 10.11 NAVSTAR LEASE 1 DATED 1994 _______________________________________________________________________ BAKER HUGHES LIMITED (1) NAVSTAR SYSTEMS.LIMITED (2) SYMMETRICOM INC (3) _______________________________________________________________________ UNDERLEASE of Premises at Mansard Close Westgate Interchange Estate Northampton _______________________________________________________________________ Osborne Clarke 30 Queen Charlotte Street Bristol BS99 7QQ 78/3580l4 PARTICULARS 1. DATE OF THIS DEED day Of 1994 2. LEASE OR UNDERLEASE UNDERLEASE 3. LANDLORD BAKER HUGHES LIMITED (Company Number 1388658) whose registered office is at Hammersley House 5-8 Warwick Street London WlR 5RA 4. TENANT NAVSTAR SYSTEMS LIMITED (Company Number 2801218 ) whose registered office is at 3 The Billings Walnut Tree Close Guildford Surrey 5. SURETY SYMMETRICOM INC whose registered office is at 85 West Tasman Drive San Jose, California 95134-1703 6. SITE premises at Mansard Close Westgate Interchange Estate Northampton as shown edged blue on the annexed plan 7. DEMISED PREMISES premises at the site as shown edged red on the annexed plan 8. DATE OF COMMENCEMENT OF TERM 5th day of April 1994 9. LENGTH OF TERM 10 years 10. EXPIRY DATE OF TERM 4th day of April 2004 11. RENT(S) as they may be reviewed under the Third Schedule 72,000 pounds per annum 12. RENT COMMENCEMENT DATE 5th day of October 1994 13. RENT REVIEW DATE 29th September 1995 and 29th September 2000 14. USER Any use falling within Class III and/or Class X of the Town and Country Planning (Use Classes) Order 1972 15. HEAD LEASE means a Lease of the Site dated the 19th December 1985 made between Strathclyde Regional Council (1) and the Landlord (then called Baker International Limited) and references herein to superior leases shall include the Head Lease 16. HEAD LANDLORD means any person from time to time entitled (whether immediately or not) to the reversion expectant on the determination of the term granted by the Head Lease and references herein to superior landlord shall include the Head Landlord 17. SCHEDULE OF CONDITION means a schedule of the condition of the Demised Premises and the Common Parts agreed between the Landlord and the Tenant's respective surveyors and annexed hereto THIS LEASE made on the date stated in the Particulars B E T W E E N (1) the Landlord specified in the Particulars ("the Landlord") (2) the Tenant specified in the Particulars ("the Tenant") WITNESSES:- 1. Definitions ___________ IN this Lease the following expressions (where the context so admits) shall have the following meanings:- "the Particulars" The details on the preceding pages headed "Particulars" "the Plan" The plan or plans specified in the Particulars "the Term" The term mentioned in the Particulars "the Termination Date" The date of expiration or sooner determination of the Term "the Demised Premises" The whole and every part of the land described in the Particulars together with everything for the time being on the land and/or appurtenant to it (excluding any tenants fixtures and fittings and any matters the property of statutory undertakings) provided that the wall separating the said premises from the adjoining building on the Site shall be included only to the extent of the median line thereof "Conduit" Any sewers drains pipe wires ducts cables and other conducting media or other thing within the Demised Premises by means of which gas electricity water soil or any other facility service or matter may pass "Requisite Notice" A notice in writing to the Tenant forty eight hours before any entry is made on the Demised Premises or such notice to the Landlord before any entry is made on the Site (as the case may be) PROVIDED THAT in the case of an emergency no notice shall be required "the Insured Risks" The risks insured against under Clause 4.1 "Landlord" shall include the person entitled for the time being to the reversion of this Lease "Tenant" shall (unless the context otherwise admits) include the Tenant's successors in title and if it is an individual his personal representatives "Surety" shall include if it is an individual his personal representatives "Interest" Interest at the rate of 3% above Bank of Scotland Base Rate for the time being payable on any monies due and payable by the Tenant to the Landlord (if due payment is not made by the Tenant within 14 days of demand) from the date of demand by the Landlord until the date of payment to the Landlord "Act" Shall mean every Act of Parliament (whether specifically named herein or not) which may be relevant to the Demised Premises its user or anything on the Demised Premises the persons employed thereon or having recourse thereto whether or not in force at the date hereof and shall include any statutory re-enactment or modification thereof and any order regulation directive bye law rule consent or licence granted or required thereunder or by any Public or local authority or by any court of competent jurisdiction "Common Parts" shall mean all ways passages roads pavements sewers drains sanitary apparatus pipes gutters watercourses walls structures fences and other conveniences which shall belong to or be used by or in connection with the Demised Premises in common with the remainder of the Site and other premises near or adjoining thereto 2. IN THIS LEASE _____________ 2.1. The details and descriptions appearing in the Particulars shall be included and form part of the Lease 2.2. If there shall be more than one person included in the expression "Tenant" or "Surety" the covenants by them shall be joint and several 2.3. Where any act is prohibited the Tenant shall not allow or suffer such act to be done 2.4. Where the Landlord or any other person exercises any rights to enter the Demised Premises under this Lease unless specifically provided herein to the contrary the person exercising such right will forthwith make good any damage caused to the Demised Premises but neither such person nor the Landlord shall be liable for any other compensation 3. DEMISE ______ THE Landlord DEMISES to the Tenant ALL THOSE the Demised Premises TOGETHER with so far as the Landlord has title to grant the same the easements and rights specified in the First Schedule EXCEPTING AND RESERVING to the Landlord the rights and easements specified in the Second Schedule TO HOLD the Demised Premises to the Tenant from and including the Date of Commencement of Term for the Term SUBJECT to all rights easements privileges restrictions and stipulations of whatever nature and other matters referred to in the documents (if any) specified in the Fifth Schedule YIELDING AND PAYING 3.1. yearly and proportionately for any fraction of a year from and including the Rent Commencement Date the rents specified in Clause 11 of the Particulars and from and including each of the rent review dates referred to in the Particulars such other rent as may become payable under the provisions of the Third Schedule to be paid (by bankers order if the Landlord so requires) by equal quarterly payments in advance on the usual quarter days in every year the first such payment to be made today and to be in respect of the period from and including the Rent Commencement Date to the quarter day following whichever is the later of today's date and the Rent Commencement Date save that for the purposes of this Clause 3.1 for the period from the first rent review date until the fifth anniversary of the date hereof the Tenant shall pay the rent specified in the Particulars instead of the reviewed rent 3.2. the insurance rent as determined pursuant to Clause 4 hereof and Interest and all other sums whatsoever as shall become payable by the Tenant to the Landlord under the provisions of this Lease which are all hereby reserved as rent 3.3. on demand as further or additional rent a due proportion (to be reasonably determined by the Landlord) of the reasonable costs and expenses properly incurred (including those required under or by virtue of any Act of Parliament or local Bye-Law or any enactment or statutory instrument for the time being in force or by any competent public or local authority or otherwise) of repairing maintaining rebuilding lighting and cleansing all Common Parts and to keep the Landlord indemnified against all such reasonable costs and expenses as aforesaid and all reasonable costs and fees of professional advisers reasonably and properly incurred in connection therewith PROVIDED THAT the Tenant shall not be obliged or be liable to pay a due proportion of the costs and expenses of:- 3 3.1. putting and keeping the Common Parts in any better condition than that shown in the Schedule of Condition 3.3.2. or remedying any damage to the Common Parts due to any defect or deterioration in the Common Parts which is the direct or indirect result of any fault in the initial design the siting or the method of construction of the Common Parts or any part or parts thereof 4. INSURANCE _________ 4.1. Subject to the Tenant paying the premium in accordance with the provisions of this clause the Landlord hereby covenants with the Tenant that the Landlord will procure the insurance of the Demised Premises and the remaining part or parts of the Site subject to such excesses exclusions or limitations as the Head Landlord or its Insurers require in such reputable insurance office or with such underwriters and through such agency as the Head Landlord may from time to time decide in the full reinstatement value of the Demised Premises or such higher value as the Tenant may reasonably require including Architects and Surveyors and other professional fees and incidental expenses against:- 4.1.1. Loss or damage by fire explosion storm tempest (including lightning) flood burst pipes impact and (in peacetime) aircraft and articles dropped therefrom riot civil commotion and malicious damage and such other risks which the Landlord may from time to time deem necessary or such other risks against which insurance has been effected 4.1.2. Public Liability of the Landlord and the Head Landlord arising out of or in connection with any matter involving or relating to the Demised Premises and the remaining part or parts of the Site 4.1.3. The loss of rent payable under this Lease from time to time (having regard to any review of rent which may become due under this Lease) for three years or such longer period as the Head Landlord may from time to time reasonably consider to be sufficient for the purposes of planning and carrying out any such reinstatement 4.2. The Tenant shall pay to the Landlord on demand the amount of the premium for insuring the Demised Premises against the Insured Risks from the Date of Commencement of Term as reasonably determined by the Landlord 4.3. At the reasonable request of the Tenant the Landlord will produce evidence of such insurance and of the payment of the last premium 4.4. If any part of the Demised Premises or any part of the Site over which rights are granted to the Tenant is damaged by any of the Insured Risks and becomes unfit for occupation and use and the policy or policies of insurance shall not have been vitiated or payment refused in whole or part as a result of some act or default of the Tenant then the rents or a fair proportion of the rents according to the nature and extent of the damage shall be suspended until the Demised Premises or such parts of the Common Parts shall be fit for occupation and use or accessible and the Landlord shall forthwith repay to the Tenant any rent paid in advance in respect of a period after the date of such destruction or damage and any dispute regarding the cesser of rent shall be referred to a single arbitrator to be appointed in default of agreement upon the application of either party by the President for the time being of the Royal Institution of Chartered Surveyors under the Arbitration Acts 1950 to 1979 4.4.1. If the Demised Premises or any part of the Site over which rights are granted to the Tenant are damaged by any of the Insured Risks then unless payment of the insurance monies shall be refused in whole or part by reason of any act or default of the Tenant or anyone under its control and the Tenant does not comply with Clause 4.4.2. hereof and subject to the Head Landlord being able to obtain all necessary consents the Landlord hereby covenants with the Tenant that the Landlord will use all reasonable endeavours to ensure that the Head Landlord lays out the proceeds of such insurance in reinstating the Demised Premises and any part of the Site over which rights are granted to the Tenant and the Tenant will pay to the Landlord on demand with Interest (if appropriate) the amount equivalent to any excess which may be applicable to such insurance 4.4.2. If the payment of any insurance monies is refused in whole or in part as provided in Clause 4.4.1 by any act or default of the Tenant or anyone under its control then the Tenant will pay to the Landlord on demand and with Interest (if appropriate) the amount so refused 4.5. The Tenant will not do anything which may prejudice any policy of insurance for the time being in force in respect of any part of the Demised Premises or any part of the Site over which rights are granted to the Tenant or which may result in such insurance becoming void or voidable or the rate of premium under such insurances being increased (unless previously authorised by the Landlord the Head Landlord and the insurers and the Tenant shall elect to pay the increased premium) and the Tenant will at all times comply with all requirements of the insurers of the Demised Premises 4.6. The Tenant will keep the Demised Premises supplied with such fire fighting equipment as the insurers of the Demised Premises and the competent Fire Authority may require or as the Landlord may reasonably require and maintain such equipment to the satisfaction of all such persons 4.7. The Tenant will not store especially inflammable or explosive substances or goods at the Demised Premises or obstruct the access to any fire fighting equipment or the means of escape from or over the Demised Premises and in the event of anything happening which might affect any insurance policy relating to the Demised Premises forthwith to give notice to the Landlord 4.8. The Tenant will insure in the joint names of the Landlord the Head Landlord and the Tenant all plate glass (if any) in the Demised Premises against breakage or damage in its full reinstatement value for the time being with an insurance office or underwriters approved in writing by the Landlord (such approval not to be unreasonably refused or delayed) and will produce to the Landlord on demand (but not more than once in any period of twelve months) evidence of such insurance and the payment of the current years premium and all monies received from such insurance shall be laid out as soon as possible in reinstating the plate glass and any deficiency will be made up from the Tenants own monies and subject hereto the Tenant will not effect any insurance over the Demised Premises in respect of any of the Insured Risks 4.9. The Tenant will on demand repay to the Landlord the reasonable and proper costs incurred in obtaining valuations of the Demised Premises for insurance purposes from time to time but no more frequently than once every three years 5. TENANT'S OBLIGATIONS ____________________ THE Tenant COVENANTS with the Landlord: 5.1. Rents To pay the rents reserved by this Lease without deduction in accordance with its terms and in the event that any rent shall be unpaid for more than fourteen days after the due date (and in the case only of the rent reserved by Clause 3.1 hereof whether formally demanded or not) to pay Interest 5.2. 5.2.1. Repair and Decoration _____________________ Subject to the provisions of Clause 5.2.6 at all times to repair and to keep the Demised Premises in good and substantial repair and condition free from all defects and to yield up the same at the Termination Date in accordance with the covenants by the Tenant contained in this Lease (damage by any of the Insured Risks excepted unless payment of the insurance moneys shall be withheld in whole or in part by reason solely or in part of any act or default of the Tenant its servants or agents) PROVIDED THAT the Tenant shall not be obliged to put or keep the Demised Premises in any better condition than as set out in the Schedule of Condition 5.2.2. To keep the Demised Premises (including any part unbuilt on) and all conduits in a clean and tidy condition and properly cleansed and free from obstruction and in particular to clean all the windows (both inside and out) and all other glass in the Demised Premises monthly 5.2.3. Decoration __________ Without prejudice to the generality of the foregoing 5.2.3.1. during the first year and every succeeding third year and in the last six months of the Term (PROVIDED THAT the Tenant shall not be liable so to do more frequently than once every 24 months) to paint and otherwise treat as the case may be all the outside of the Demised Premises usually so treated in a workmanlike manner to the reasonable satisfaction of the Head Landlord in colours to be approved by the Head Landlord AND as often as in the reasonable opinion of the Landlord may be necessary and in any event during the last three months of the Term to clean all external surfaces of the Demised Premises and to repoint any brickwork 5.2.3.2. during the second year and every succeeding fifth year and in the last six months of the Term (Provided That the Tenant shall not be liable so to do more frequently than once every twenty four months) to paint and otherwise treat as the case may be all the inside wood and metal work of the Demised Premises usually painted or otherwise treated in a workmanlike manner to the reasonable satisfaction of the Landlord and also clean all other inside parts of the Demised Premises and to paint or paper in a workmanlike manner all walls and ceilings of the Demised Premises usually painted or papered as the case may be such decorations in the last three months of the Term to be executed in such colours patterns and materials as the Head Landlord may require 5.2.3.3. Where painting is required under any of the preceding paragraphs in the case of exterior painting it shall consist of a priming coat and three coats of good quality paint and in the case of interior painting three coats of good quality paint and in every case materials of good quality only shall be used 5.2.4. To repair or replace forthwith by new articles of similar kind and quality any fixtures fittings or plant or equipment (other than tenants or trade fixtures and fittings) in the Demised Premises which shall become in need of repair or replacement 5.2.5. To keep any part of the Demised Premises which may not be built upon adequately surfaced in good condition properly mowed (if grass) and free from weeds and all lanascaped areas properly cultivated 5.2.6. The Tenant's liability to keep the Demised Premises in good and substantial repair and condition shall not apply to damage due to any defects or deterioration in the Demised Premises which is the direct or indirect result of any fault in the initial design the siting or the method of construction of the Demised Premises and/or the building or any part or parts thereof 5.3. Alterations and additions _________________________ 5.3.1. That no new building or new structure of any kind shall at any time be erected upon any part of the Demised Premises 5.3.2. Not to make any internal or external alterations or additions to any part of the Demised Premises and not to cut maim or remove structural parts of the Demised Premises and not to make any change in the existing design or appearance of the Demised Premises PROVIDED ALWAYS that the Tenant may with the prior written consent of the Landlord (such consent not to be unreasonably withheld or delayed) carry out internal non-structural alterations to any buildings for the time being erected on the Demised Premises 5.4. User _____ At all times during the said term to use the Demised Premises for the User specified in the Particulars and not to use the same or any part for any other purpose 5.5. Alienation __________ 5.5.1. Not to assign charge or underlet or part with or share the possession or occupation of any part or parts (as distinct from the whole) of the Demised Premises and not to agree so to do 5.5.2. Not to underlet part with or share possession of the whole of the Demised Premises or agree so to do or permit anyperson to occupy the same save by way of an assignment of the whole of the Demised Premises in accordance with theprovisions hereinafter contained 5.5.3. Without prejudice to the foregoing provisions of this sub-clause not to assign or charge the whole of the Demised Premises without the previous written consent of the Landlord such consent not to be unreasonably withheld or delayed 5.5.4. On any assignment to procure that the Assignee enters into a covenant with the Landlord to pay the rents reserved byand perform and observe the covenants on the part of the Tenant contained in this Deed 5.5.5. If the Landlord shall reasonably so require to obtain acceptable Guarantors for any person to whom this Lease is to be assigned who shall covenant with the Landlord in the terms (mutatis mutandis) set out in the Fourth Schedule hereto 5.5.6. Not to vary the terms of or accept any surrender of any underlease permitted under this clause (or agree so to do) without the Head Landlord's and the Landlord's written consent (such consent not to be unreasonably withheld or delayed) 5.5.7. Within one month after the transmission of any interest under this Lease or derivative on it or the execution of any document dealing with such interest to produce to and leave with the Landlord the Deed instrument or other document evidencing or effecting such dealing or transmission together with the Landlord's registration fee of 20 and with such reasonable registration fee as the Head Landlord may require PROVIDED THAT registration of any such deed instrument or other document shall be evidence of notification of such transaction to the Landlord but shall not require the Landlord to consider the terms of such transaction or of the said deed instrument or other document and shall not be evidence that it has done so 5.6. Entry _____ 5.6.1. To permit the Landlord and all persons authorised by it at all reasonable times upon Requisite Notice to enter upon the Demised Premises: 5.6.1.1. to examine their condition and to take schedules of repairs and the like and inventories of and fittings plant and machinery 5.6.1.2. to execute any works of construction repair decoration or of any other nature on any adjoining or neighbouring premises and to carry out any repairs decorations or other work which the Landlord must or may carry out under the provisions of this Lease upon or to the Demised Premises 5.6.1.3. for any other reasonable and proper purpose connected with the interest of the Landlord in the Demised Premises including (without prejudice to the generality of the foregoing) for the purpose of valuing or disposing of any interest of the Landlord or any superior landlord or doing anything which may be reasonably necessary to prevent a forfeiture of any superior lease for the time being affecting the Demised Premises 5.6.1.4. in the last six months of the Term to affix a sign or signs indicating that the Demised Premises are to let unless the Tenant enjoys a statutory right to renew this Lease 5.6.1.5. The person or persons exercising the right of entry contained in this Clause 5.6.1. shall cause as little interference with the Tenant's use and/or enjoyment of the Demised Premises and/or the Tenant's business as reasonably possible and forthwith make good all damage thereby caused to the reasonable satisfaction of the Tenant and the right of entry is subject thereto 5.6.2. If as a result of an inspection or otherwise the Landlord becomes aware of any breaches of covenant by the Tenant hereunder the Landlord may give notice in writing thereof to the Tenant and within two months after every such notice or sooner if reasonably required the Tenant shall remedy such breach of covenant in accordance with such notice and the covenants contained in this Lease to the reasonable satisfaction of the Landlord AND if the Tenant shall fail within two months of such notice or immediately in case of emergency to commence and to diligently and expeditiously continue to comply with such notice or if the Tenant shall at any time make default in the performance of any of the covenants contained in this Lease for or relating to the repair decoration or maintenance of the Demised Premises then (without prejudice to the right or re-entry and forfeiture hereinafter contained) the Landlord may enter upon the Demised Premises pursuant to and subject to the provisions of Clause 5.6.1 hereof and carry out or cause to be carried out all or any of the works referred to in such notice or remedy the default of the Tenant and in such circumstances the Landlord shall be under no liability to make good any damage whatsoever and all reasonable costs of all such works and all expenses properly incurred in remedying such defaults in each case together with Interest (if applicable) shall be paid by the Tenant to the Landlord on demand 5.7. Town and Country Planning Acts and Acts Generally _________________________________________________ 5.7.1. To comply with al1 Acts (including without prejudice to the generality of the foregoing the Town and Country Planning Acts 1971 to 1991) 5.7.2. At its expense to obtain from the appropriate authorities all licences consents and permissions as may be required for the carrying out by the Tenant of any operations or use on any part of the Demised Premises 5.7.3. Not to make any application for planning permission without first producing a copy of the same and obtaining the prior written consent of the Landlord to such application which consent shall not be unreasonably withheld or delayed 5.7.4. Notwithstanding any consent which may be granted by the Landlord under this Lease not to carry out or make any alteration or addition to the Demised Premises or any change of use thereof (being an alteration addition or change of use for which a planning permission needs to be obtained) before a planning permission therefor has been produced to the Landlord and acknowledged by it in writing as being satisfactory to it such acknowledgement (subject to the proviso contained in this sub- clause) not to be unreasonably withheld or delayed PROVIDED ALWAYS that the Landlord may refuse so to express its satisfaction with any such planning permission on the ground that the period thereof or anything contained therein or omitted therefrom in the reasonable opinion of the Head Landlord or its Surveyor would be or be likely to be prejudicial to the Head Landlords interest in the Demised Premises whether during the said term or following the expiration thereof or likely to involve the Head Landlord in liability to Development Land Tax or any similar or substituted tax or charge on development gains 5.7.5. Unless the Landlord shall otherwise in writing direct to carry out before the Termination Date any works stipulated to be carried out to the Demised Premises as a condition of any planning permission which may have been granted during the Term and implemented by the Tenant or any other person whether or not the date by which the planning permission requires such works to be carried out falls within the Term 5.7.6. In any case where a Planning Permission granted is granted subject to conditions and if the Head Landlord reasonably so requires to provide reasonable security for the compliance with such conditions and such planning permission shall not be implemented until such security shall have been provided 5.7.7. If reasonably required by the Landlord but at the cost of the Tenant to appeal to the Secretary of State against any refusal of planning permission or the imposition of any conditions on a planning permission in either case made pursuant to an application therefor under this sub-clause PROVIDED THAT the Tenant shall not be obliged to appeal against the decision of the Secretary of State 5.7.8. Within seven days of the receipt of notice thereof to give full particulars to the Landlord of any permission notice order or proposal relevant to the Demised Premises or to the use thereof given to the Tenant or the occupier of the Demised Premises (together with a copy of any notice permission letter or document) under the Planning Acts or any Act and without delay to take all necessary steps to comply therewith with the written approval of the Landlord (such approval not to be unreasonably withheld or delayed) and also at the request of the Landlord to make or join with the Landlord in making such objections and representations against or in respect of any such notice order or proposal as aforesaid as the Landlord shall reasonably require the cost of which is to be shared equally between the Landlord and the Tenant 5.8. Outgoings Costs and Fees ________________________ 5.8.1. To pay and discharge all existing and future rates taxes duties charges assessments impositions and outgoings whatsoever and whether or not of a non- recurring nature (hereinafter called "outgoings") which now are or may be charged levied assessed or imposed upon the Demised Premises or upon the owner or occupier thereof and to pay bear and discharge the proportion properly attributable to the Demised Premises of any outgoings as may be charged levied assessed or imposed upon any premises of which the Demised Premises form part (such proportion to be reasonably determined by the Surveyor for the time being to the Landlord) and not to make any claim for relief against outgoings payable in respect of the Demised Premises without the Landlords prior written consent such consent not to be unreasonably withheld or delayed 5.8.2. To pay to the Landlord all costs charges and expenses(including professional advisers costs and fees) incurred by any superior Landlord and/or reasonably and properly incurred by the Landlord 5.8.2.1. In or in contemplation of any proceedings under Sections 146 or 147 of the Law of Property Act 1925 including the preparation and service of notice thereunder (notwithstanding forfeiture is avoided otherwise than by relief granted by the Court) 5.8.2.2. In the preparation and service of a Schedule of Dilapidations at any time during the Term or within three months after the Term expires 5.8.2.3. In respect of any application for consent required by this Lease whether or not such consent be granted 5.8.3. If any payments of rent or otherwise are to be made by the Tenant under this Lease (hereafter in this clause called "the Payments") to the Landlord or any person on the Landlord's behalf the Tenant shall pay by way of further rent any Value Added Tax which is or may become payable in respect of the Payments together with Interest unless in the case of third party costs charges and expenses the same are recoverable by the Landlord as Input Tax and irrecoverable by the Tenant Provided Always that wherever appropriate the person to whom the Payments are made shall as a condition of payment supply the Tenant with the appropriate V.A.T. invoice 5.9. General Requirement concerning use __________________________________ 5.9.1. Not to use any part of the Demised Premises for any noxious noisy or offensive trade or business or for any illegal or immoral act or purpose nor for any sale by auction and not to commit any nuisance or do anything which may be or become an inconvenience or cause damage or disturbance to the Landlord or any other person PROVIDED THAT this shall not restrict or prohibit the Tenant using the Demised Premises for the User authorised herein 5.9.2. Not to allow empty containers or rubbish of any description to accumulate upon the Demised Premises nor to discharge into any Conduit any deleterious matter or any substance which might be or become a source of danger or injury to the drainage system of the Demised Premises or any other property or person 5.9.3. Not to use any part of the Demised Premises in such manner as to subject it to any strain or interference which is not reasonable or is in excess of that which the Demised Premises were designed to bear and not to install machinery on the Demised Premises which shall be unduly noisy or cause vibration 5.9.4. Not to do anything on the Demised Premises which might reasonably be expected to produce directly or indirectly corrosive fumes or vapours or moisture or humidity in excess of that which the Demised Premises were designed to bear and are otherwise reasonable 5.9.5. Not to erect or display any mast or pole flag signboard advertisement inscription bill placard or sign whatsoever on the Demised Premises or the windows thereof so as to be seen from the exterior without the previous written consent of the Landlord which shall not be unreasonably withheld or delayed in respect of a sign stating the Tenant's name and business or profession (such sign if the Landlord so requires to be removed and any damage caused thereby made good by the Tenant at the Termination Date) 5.9.6. To comply with all reasonable regulations made by the Landlord (in the interest of good estate management) or the Head Landlord from time to time for the management of the Demised Premises and/or any land or premises used or to be used in common or jointly with any other person 5.9.7. Not to load or unload any vehicle unless the vehicle shall be in a loading area provided for that purpose and not to obstruct or damage any access ways roads or landscaped areas in or leading to the Demised Premises 5.9.8. To give written notice to the Landlord of any defect in the Demised Premises which might give rise to an obligation on the Landlord to do or refrain from doing any act or thing in order to comply with the duty of care imposed on the Landlord pursuant to the Defective Premises Act 1972 and at all times to display and maintain all notices which the Tenant is from time to time required under the provisions of any Act to display at the Demised Premises or the Head Landlord reasonably requires to be so displayed 5.9.9. Not to stop up or paint out any windows at the Demised Premises and not to permit any encroachment upon the Demised Premises or the acquisition of any new right to light passage drainage or other easement over any part of the Demised Premises and to give immediate written notice to the Landlord of any threat of such encroachment or acquisition and at the Landlord's written request to take such action as the Landlord may reasonably require to prevent such encroachment or acquisition 5.10. New Guarantor _____________ Within fourteen days of the death during the Term of any person who has or shall have guaranteed to the Landlord the Tenants obligations contained in this lease or of such person becoming bankrupt or having a Receiving Order made against him or being a Company passing a Resolution to wind up or entering into liquidation (other than for the purpose of reconstruction or amalgamation whilst solvent) then to give notice thereof to the Landlord and if so required by the Landlord at the expense of the Tenant within twenty eight days to procure some other person acceptable to the Landlord to execute a Guarantee in respect of the Tenants obligations contained in this lease in the form set out in the Fourth Schedule hereto 5.11. Superior Interests __________________ If this lease shall at any time be an underlease: 5.11.1. Any provision for consent or approval of the Landlord shall be deemed to be subject to the consent or approval of all superior landlords and the costs and expenses of obtaining such consents (whether or not consent is forthcoming) shall be repaid by the Tenant to the Landlord on demand 5.11.2. To comply with all the Tenants covenants contained in the Head Lease so far as they relate to the Demised Premises (but not those expressly assumed by the Landlord in this Lease or the covenant contained in clause 5.2.3.1 of the Head lease]) 5.12 Indemnity _________ The Tenant will keep the Landlord fully indemnified against all damages losses reasonable costs expenses proceedings and liabilities purposes properly arising directly or indirectly out of the existence state of repair or user of the Demised Premises any breach of the Tenants covenants herein contained or any failure to comply with the Planning Acts or any other Act and against any liability for any tax levy charge or other fiscal imposition of whatsoever nature including penalties and interest on overdue tax (and penalties for failure to give appropriate notices and information as properly required under the provision of any Acts) for which the Landlord shall be liable as a result of any material development carried out by or on behalf of the Tenant on the Demised Premises and shall on demand pay to the Landlord the amount of any such sum and (if applicable) Interest PROVIDED THAT this clause shall not impose upon the Tenant a greater liability to keep the Demised Premises in good and substantial repair and condition than that imposed by clause 5.2 hereof 6. THE Landlord COVENANTS with the Tenant as follows:- 6.1. Quiet Enjoyment _______________ That the Tenant paying the rents hereby reserved and observing and performing its covenants and conditions contained in this Lease may peaceably and quietly hold and enjoy the Demised Premises without any lawful interruption by the Landlord or any person rightfully claiming through under or in trust for it 6.2. To pay the rents reserved by any superior lease (including the Head Lease) for the time being in force on the due dates for payment thereof and to observe and perform all the covenants on its part contained in any superior lease (including the Head Lease) insofar as the same are not to be observed and performed by the Tenant in accordance with the provisions of this Lease 6.3. To take reasonable and necessary steps to ensure that the Head Landlord complies with the covenants and agreements on its part contained in the Head Lease to enable the Tenant to have the continued use and enjoyment and benefit of all the obligations contained in such covenants and agreements during the Term so far as such covenants and agreements relate or to affect the Demised Premises 6.4. Subject to the Tenant paying to the Landlord the sums due in accordance with Clause 3.3 hereof to keep the Common Parts and all fixtures and fittings therein and additions thereto in a good state of repair and decoration and condition including renewal and replacement of all worn and damaged parts including in particular but without prejudice to the generality of the foregoing to maintain the surface or any roads and pavements and keeps the same properly lit PROVIDED THAT the Landlord shall act fairly and reasonably in carrying out its obligations hereunder at all times and shall manage and maintain the Common Parts economically and efficiently and in the interests of good estate management 6.5. That the Landlord will forthwith following the destruction or damage of the Demised Premises or the Common Parts due to any defect or deterioration in the Demised Premises or Common Parts which is the direct or indirect result of any fault in the initial design the siting or the method of the construction of the Demised Premises or the Common Parts and/or the building or any part or parts thereof use all reasonable endeavours to reinstate and/or rebuild the Demised Premises or the Common Parts 6.6. That the Landlord will use all reasonable endeavours following destruction or damage to the Demised Premises or the Common Parts without delay to obtain all necessary consents and approvals to enable the reinstatement and/or rebuilding to be carried out. 6.7. That the Landlord will at all times repair and keep the remainder of the site in good and substantial repair and condition. 7. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED as follows: 7.1. Re-entry ________ Notwithstanding and without prejudice to any other remedies and powers herein contained or otherwise available to the Landlord if the rents hereby reserved or any part thereof shall be unpaid for twenty eight days after becoming payable whether formally demanded or not or if any covenant on the Tenant's part or condition contained in this Lease shall not be performed or observed or if the Tenant for the time being (being a Company) shall enter into liquidation whether compulsory or voluntary (save for the purpose of reconstruction or amalgamation whilst solvent) or pass a resolution for winding up (save as aforesaid) or suffer a Receiver to be appointed or being an individual or being more than one individual any one of them shall have a Receiving Order made against him or become bankrupt or if the Tenant (or if there shall be more than one Tenant any of them) shall enter into composition with their or his creditors then and in any such case it shall be lawful for the Landlord at any time thereafter to re-enter upon the Demised Premises or any part thereof in the name of the whole and thereupon this demise shall absolutely determine but without prejudice to any right of action or remedy of the Landlord in respect of any breach non-observance or non-performance of any of the Tenant's covenants or any condition herein contained 7.2. Service of Notices __________________ 7.2.1. Any demand or notice to be served on the Tenant or any Surety hereunder shall be validly served if sent by first class post addressed to the Tenant or the Surety respectively at its registered office or its last known address or at the Demised Premises 7.2.2. Any notice to be served on the Landlord shall be validly served if sent by first class post addressed to the Landlord at its registered office 7.3. Adjoining land ______________ Nothing in this Lease shall prevent the Landlord and all persons authorised by it without requiring any consent from or making any compensation to the Tenant dealing as it or they may think fit with any land or buildings adjacent or near to the Demised Premises and erecting or suffering to be erected on any part of such land any buildings or structures whatsoever and making any alterations or additions and carrying out any demolition or rebuilding whatsoever which it or they may think fit subject to such buildings alterations or additions not affecting or diminishing the light or air or any right and easement specified in the First Schedule hereto which may now or at any time during the Term be enjoyed by the Demised Premises 7.4. No liability in damages _______________________ The Head Landlord shall not in any circumstances incur any liability in respect of damage to person or property or otherwise howsoever by reason of any act neglect default or misfeasance of the Head Landlord or their servants employees agents or independent contractors or by reason of any accidental damage which may at any time be done to the Demised Premises or to any of the goods persons or property of the Tenant or any other person in performance of any services for the Tenant at the Tenant's request 7.5. Failure to Perform Obligation _____________________________ The Landlord shall not in any event be liable to the Tenant in respect of any failure of the Landlord to perform any of its obligations to the Tenant hereunder whether expressed or implied (other than those contained in Clause 4 hereof) unless the Tenant has so notified the Landlord and the Landlord has failed within a reasonable time to remedy the same 7.6. Statutory Compensation ______________________ Except where any statutory provision prohibits the Tenant's right to compensation being reduced or excluded by agreement the Tenant shall not be entitled to claim from the Landlord on quitting the Demised Premises or any part thereof any compensation under the Landlord and Tenant Act 1954 7.7. Exclusion of Riqhts not Granted _______________________________ Nothing herein contained shall operate expressly or impliedly to confer upon or grant to the Tenant any easement right or privilege other than those expressly hereby granted and set out in the First Schedule hereto 7.8. If Navstar Systems Limited shall assign this Lease to an assignee (in this clause called "the assignee") then forthwith upon the completion of an assignment of this lease by the assignee Navstar Systems Limited and Symmetricom Inc shall be released from any further liability under the terms hereof and the Landlord shall at the Tenant's cost execute such deed of release as the Tenant and/or the Surety shall reasonably require Provided that the assignee is not a group company of the original Tenant within the meaning of Section 42 of the Landlord and Tenant Act 1954 7.9. If the Demised Premises any part thereof or any part of the Common Parts over which rights are granted to the Tenant shall at any time be destroyed or damaged due to any defect or deterioration in the Demised Premises or the Common Parts which is the direct or indirect result of any fault in the initial design the siting or the method of construction of the Demised Premises and/or the building or any part or parts thereof or the Common Parts then the rent reserved or a fair and just proportion thereof according to the nature and extent of the damage shall be suspended until the Demised Premises or such parts of the Common Parts over which rights are granted to the Tenant shall be fit for occupation and use or accessible and the Landlord shall forthwith repay to the Tenant such rent paid in advance in respect of the period after the date of such destruction or damage and any dispute regarding the cesser of rent shall be referred to a single arbitrator to be appointed in default of agreement upon the application of either party by the President for the time being of the Royal Institution of Chartered Surveyors under the Arbitration Acts 1950-1979. 7.10.1. In this clause 7.10 the following expressions shall have the following meanings:- 7.10.1.1. "Rent first reserved" means the Rent first reserved from time to time pursuant to clause 3.1 hereof; and 7.10.1.2. "VAT" means any Value Added Tax or other tax replacing or supplementing the same from time to time 7.10.2. In the event of the Head Landlord serving on the Tenant notice under Section 6 of the Law of Distress Amendment Act 1908 or any statutory enactment replacing the same requiring the Tenant to pay the Rent first reserved direct to the Head Landlord then in respect of any period when the Tenant is required to pay the Rent first reserved direct to the Head Landlord the Rent first reserved shall be deemed to be inclusive of any VAT charged assessed or payable thereon 7.11 If the tenant shall desire to determine the Term at the expiration of the fifth sixth seventh or ninth years thereof then the Tenant shall serve notice on the Landlord as follows:- 7.11.1 if the tenant shall desire to determine the Term at the expiration of the fifth year of the Term the Tenant shall serve not less than six months previous notice in writing of such desire (such notice to specify that the Term is to determine on the expiration of the fifth year of the Term); and 7.11.2. if the Tenant shall desire to determine the Term at the expiration of the sixth or the seventh or the ninth years of the Term the Tenant shall serve not less than nine months previous notice in writing of such desire (such notice to specify when the Term is to determine) and the Term shall thereupon cease at the end of the year of the Term specified in the Tenant's notice and the Landlord shall refund to the Tenant all sums by way of rent paid in advance for any period beyond that date but without prejudice to the rights or remedies of either party against the other in respect of any antecedent claim for breach of covenant 8. COVENANTS BY SURETY ___________________ THE Surety HEREBY COVENANTS with the Landlord in the terms set out in the Fourth Schedule hereto IN WITNESS the parties hereto have executed these presents on the date specified in Paragraph 1 of the Particulars THE FIRST SCHEDULE above referred to ____________________________________ (Rights and Easements Granted) _____________________________ The right (insofar as the Landlord has power to grant the same) for the Tenant in common with the Landlord any superior landlords those authorised by any of them and all others having the same right to:- 1. For the purpose only of access to and egress from the Demised Premises to pass and repass with or without vehicles at all times over the roadways comprised in the Site and to use any areas within the Site so allocated for the loading and unloading of vehicles subject always to compliance by the Tenant with all reasonable rules and regulations for the use thereof prescribed from time to time by the Landlord and provided that no obstruction is caused to any car parking spaces on the Site 2. To pass and repass on foot only over and along the footways comprised in the Site as a means of access to and egress from the Demised Premises 3. Free and uninterrupted passage of services and facilities through the Conduits which are now or may at any time during the Term serve the Demised Premises with the right to construct and maintain new Conduits for the benefit of the Demised Premises (but not to construct new Conduits in on or under any new buildings now or hereafter to be erected on the Site) the right to repair maintain and renew such existing and new Conduits and the right at any time but on Requisite Notice to enter (or in the Landlord's absence but in emergency only to break and enter) the Site subject to the Tenant forthwith making good any damage caused in the exercise of this right 4. The right of support and protection for the Demised Premises from the Site and any buildings now or hereafter to be erected on the Site 5. Such rights of access to and entry upon the Site as are necessary for the proper performance of the Tenant's obligations hereunder or as may be required to remedy a failure by the Landlord to observe and perform its obligations in this Lease or in the Head Lease THE SECOND SCHEDULE above referred to _____________________________________ (Rights and Easements Excepted) _______________________________ The following rights and easements are excepted and reserved out of the Demised Premises to the Landlord any superior landlords and their respective tenants and the occupiers of any adjoining or neighbouring premises and all other persons authorised by the Landlord or any superior landlord or having the like rights and easements: 1. The free and uninterrupted passage of services and facilities through the Conduits which are now or may at any time during the Term be in the Demised Premises with the right to construct and maintain new Conduits for the benefit of any adjacent or nearby premises (but not to construct new Conduits in on or under any buildings now or hereafter to be erected on the Demised Premises) the right to repair maintain and renew such existing and new Conduits and the right at any time but on Requisite Notice to enter (or in the Tenant's absence but in emergency only to break and enter) the Demised Premises subject to the Landlord forthwith making good any damage caused in the exercise of this right 2. The right to build rebuild or execute any other works upon any adjacent or nearby premises in such manner as the Landlord may think fit subject to the Landlord not affecting or diminishing the access or enjoyment of light or air to or in respect of the Demised Premises or any right and easement specified in the First Schedule hereto SUBJECT to the Landlord giving Requisite Notice and forthwith making good any damage caused in the exercise of this right 3. The support and protection from the Demised Premises enjoyed by buildings now or hereafter to be erected 4. The right to build on or into any perimeter wall of the Demised Premises and after giving Requisite Notice to enter the Demised Premises to place and lay in under and upon the same such footing for any intended wall or structure with the foundations therefor as the Landlord shall think proper and for such purpose to excavate the Demised Premises along the line of the junction between the Demised Premises and any adjoining premises And also the right to erect and use scaffolding upon the Demised Premises for such purposes PROVIDED THAT the Landlord shall (a) not interfere with or restrict the Tenant's access to or enjoyment or use of the Demised Premises or any part thereof and (b) forthwith make good any damage caused 5. The right at any time on Requisite Notice to enter (or during the Tenant's absence but in emergency only to break and enter) the Demised Premises in order to (a) inspect or view the condition of the Demised Premises (b) to carry out work upon any adjacent premises and (c) to carry out any repairs or other Work or do anything which the Landlord and/or the Head Landlord must or may carry out or do under the provisions of this Lease or the Head Lease respectively THE THIRD SCHEDULE above referred to ____________________________________ (Provisions for Rent Review) ____________________________ 1. In this Schedule the following expressions shall have the following meanings: 1.1. "the Rent Review Date" the date specified in the Particulars 1.2. "open market rent" shall mean the best yearly rent for which the Demised Premises could reasonably be expected to be let with vacant possession on the Relevant Review Date (as hereinafter defined) in the open market by a willing lessor to a willing lessee without taking a fine or premium for a term of Ten years from the Relevant Review Date with provisions similar to those contained in the Head Lease for Rent Review every five years and otherwise upon the terms and conditions (save that the extent of the demised premises and rights granted shall be as are herein contained and save also as to the amount of rent) as are contained in this Lease and on the assumption (if not the fact) that the Demised Premises shall be ready for immediate beneficial occupation and that all the Tenant's and the Landlord's covenants shall have been complied with but there being disregarded: 1.2.1. any effect on rent of the fact that the Tenant or an undertenant may have been in occupation of the Demised Premises 1.2.2. any goodwill attached to the Demised Premises by reason of any trade or business carried on therein by the Tenant or any undertenant 1.2.3. any effect of any improvement made by the Tenant for the time being after the date hereof otherwise than in pursuance of an obligation to the Landlord 1.2.4. Any effect of the Works carried out pursuant to a Licence to Carry Out Works dated the 11th day of April 1994 made between Strathclyde Regional Council of the first part the Landlord of the second part the Tenant of the third part and the Surety of the fourth part 2. From and after the Relevant Rent Review Date the rent first reserved shall be whichever is the higher of: 2.1. the yearly rent operative immediately before the Rent Review Date and 2.2. the open market rent of the Demised Premises (hereinafter called "the new rent") 3. If the Landlord and the Tenant shall be able to agree the new rent or when the new rent shall have been determined in accordance with the provisions hereof as the case may be a note of the new rent shall be endorsed in the Sixth Schedule to this lease and the Counterpart hereof and signed by the parties hereto 4. If three months before the Rent Review Date the Landlord and the Tenant shall not have agreed on the new rent payable from the Rent Review Date the Landlord or the Tenant may at any time thereafter before the rent shall be agreed between the Landlord and the Tenant require an independent Surveyor (hereinafter called "the Surveyor") to determine the open market rent 5. The Surveyor may be agreed upon by the Landlord and the Tenant and in default of such agreement shall be appointed by the President for the time being of the Royal Institution of Chartered Surveyors or the person designated by such institution for such purpose on the application of the Landlord or the Tenant and any reference hereafter to the said President shall be deemed to include a reference to such officer 6.1. Notice in writing of his appointment shall forthwith be given by the Surveyor to the Landlord and the Tenant and he shall invite each to submit within a specified period (which shall not exceed four weeks) a valuation accompanied if desired by a statement of reasons 6.2. The Surveyor (who shall be a Chartered Surveyor experienced in the letting and/or valuation of premises of a similar nature to and situate in the same region as the Demised Premises and used for purposes similar to those authorised hereunder at the date of his appointment) shall at the option of the Landlord to be notified to the Surveyor and the Tenant in writing within 21 days following the receipt by the Landlord of notice from the Surveyor pursuant to paragraph 6.1 hereof act either as an Arbitrator pursuant to the provisions of the Arbitration Act 1950 and 1979 or as an expert valuer whose decision shall be final and binding on all persons who are or who have been parties hereto and if the Surveyor shall act as expert he shall invite each party to make written representations within the period specified in paragraph 6.1 of this Schedule and shall invite each party to make observations on such representations within a further specified period (which shall not exceed four weeks) 6.3. The Surveyor shall give notice in writing of his decision to the Landlord and the Tenant within two months of his appointment or within such extended period as may be reasonable 7. If the Surveyor shall fail to determine the open market rent and give notice thereof within the time and in the manner provided or if he shall relinquish his appointment or die or if it shall become apparent that for any reason he will be unable to complete his duties the Landlord may apply to the said President for a substitute to be appointed in his place which procedure may be repeated as many times as necessary 8. In the event that by the Rent Review Date the new rent shall not have been agreed or determined (whether or not negotiations shall have commenced) the Tenant shall continue to pay rent at the rate of the current rent on each day appointed by this Lease for payment of rent until the new rent shall have been agreed or determined and thereupon the Tenant shall pay to the Landlord as arrears of rent an amount equal to the difference between the new rent and the rent actually paid for the period since the Rent Review Date together with interest thereon at the base lending rate for the time being of the Bank of Scotland from the Rent Review Date 9. The fees of the Surveyor shall be shared as the Surveyor shall determine 10. As respects all periods of time referred to in this Schedule time shall be deemed not to be of the essence 11. If on the Rent Review Date there shall be in force any act which shall restrict interfere with or affect the Landlord's right to revise the rent hereby reserved in accordance with the terms hereof then the Landlord shall be entitled once following each removal or modification of such Act to serve notice requiring a review of the said rent (hereinafter called an "interim notice") upon the Tenant and from and after the date of service of such interim notice until the end of the Term the rent shall be increased to whichever is the higher of the open market rent at the date of service of the interim notice and the rent payable immediately prior thereto and the provisions of this Schedule shall apply accordingly with the substitution of the said date of service for the Rent Review Date THE FOURTH SCHEDULE above referred to _____________________________________ The Surety COVENANTS with the Landlord: 1. That if at any time during the Term the Tenant shall default in payment of any of the rents reserved by this lease on the due dates or in observing or performing any of the covenants and conditions contained in this Lease which the Tenant is obliged to observe and perform the Surety will pay the rents or observe or perform the covenants or conditions in respect of which the Tenant shall have defaulted notwithstanding any time or indulgence granted by the Landlord to the Tenant or that the Tenant may have ceased to exist or any other act or thing whereby but for this provision the Surety would have been released 2. That if the liquidator or trustee in bankruptcy shall disclaim this Lease the Surety will at the request of the Landlord within three months after such disclaimer take from the Landlord a Lease of the Demised Premises for a term equal to the residue of the Term which would have remained had there been no disclaimer at the same rent and subject to the same covenants and conditions as are reserved by and contained in this Lease (except the requirement that a Surety join therein) such lease to take effect from the date of such disclaimer and in such case the Surety shall pay the reasonable costs of the Landlord in the preparation of such new Lease and execute and deliver a counterpart of it to the Landlord 3. In this Schedule the expression "the Tenant" shall mean only Navstar Systems Limited and not any and every person or persons company or corporation in whom the term shall for the time being be vested 4. The covenants and guarantees contained in clauses 1 and 2 of this Schedule shall (subject to the provisions of clause 3 of this Schedule) have effect throughout the Term and also throughout any period thereafter during which the Tenant shall occupy the Demised Premises and the said covenants and guarantees shall relate to any sums greater than the rents hereby reserved which the Tenant shall become liable to pay under the terms hereof or of any subsequent deed or licence supplemental to this Lease save and except any subsequent deed or licence supplemental to this Lease which has the effect of extending the contractual term THE FIFTH SCHEDULE above referred to ____________________________________ (Deeds to which the demise is subject) ______________________________________ The covenants restrictions reservations conditions and other matters contained or referred to in the Property Register and entries numbered 1 to 4 inclusive of the Charges Register of Title Number NN.85259 THE SIXTH SCHEDULE above referred to ____________________________________ Memoranda of rent review: _________________________ The rent payable from the first review date specified in the particularshas been agreed as Pounds ( ) per annum Signed______________________ duly authorised signatories of the Landlord/Tenant/Surety The rent payable from the Second review date has been agreed as Pounds ( per annum) Signed_____________________ duly authorised signatories of the Landlord/Tenant/Surety Executed as a Deed by NAYSTAR SYSTEMS LIMITED was hereunto affixed (but this Deed was not delivered until the date hereof) acting by its Secretary and a Director or two Directors Director Secretary/ Director THE COMMON SEAL OF SYMMETRICON INC was hereunto affixed (but this Deed) was not delivered until the date hereof) in the presence of:- Director Secretary SYMMETRICOM, INC. formerly Sillcon General, Inc. To: Andrea Collins From: Jane Williamson RE: Lease Mansard Close Northampton Attached please find the duly signed and sealed above mentioned lease agreement. This is being returned to you via Federal Express on this date. A copy of this lease agreement has been filed in our files at Telecom Solutions/ Symmetricom, Inc. cc: Paul Risinger Scott Kamsler Date APril 22, 1994 M Duckham Esq Oxford House Telephone (0604) 230400 Navstar Ltd Cliftonville Fax (0604)20956 & 230426 Royal Oak Way Northampton NN1 5PN DX 12413 Northampton DAVENTRY Direct Fax Line No: (0604) 32102 Northants NN11 5PJ Our Ref: GLG/sh.18.9 Your Ref: Date: 18th April 1994 Dear Mike Mansard Close Northampton _________________________ I enclose the underlease for sealing by Navstar and Symmetricom. I have amended the attestation clause as I believe that Navstar does not have a seal. Can you please return the underlease to me duly sealed and undated as soon as possible. G L GILBERT Enc Ipswich (Martlesham) Milton Keynes Northamtpton Norwich Associateded Offices: Brussels Gilbraltar The Hague Los Angeles New York Oslo EX-10.10 6 EXHIBIT 10.10 PUERTO RICO LEASE 1 PUERTO RICO INDUSTRIAL DEVELOPMENT COMPANY PO BOX 362350 SAN JUAN, PUERTO RICO 00936-2350 LEASE CONTRACT PROJECT NO.:T-0796-0-67 AND T-0796- 1-67 LOCATION: AGUADA, PUERTO RICO THIS AGREEMENT ENTERED into onby: AS "LANDLORD", THE PUERTO RICO INDUSTRIAL DEVELOPMENT COMPANY, AND AS "TENANT", TELECOM PUERTO RICO, INC. (FORMERLY ZELTEX P.R., INC.) WITNESSETH WHEREAS, LANDLORD is the owner of certain landsite and building, identified in the Epigraph, hereinafter referred to as the Premises. WHEREAS, LANDLORD has agreed to lease to TENANT, and TENANT has agreed to hire from LANDLORD the Premises. NOW THEREFORE, in consideration of the foregoing premises, the parties herein agree on this Lease subject to the following: TERMS AND CONDITIONS ONE: LANDLORD hereby demises and lets unto TENANT, and TENANT hereby leases from LANDLORD the Premises which are fully described in Schedule "A" hereto annexed and made a part hereof. The Premises are subject to the encumbrances, liens and/or restrictions, if any, that may appear from said Schedule "A". Furthermore, the air rights of the Premises, are excepted and reserved to LANDLORD. TWO: Premises shall be used and occupied exclusively in the manufacture of "TELECOMMUNICATION & COMPUTER PRODUCTS". THREE: TENANT shall hold the Premises for a period of FIVE (5) years to commence on October 1st., 1994. FOUR: Commencing on October 1st., 1994, TENANT shall pay to LANDLORD an annual rental as follows: PERIOD RENT PER SQUARE FOOT MONTHLY INSTALLMENTS T-0796-0-67 T-0796-1-67 10-1-94 $ 2.20 $ 2,078.09 $ 2,069.79 The monthly installments for rent specified herein, shall be paid in advance on the first day of each month at LANDLORD'S office, or at any other place that LANDLORD may notify. In the event that the date of commencement does not fall on the first of the month, TENANT further agrees to pay the first partial monthly installments, prior to, or on the date of commencement. FIVE: The amount of $3,016.62 deposited by TENANT under the provisions of a previous Lease Contract shall be credited to the $4,147.88 deposit required herein; therefore, simultaneously herewith TENANT shall pay $1,131.26 in a Certified Check to complete said amount. This deposit shall guarantee the compliance by TENANT of its obligations, under this Contract, particularly, but not limited to, the payment of rent, the compliance of the environmental clauses herein included and the return of the Premises in proper condition at the termination of this Lease. On said termination, if TENANT is not in default of any of the terms and conditions of this Contract, LANDLORD will return to TENANT the sum of money, if any, held pursuant to this provision, after LANDLORD's Environmental Office certifies that there are no environmental deficiencies as a result of TENANT's manufacturing operation on the demised Premises. SIX: TENANT agrees to have on the date of commencement of the term of this Lease a capitalization of $4,500,000.00. Likewise TENANT agrees to install within six (6) months from the same date manufacturing machinery and equipment with a value of at least $2,200,000.00. This shall not include the cost of transportation and installation thereof, nor its ordinary depreciation after installation; and within eighteen (18) months from the date of commencement of the term, to employ a minimum of ONE HOUNDRED EIGHTY (180) production workers. The aforementioned levels of capitalization, machinery and equipment and employment herein required are not in addition to those required in the previous lease contract; and shall be maintained throughout the term of this Lease or any extension thereof. SEVEN: All notices, demands, approvals, consents and/or communications herein required or permitted shall be in writing. If by mail should be certified and to the following addresses, to LANDLORD: PO BOX 362350, SAN JUAN, PUERTO RICO 00936-2350. To TENANT: MAX GOLDMAN, ESQ., GOLDMAN, ANTONETTI & CORDOVA, PO BOX 70364, SAN JUAN, PR 00936-0364 EIGHT: Net Lease - This Lease shall be interpreted as a net lease; it being the exclusive responsibility of TENANT to pay for all operating expenses, utilities, maintenance, expenses, insurance, taxes or any other costs, expenses or charges of any nature not specifically assumed by LANDLORD hereunder. NINE: Warranty as to use - LANDLORD does hereby warrant that at the time of the commencement of the term of this Lease, the Premises may be used by TENANT for the manufacturing purposes herein intended which are deemed consistent with the design and construction in accordance with the corresponding plans and specifications. TEN: Alterations - TENANT shall make no alterations, additions or improvements to the Premises without the prior consent of LANDLORD and all such alterations, additions or improvements made by or for TENANT, shall be at TENANT'S own cost and expenses and shall, when made, be the property of LANDLORD without additional consideration and shall remain upon and be surrendered with the Premises as a part thereof at the expiration or earlier termination of this Lease, subject to any right of LANDLORD to require removal or to remove as provided for hereinafter. In the event TENANT asks for LANDLORD'S consent for any alteration; LANDLORD may at its option, require from TENANT to submit plans and specifications for said alteration. Before commencing any such work, said plans and specifications, if required, shall be filed with and approved by all governmental agencies having jurisdiction thereof, and the consent of any mortgagee having any interest in or lien upon this Lease shall be procured by TENANT and delivered to LANDLORD if required by the term of the mortgage. Before commencing any such work, TENANT shall at TENANT'S own cost and expense, deliver to LANDLORD a General Accident Liability Policy more particularly described in Article THIRTY (30) hereof, but said policy shall recite and refer to such work, and in addition thereto, if the estimated cost of such work in more than FIVE THOUSAND DOLLARS ($5,000.00), TENANT shall, at TENANT'S own cost and expense, deliver to LANDLORD a surety bond, or a performance bond from a company acceptable to LANDLORD, or a similar bond or other security satisfactory to LANDLORD, in an amount equal to the estimated cost of such work, guaranteeing the completion of such work within a reasonable time, due regard being had to conditions, free and clear of materialmen liens, mechanics liens or any other kind of lien,encumbrances, chattel mortgages and conditional bills of sale and in accordance with said plans and specifications submitted to and approved by LANDLORD. At LANDLORD'S option TENANT shall provide a blanket written guarantee in an amount sufficient to satisfy LANDLORD as to all alterations, changes, additions and improvements to the Premises in lieu of separate guarantee for each such project. TENANT shall pay the increased premium, if any, charged by the insurance companies carrying insurance policies on said building, to cover the additional risk during the course of such work. ELEVEN. Power Substation - If required by TENANT'S operations, TENANT shall, at its own cost and expense, construct and/or install a power substation and connect it to the PUERTO RICO ELECTRICAL POWER AUTHORITY (PREPA) distribution lines, for voltages up to 13.2 KV; and to PREPA transmission lines for voltages of 38 KV, all in conformity to PREPA'S requirements. Such construction shall, in no event, be undertaken by TENANT until after LANDLORD has approved the location thereof, as well as the routing of the power line extension. TWELVE. Repairs and Maintenance - TENANT shall, at its own cost and expense, put, keep and maintain in thorough repair and good order and safe condition the building and improvements standing upon the Premises at the commencement of the term hereon or thereafter erected upon the premises, or forming part of the Premises, and their full equipment and appurtenances, the side walks areas, sidewalk hoists, railings, gutters, curbs and the like in from of the adjacent to the Premises, and each and every part thereof, both inside and outside, extraordinary and ordinary, and shall repair the whole and each and every part thereof in order to keep the same at all times during the term hereof in through repair and good order and safe conditions, whenever the necessity or desirability therefor may occur, and whether or not the same shall occur, in whole or in part, by wear, tear, obsolescence or defects, and shall use all reasonable precautions to prevent waste, damage or injury, except as provided hereinafter. LANDLORD and not TENANT, shall be responsible for and shall promptly correct any defects in the building on the Premises which are due to faulty design, or to errors of construction not apparent at the time the Premises were inspected by TENANT for purposes of occupancy by TENANT; this shall not be interpreted to relieve TENANT of any responsibility or liability herein otherwise provided, including among others, for structural failure due to the fault or negligence of TENANT. TENANT shall also, at TENANT'S own cost and expense, maintain the landsite in thoroughly clean condition; free from solid waste (which includes liquid and gaseous as defined by the Resource Conservation and Recovery Act), and the Regulation on Hazardous and Non-Hazardous Waste of the Environmental Quality Board, as amended, rubbish, garbage and other obstructions. Specifically, TENANT shall not use said landsite, nor permit it to be used, as a deposit or as dump for raw materials, waste materials, hazardous, toxic or non-toxic substances, or substances of whichever nature. TENANT shall neither make any excavation for the purpose of storing, putting away and/or concealing waste materials of any kind. Underground storage of hazardous and/or toxic substances is specifically prohibited. TENANT shall not do or cause to be done, nor permit on the Premises anything deemed extra hazardous, nor shall it store in the Premises flamable or toxic products of any class or kind without taking the proper precautions and complying with applicable federal and Commonwealth laws and regulations. In case TENANT needs to store in the landsite raw materials of a hazardous and/or toxic nature or hazardous and/or toxic wastes, TENANT shall notify LANDLORD and secure its prior authorization. LANDLORD shall be furnished with a copy of any permit issued for such storage. Although it is not intended that TENANT shall be responsible for any decrease in value of the Premises due to the mere passing of time, or for ordinary wear and tear of surfaces and other structural members of the building, nevertheless TENANT shall. (i) replace, with like kind and quality, doors, windows; electrical, sanitary and plumbing, fixtures; building equipment and/or other facilities or fixtures in the Premises which through TENANT's use, fault or negligence, become too worn out to repair during the life of this Lease, (ii) paint the property inside and outside as required. In addition to the foregoing, TENANT shall indemnify and safe harmless LANDLORD from and against any and all cost, expenses, claims, losses, damages, or penalties, including counsel fees, because of or due to TENANT'S failure to comply with the foregoing, and TENANT shall not call upon the LANDLORD for any disbursement or outlay of money whatsoever, and hereby expressly releases and discharges LANDLORD of and from any liability or responsibility whatsoever in connection therewith. THIRTEEN. Roof Care - TENANT, without the prior consent of LANDLORD, shall not. (i) erect or cause to be erected on the roof any bill board, aerial sign, or structure of any kind, (ii) place any fixture, equipment or any other load over the roof, (iii) drill any hole on the roof for whichever purpose, (iv) use the roof for storage, nor (v) correct any leaks whatsoever, this being LANDLORD'S sole responsibility. Furthermore, TENANT shall take all reasonable precautions to insure that the drainage facilities of the roof are not clogged and are in good and operable conditions at all times. FOURTEEN. Floor Loads - TENANT hereby acknowledges that it has been informed by LANDLORD that the maximum floor load of the Premises herein demised is 150 pounds per sq. ft. Therefore, TENANT hereby agrees that in the event the load of the machinery and equipment to be installed thereat exceeds such maximum load, it shall, at its own cost and expense, carry out any improvements to the floor of the Premises which may be necessary to support such additional load; it being further agreed and understood that construction and/or installation of such improvements shall not be commenced until after LANDLORD'S approval of the plans to be prepared therefor by TENANT and thereafter, after completion of construction and/or installation of said facilities, they shall be deemed covered by and subject to the applicable provisions of this Contract; it being further specifically agreed and understood that upon termination of this Lease, such facilities shall be removed by TENANT, at its own cost and expense, or in the alternative, and upon request by LANDLORD, they shall remain as part of the Premises with no riqht whatsoever on the part of TENANT to be reimbursed and/or compensated therefor. FIFTEEN. Fixtures - TENANT shall not affix to the ceiling, nor to its supporting joists or columns, nor to any of its walls, any air conditioning unit, nor any other fixture, without the prior consent of LANDLORD. SIXTEEN. Environmental Protection and Compliance - TENANT agrees, as a condition hereof, that it will not discharge its solid, liquid or gaseous industrial and/or sanitary effluent or discharges, either into the sewer system and/or into any other place until after required authorizations therefor has been obtained from the Puerto Rico Aqueduct and Sewer Authority, and/or the Department of Health of Puerto Rico and/or Environmental Quality Board, and/or any other governmental agency having jurisdiction thereof and TENANT further agrees and undertakes to pre-treat any such effluent, prior to discharge thereof as required by the said Authority, Department and/or governmental agency with jurisdiction, and/or to install any equipment or system required, and to fully abide by and comply with any and all requisites imposed thereby, and upon request by LANDLORD to submit evidence of such compliance; it being agreed that non-compliance thereof by TENANT for a period of ninety (90) days after notice, shall be deemed an additional event of default under the provisions hereof. Provided, that no construction and/or installation shall be made until LANDLORD has approved of it. TENANT shall also, at TENANT'S own cost and expense, construct and maintain Premises, processes and/or operating procedures in compliance with the terms, conditions and commitments specified in any Environmental Impact Statement, Environmental Assessment or any other analogous document produced by the Commonwealth of Puerto Rico, Economic Development Administration /LANDLORD as lead agency/ or by any other governmental agency in connection with the approval or operation of the project. TENANT shall also serve LANDLORD with a copy of any lawsuit, notice of violation, order to show cause or any other regulatory or legal action against TENANT in any environmental-related case or issue. TENANT shall also serve LANDLORD with a copy of any permit granted to TENANT for air emissions, water discharge, solid waste generation, storage, treatment and/or disposal, and for any hazardous and/or toxic waste raw materials or by-products used or generated, stored, treated and/or disposed or any other endorsement, authorization or permit required to be obtained by TENANT. TENANT shall also serve LANDLORD with a copy of any filing or notification to be filed by TENANT with any regulatory agency or any environmentally related case or issue, especially in any situation involving underground or surface water pollution, hazardous and/or toxic waste spillage and ground contamination. The notification to LANDLORD shall take place not later than the actual filing of the pertinent documents with the regulatory agency. SEVENTEEN. Improper Use - TENANT, during the term of this Lease and of any renewal or extension thereof, agrees not to use or keep or allow the leased Premises or any portion thereof to be used or occupied for any unlawful purpose or in violation of this Lease or of any certificate of occupancy or certificate of compliance covering or affecting the use of the Premises or any portion thereof, and will not suffer any act to be done or any condition to exist on the Premises or any portion thereof, or any article to be brought thereon, which may be dangerous, unless safeguarded as required by law, or which may in law, constitute a nuisance, public or private, or which may made void or voidable any insurance then in force on the leased Premises. EIGHTEEN. Government Requlations - TENANT agrees and undertakes to abide by and comply with any and all rules, regulations and requirements of the Planning Board of Puerto Rico, the Department of Health, the Environmental Quality Board, the Environmental Protection Agency (EPA), where applicable and/or of any other governmental agency, having jurisdiction thereon applicable to TENANT'S operations at the Premises and/or products to be manufactured thereat, and if requested by LANDLORD, TENANT shall submit evidence of such compliance; it being agreed and understood that noncompliance with any and all such rules, regulations and requisites shall be deemed an additional event of default under the provisions of this Contract, unless remedied within thirty (30) days after receipt of notice thereof. Any and all improvements to the Premises required by any governmental agency, having jurisdiction thereon so as to carry TENANT'S operations in accordance with the regulations and requisites thereof, shall be at TENANT'S own cost and expense, except for any improvements that may be required as a result of any violation by LANDLORD that may exist at the effective date hereof other than violations caused by TENANT or TENANT'S agents. TENANT further agrees and undertakes to install in the Premises, at its own costs and expense, such devices as may be necessary to prevent any hazard, which may be caused or created by its operations from affecting the environmental integrity of the landsite or causing any nuisance to adjacent TENANTS and/or the community in general; it being agreed and understood that creating or causing any such nuisance, shall be deemed an additional event of default under the provisions of this Contract. TENANT further agrees and undertakes to abide by and comply with any and all rules, regulations and requisites of the Fire Department relative to the use and storage of raw materials, finished products and/or inflammable materials, and/or of any other governmental agency, having jurisdiction thereon applicable to TENANT'S operations at the Premises, and if requested by LANDLORD, TENANT shall submit evidence of such compliance; it being agreed and understood that noncompliance by TENANT with any of the aforementioned rules, regulations and requisites shall be deemed, in each of such cases, an additional event of default under the provisions of this Contract, unless remedied within thirty (30) days after receipt of notice thereof. If as a consequence of the foregoing dispositions, TENANT need to make alterations to the Premises, the same shall be done subject to the dispositions of Article TEN hereof. NINETEEN. Use Permit - TENANT agrees to abide by and comply with any and all conditions and requisites included in the Use Permit which may be issued by the Puerto Rico Permits and Regulations Administration (ARPE), and if requested by LANDLORD, shall submit evidence of such compliance; it being agreed and understood that noncompliance by TENANT with any and all such conditions and requisites and/or the cancellation of the said Use Permit shall, in each of such cases, be deemed an additional event of default under the provisions of this Contract. TWENTY. Inspection - TENANT shall permit LANDLORD or LANDLORD'S agents to enter the Premises at all reasonable time for the purpose of inspecting the same, or of making repairs that TENANT has neglected or refused to make as required by the terms, covenants and conditions of this Lease, and also for the purpose of showing the Premises to persons wishing to purchase the same, and during the year next preceding the expiration of this Lease, shall permit inspection thereof by or on behalf of prospective TENANTS. If, at a reasonable time, admission to the Premises for the purposes aforesaid cannot be obtained, or if at any time an entry shall be deemed necessary for the inspection or protection of the property, or for making any repairs, whether for the benefit of TENANT or LANDLORD, LANDLORD'S agents or representatives may enter the Premises by force, or otherwise, without rendering LANDLORD, or LANDLORD'S agents or representative liable to any claim or cause of action or damage by reason thereof, and accomplish such purpose. The provisions contained in this Article are not to be construed as an increase of LANDLORD'S obligations under this Lease; it being expressly agreed that the right and authority hereby reserved does not impose, nor does LANDLORD assume, by reason thereof, any responsibility or liability whatsoever for the repair, care of supervision of the Premises, or any building, equipment or appurtenance on the Premises. TWENTY ONE. LANDLORD'S entrv for rePairs and alterations - LANDLORD reserves the right to make such repairs, changes alterations, additions or improvements in or to any portion of the building and the fixtures and equipment which are reputed part thereof as it may deem necessary or desirable and for the purpose of making the same, to use the street entrances, halls, stairs and elevators of the building provided that there be no unnecessary obstruction of TENANT'S right of entry to and peaceful enjoyment of the Premises, and TENANT shall make no claim for rent abatement compensation or damages against LANDLORD by reason of any inconvenience or annoyance arising therefrom. TWENTY TWO. LANDLORD excused in certain instances - If, by reason of inability to obtain and utilized labor, materials or supplies, or by reason of circumstances directly or indirectly the result of any state of war, or of emergency duly proclaimed by the corresponding governmental authority, or by reason of any laws, rules orders, regulations or requirements of any governmental now or hereafter in force or by reason of strikes or riots, or by reason of accidents, in damage to or the making of repairs, replacements or improvements to the building or any of the equipment thereof, or by reason of any other cause reasonable beyond the control of LANDLORD, LANDLORD shall be unable to perform or shall be delayed in the performance of any covenant to supply any service, such non-performance or delay in performance shall not be ground to any claim against LANDLORD for damages or constitute a total or partial eviction, constructive or otherwise. It being agreed and understood that the time for completion of any such construction, shall be extended for a period of time equal to the number of days of any such delay. TWENTY THREE. Quiet Enioyment - TENANT on paying the full rent and keeping and performing the conditions and covenants herein contained, shall and may peaceably and quietly enjoy the Premises for the term aforesaid, subject, however, to the terms of this Lease and TWENTY FOUR. Leasehold Improvements - If leasehold improvements made by or for the benefit of TENANT in the Premises at his request or other personal property to TENANT are assessable or taxable and a tax liability is imposed to TENANT or LANDLORD, it is understood that it shall be the sole responsibility of TENANT to pay such taxes and in no event shall such taxes be the liability of or be transferable to LANDLORD. In the event that by operation of law, such taxes became a liability of LANDLORD, TENANT shall pay such taxes as they become due and payable and shall promptly reimburse LANDLORD for any payments or expenses incurred or disbursed by LANDLORD by reasons of any such assessment. Said amount shall be due and payable, as additional rent, with the next installment of rent. In the event that TENANT fails to make this payment when due, it shall be subject to the dispositions of Article THIRTY SEVEN hereof. TWENTY FIVE. Stoppaqe of Operations - It is understood by the parties hereto that this Lease is made by LANDLORD in furtherance of the industrialization plans of the Commonwealth of Puerto Rico, and it is accordingly understood that TENANT will use all reasonable efforts while this Lease is in effect to maintain a manufacturing operation upon the Premises, but nothing contained in this paragraph shall be deemed to require TENANT to maintain such an operation otherwise than in accordance with sound principles of business management, or (without limiting the generality of the foregoing) to prevent TENANT from curtailing such operation or from shutting it down, whenever and as often as TENANT may, in the exercise of sound business judgment, deem such action advisable. However, TENANT shall give to LANDLORD notice of any necessary or convenient curtailment and/or shut-down, at least seven (7) days prior to the date fixed therefor except in cases of an emergency shut-down, in which case such notice shall be given at the earliest possible time. No curtailment of operations or shut-down in accordance with the provisions of this paragraph shall constitute a default under the provisions of this Contract which will enable LANDLORD to terminate it, unless such plants shall have been shut-down for a period of six (6) consecutive months. A shut-down on account of unforeseeable event or events which although foreseeable could not be prevented, shall not constitute a breach of this agreement. Nothing in this paragraph contained shall relieve TENANT from the payment of rent during the period of any shut-down or curtailments of operations. TWENTY SIX: Assignment and Subletting - TENANT shall not assign, this Lease nor let or sublet the Premised or any part thereof except to its parent company, to a wholly owned subsidiary, to an affiliate of TENANT, wholly owned by TENANT'S parent company or to a corporation to be organized by TENANT. In any of these cases, TENANT shall promptly notify LANDLORD of said assignment or subletting, it being agreed and understood that no such assignment or subletting shall: (i) reduce or, in any way, affect the obligations of TENANT under this Lease, nor (ii) release TENANT from liability under this Lease. TWENTY SEVEN: "LANDLORD"- Effect of Conveyance: The word "LANDLORD", as used herein, means only the owner for the event of any sale, conveyance or transfer of title of the demised premises, LANDLORD shall be and hereby is entirely freed and relieved of all covenants and obligations of LANDLORD hereunder, whenever LANDLORD, at the time of any sale, conveyance or transfer of title, obtains an agreement in writing from the purchaser or transferee assuming the performance of all covenants and obligations in this Lease". TWENTY EIGHT: No Representation by LANDLORD - LANDLORD, LANDLORD'S agents or employees, or the agents, executives or employees of the Economic Development Administration, have made no representations or promises with respect to the Premises except as herein expressly set forth and no rights, easements or licenses are acquired by TENANT by implication or otherwise except as expressly set forth in the provisions of this Contract. The taking possession of the Premises by TENANT, shall be conclusive evidence, as against TENANT, that TENANT accepts same "AS IS" and that said Premises, particularly the building which forms a part of the same, were in good and satisfactory conditions at the time such possession was so taken. TWENTY NINE. Damages Except as provided in the se ond subparagraph Twelve herein LANDLORD shall not be responsible for any latent defect or change of conditions in the Premises resulting in damage to the same, or the property or person therein, except to extent of LANDLORD'S gross negligence, and provided such claims or loss is not covered by insurances herein required from TENANT. TENANT shall promptly notify LANDLORD of any damage to or defects in the Premises, particularly in any part of the building's sanitary, electrical, air conditioning or other systems located in our passing through the Premises, and the damage or defective conditions, subject to the provisions of Article TWENTY ONE (21) hereof, shall be remedied by LANDLORD with reasonable diligence. THIRTY. General Liability Insurance - TENANT shall indemnify, have harmless and defend LANDLORD and agents, servants and employees of LANDLORD against and from any and all liability, fines, suits, claims, demands, expenses, including attorneys' fees, and actions of any kind or nature arising by reason of injury to person or property including the loss of use resulting thereof or, violation of law occurring in the Premises occasioned in whole or in part by any negligent act or omission on the part of TENANT or an employee (whether or not acting within the scope of his employment), servant, agent, licensee, visitor, assignor or undertenant of TENANT, or by any neglectful use or occupancy of the Premises or any breach, violation or non-performance of any covenant in this Lease on the part of TENANT to be observed or performed. Pursuant to the foregoing, TENANT shall, maintain during the term of this lease, at its own cost and expense, a Comprehensive General Liability Policy. Said policy shall: (i) be for a combined single limit of no less than $500,000.00 per accident, (ii) hold LANDLORD harmless against any and all liability as hereinbefore stated, and (iii) the care, custody & control exclusion shall be deleted from this coverage. LANDLORD may require additional reasonable limits of public liability insurance and coverages, when changing circumstances so require. THIRTY ONE. Property Insurance - TENANT recognizes that the rent provided for herein does not include any element to indemnify, repair, replace or make whole TENANT, his employees, servants, agents, licensees, visitors, assignees, or undertenant for any loss or damage to any property or injury to any person in the Premises. Accordingly, during the term of this Lease, TENANT shall keep the building standing upon the Premises at the commencement of the term hereof or thereafter erected upon the Premises, including all equipment appurtenant to the Premises and all alterations, changes, additions and improvements, insured for the benefit of LANDLORD and TENANT, as their respective interest may appear, in an amount at least equal to the percentages stated below (as LANDLORD may from time to time determine). The basis of the Property Insurance shall be Replacement Cost and the coverage an "All Risks" Property Insurance Policy. Coverages included in the All Risks Form: 1. Fire - "Building & Contents Form" (a) Building - 100% of insurable value exclusive of foundations (b) Contents - All equipment appurtenant to the Premises (State value of Policy) 2. Additional Coverages under the Fire Policy (a) Extended Coverage Endorsement - 100% of insurable value exclusive of foundations (b) Earthquake - 100% of insurable value including foundations (c) Vandalism and Malicious Mischief Endorsement (d) Improvements and Betterments - For all alterations, changes, additions and improvements 3. Landsite and Flood whenever applicable and/or necessary 4. Boiler and Machinery (if any) - 100% of insurable value 5. Pollution Liability Policy - if necessary. THIRTY TWO. Multifactory Building Specific Dispositions - In the event that the Premises constitute a section or sections of an industrial building and landsite in which other operations are conducted by other TENANTS. (i) the insurance coverage herein required, shall be acquired by LANDLORD for the whole of the industrial building and TENANT shall reimburse LANDLORD, for its proportionate share in the total cost of said policies, (ii) if, because of anything done, caused or permitted to be done, permitted or omitted by TENANT, the premium rate for any kind of insurance affecting the Premises shall be increased, TENANT shall pay to LANDLORD the additional amount which LANDLORD may be thereby obligated to pay for such insurance, and if LANDLORD shall demand that TENANT remedy the condition which cause the increase in the insurance premiums rate, TENANT will remedy such conditions within five (5) days after such demand, and (iii) the insurance policies required in the preceding Articles THIRTY (30) & THIRTY ONE (31) shall be endorsed to include a waiver of subrogation against TENANT. All amounts to be reimbursed by TENANT under this ARticle, shall be due and payable, as additional rent, with the next installment of rent. In the event that TENANT fails to make this payment, when due, it shall be subject to the dispositions of Article THIRTY SEVEN (37) hereof. THIRTY THREE. Additional DisDositions about Insurance - All the Insurance policies herein required from TENANT, shall be taken in form and substance acceptable to LANDLORD with insurance companies duly authorized to do business in Puerto Rico, having a "A" and a higher financial fatting according to Best's Insurance Report; and shall include LANDLORD as additional insured. TENANT shall instruct the corresponding insurer to deliver such policies or certified copies of Certificates of Insurance, in lieu of, directly to LANDLORD. LANDLORD reserves the right not to deliver possession of the Premises to TENANT, unless, and until two (2) days after such original policies, or certified copies or certificates have been deposited with LANDLORD. Furthermore, said policies, shall. (i) provide that they may not be cancelled by the insurer for nonpayment of premium or otherwise, until at least thirty (30) days after services of notice by registered or certified mail of the proposed cancellation upon LANDLORD, and (ii) be promptly renewed by TENANT upon expiration and TENANT shall, within thirty (30) days after such renewal, deliver to LANDLORD adequate evidence of the payment of premiums thereon. If such premiums or any of them shall not be so paid, LANDLORD may procure the same in the manner set forth for governmental agencies, and TENANT shall reimburse LANDLORD any amount so paid. This reimbursement being due and payable with the next installment of rent. In the event that TENANT fails to make this payment when due, it shall be subject to the dispositions of Article THIRTY SEVEN (37) hereof. It is expressly agreed and understood, that payment by LANDLORD of any such premiums shall not be deemed to waive or release the default in the payment thereof by TENANT nor the right of LANDLORD to take such action as may be available hereunder as in the case of default in the payment of rent. upon the commencement of the term hereof, TENANT shall pay to LANDLORD the apportioned unearned premiums on all such policies of insurance then carried by LANDLORD in respect of the Premises in the event TENANT continues with the insurance policies placed in LANDLORD. TENANT shall not violate nor permit to be violated any of the conditions or provisions of any of said policies, and TENANT shall so perform and satisfy the requirements of the companies writing such policies that at all times companies of good standing and acceptable to LANDLORD shall be willing to write and continue such insurance. TENANT shall cooperate with LANDLORD in connection with the collection of any insurance monies that may be due in the event of loss and shall execute and deliver to LANDLORD such proofs of loss and other instruments that may be required for the purpose of facilitating the recovery of any such insurance monies, and in the event that TENANT shall fail or neglect so to cooperate or to execute, acknowledge and deliver any such instrument, LANDLORD, in addition to any other remedies, may as the agent or attorney-in fact of TENANT, execute and deliver any proof of loss or any other instruments as may seem desirable to LANDLORD and any mortgagee for the collection of such insurance monies. This shall not be interpreted as any waiver of the obligations of TENANT under Articles THIRTY, THIRTY ONE, THIRTY TWO and THIRTY THREE hereof or exclusively in favor of LANDLORD under Article THIRTY NINE hereof. THIRTY FOUR. Waivers - The receipt by LANDLORD of the rent, additional rent, or any other sum or charges payable by TENANT with or without knowledge of the breach of any covenant of this Contract, shall not be deemed a waiver of such breach. No act or omission of LANDLORD or its agent during the term of this Lease shall be deemed an acceptance of a surrender of the Premises and no agreement to accept a surrender of the Premises shall be valid unless it be made in writing and subscribed by LANDLORD. This Contract contains all the agreements and conditions made between the parties hereto with respect to the Premises and it cannot be changed orally. Any additions to, or charges in this Lease must be in writing, signed by the party to be charged. Failure on the part of LANDLORD to act or complain of any action or nonaction on the part of TENANT shall not be deemed to be a waiver of any of its respective rights hereunder nor constitute a waiver at any subsequent time of the same provision. The consent or approval by LANDLORD to, or of any action by the other requiring consent or approval shall not be deemed to waive or render unnecessary the consent or approval by LANDLORD of any subsequent similar act. THIRTY FIVE. Reinstatement - No receipt of monies by LANDLORD for TENANT after the termination or cancellation hereof in any lawful manner shall reinstate, continue or extend the term hereof, or affect any notice theretofore given to TENANT, or operate as a waiver of the right of LANDLORD to enforce the payment of rent, additional rent, or other charges then due or thereafter falling due, or operate as a waiver of the right of LANDLORD to recover possession of the Premises by proper suit, action, proceeding or remedy; it being agreed that, after the service of notice to terminate or cancel this Lease, and the expiration of the time therein specified, if the default has not been cured in the meantime, or after the commencement of suit, action or summary proceedings or of any other remedy, or after a final order, warrant of judgment of the possession of the Premises, LANDLORD may demand, receive and collect any monies then due, or thereafter becoming due, without in any manner affecting sueh notice, proceeding, suit, action, order, warrant or judgment; and any and all such monies so collected shall be deemed to be payments for the use and occupation of the Premises, or at the election of LANDLORD, on account of TENANT'S liability hereunder. Delivery or acceptance of the keys to the Premises, or any similar act, by the LANDLORD, or its agents or employees, during the term hereof, shall not be deemed to be a delivery or an acceptance of a surrender of the Premises unless LANDLORD shall explicity consent to it, in the manner set forth hereinbefore. THIRTY SIX. Subordination and Attornment - This Lease is and shall be subject and subordinate to all liens, or mortgages which may now or hereafter affect the Premises and to all renewals, modifications, consolidations, replacements and extensions thereof and, although this subordination provision shall be deemed for all purposes to be automatic and effective without any further instrument on the part of TENANT, TENANT shall execute any further instrument requested by LANDLORD to confirm such subordination. TENANT further covenants and agrees that if by reason of a default upon the part of LANDLORD of any mortgage affecting the Premises, the mortgage is terminated or foreclosed by summary proceedings or otherwise, TENANT will attorn to the mortgagee or the purchaser in foreclosure proceedings, as the case may be, and will recognize such mortgage or purchaser, as the TENANT'S landlord under this Lease. TENANT agrees to execute and deliver, at any time and from time to time, upon the request of LANDLORD or of the mortgagee or the purchaser in foreclosure proceedings, as the case may be, any reasonable instrument which may be necessary or appropriate to evidence such attornment. TENANT further waives the provision of any statute or rule of law now or hereafter in effect which may give or purport to give TENANT any right of election to terminate this lease or to surrender possession of the Premises demised hereby in the event any such proceeding is brought by the holder of any such mortgage, and TENANT'S obligations hereunder shall not be affected in any way whatsoever by any such proceeding. TENANT, covenants and agrees, upon demand of the holder of any mortgage duly recorded or recordable in the corresponding Registry of the Property or of any receiver duly appointed by the foreclose any such mortgage, to pay to the holder of any such mortgage or to such receiver, as the case may be, all rent becoming due under this Lease after such demand, provided such holder of any such mortgage or any such receiver complies with the obligations of LANDLORD under this Lease. TENANT, upon request of LANDLORD or any holder of any mortgage or lien affecting the Premises, shall from time to time, deliver or cause to be delivered to LANDLORD or such lien holder or mortgagee, within ten (10) working days from date of demand a certificate duly executed and acknowledged in form for recording, without charges, certifying, if true, or to extent true, that this Lease is valid and subsisting and in full force and effect and LANDLORD is not in default under any of the terms of this Lease. THIRTY SEVEN. Late Payments and Payment by LANDLORD - In the event that (i) TENANT makes late payment, or fails to make payments to LANDLORD, in whole or in part, of the rent, or of the additional rent, or of any of the other payments of money required to be paid by TENANT to LANDLORD, as stipulated in this Lease, when and as due and payable; or if (ii) LANDLORD, without assuming any obligation to do so, after any notice or grace period provided hereunder, performs or causes to be performed, at the cost and expense of TENANT, any of the acts or obligations agreed to be performed by TENANT, as stipulated in this Lease, and TENANT fails to refund LANDLORD any amounts of money paid or incurred by LANDLORD in performing of causing the performance of such acts or obligations, when and as due and payable, TENANT undertakes and agrees to pay LANDLORD as additional rent, interest on such lately paid or unpaid rents, additional rent, and/or on such other payments of money required to be paid, and/or on any such amounts of money required to be refunded, from and after the date when payment thereof matured or became due and payable, until full payment, at the rate of twelve (12%) per cent per annum, or if such 12% interest, is unlawful, then and in such event, at the highest maximum prevailing rate of interest on commercial unsecured loans as fixed by the Board of Regulatory Rates of Interest and Financial Charges, created under Law #1, approved October 15, 1973 (10 LPRA 998), as amended, or by any successor statute or regulation thereof. THIRTY EIGHT. Abatement - If any substantial service or facility to be provided by LANDLORD is unavailable for a period exceeding thirty (30) days and LANDLORD has been notified of the same, should time unavailability of such service render all or any portion of the Premises untenable, TENANT after the aforesaid thirty (30) days, shall be entitled to an abatement of a portion of the rent that shall reflect that portion of the Premises which is untenable, provided the damage to the service or facility is not attributable to the act or neglect of TENANT or the employees, servants, licensees, visitors, assigns or undertenants of TENANT. THIRTY NINE. Fire or other Casualty - If before or during the term of this Lease, the Premises shall be damaged by fire or other casualty, LANDLORD after written notice thereof is given by TENANT, shall repair the same with reasonable dispatch after notice to it of the damage, due allowances being made for any delay due to causes beyond the LANDLORD'S reasonable control, provided, however, that LANDLORD shall not be required to repair or replace any furniture, furnishings or other personal property which TENANT may have placed or installed or which it may be entitled or required to remove from the Premises. LANDLORD shall proceed with due diligence to obtain the corresponding insurance adjustment of the loss and TENANT shall fully cooperate with LANDLORD and assist in the adjustment of the loss. Until such repairs are completed, and provided such damage or other casualty is not attributable to the act or neglect of TENANT or the employees, servants, licensees, visitors, assigns or undertenants of TENANT, the rent required to be paid pursuant to Article FOUR hereof, shall be abated in proportion to the part of the Premises which are untenable. If the building, be so damaged that LANDLORD shall decide to demolish and/or to reconstruct the building, in whole or in part, LANDLORD may terminate this Lease by notifying TENANT within a reasonable time after such damage of LANDLORD'S election to terminate this Lease, such termination to be effective immediately if the term shall not have commenced or on a date to be specified in such notice if given during the term. In the event of the giving of such notice during the term of this Lease, the rent shall be apportioned and paid up to the time of such fire or other casualty if the Premises are damaged, or up to the specified date of termination if the Premises are not damaged and LANDLORD shall not be otherwise liable to TENANT for the value of the unexpired term of this Lease. FORTY. Default Provisions - If, during the term of this Lease, TENANT shall. (i) apply for or consent in writing to, the appointment of a receiver, trustee or liquidator of TENANT or of all or substantially all of its assets or (ii) seek relief under the Bankruptcy Act, or admit in writing its inability to pay its debts as they become due, or (iii) make a general assignment for the benefit of this creditors, or (iv) file a petition case or an answer seeking relief (other than a reorganization not involving the liabilities of TENANT) or arrangement with creditors, or take advantage of any insolvency law, or (v) file an answer admitting the material allegations of a case filed against it in any bankruptcy, reorganization or insolvency proceeding or, if an order, judgment or decree shall be entered by any court of competent jurisdiction on the application of TENANT or creditor adjudicating TENANT a bankrupt or insolvent, or approving a petition seeking reorganization of TENANT (other than a reorganization not involving the liabilities of TENANT) or appointment of a receiver, trustee or liquidator of TENANT, or of all or substantially all its assets, and such order, judgment or decree, shall continue stayed and in effect for any period of sixty (60) consecutive days, the term of this Lease and all right, title and interest of TENANT hereunder shall expire as fully and completely as if that day were the date herein specifically fixed for the expiration of the term, and TENANT will then, quit and surrender the Premises to LANDLORD, but TENANT shall remain liable as hereinafter provided. If, during the term of this Lease. (i) TENANT shall default in fulfilling any of the covenants of this Lease (other than the covenants for the payment of rent or additional rent), or of any other standing contract with LANDLORD or (ii) if, during the term of this Lease TENANT shall abandon, vacate, or remove from the Premises the major portion of the goods, wares, equipment, or furnishings usually kept on said premises, of (iii) this Lease, without the prior consent of LANDLORD, shall be encumbered, assigned or transferred in any manner in whole or in part or shall, by operation of law, pass to or devolve upon any third party, except as herein provided, or (iv) if TENANT is in violation of laws, rules and regulations regarding minimum wages of its employees, or of any other law, rules and regulations applicable to his operations, but which have not been specifically mentioned in this Lease, LANDLORD may give to TENANT notice of any such default or the happening of any event referred to above and if at the expiration of thirty (30) days after the service of such a notice the default or event upon which said notice was based shall continue to exist, or in the case of a default which cannot with due diligence be cured within a period of thirty (30) days, if TENANT fails to proceed promptly after the service of such notice and with all due diligence to cure the same and thereafter to prosecute the curing of such default with all due diligence (it being intended that in connection with a default not susceptible of being cured with due diligence within thirty (30) days that the time of TENANT within which to cure the same shall be extended for such period as may be necessary to complete the same with all due diligence), LANDLORD may give to TENANT a notice of expiration of the term of this Lease as of the date of the service of such second notice, and upon the giving of said notice of expiration the term of this Lease and all right, title and interest of TENANT hereunder shall expire as full and completely as if that day were the date herein specifically fixed for the expiration of the term, and TENANT or any party holding under his will then quit and surrender the Premises to LANDLORD, but TENANT shall remain liable as hereinafter provided. If, (i) TENANt shall default in the payment of the rent, the additional rent, or of any other payment as required under this Lease and such default shall continue for ten (10) working days after notice thereof by LANDLORD, of (ii) if the default of the payment of the rent, continues for thirty (30) days from the date any such payment became due and payable (AUTOMATIC DEFAULT TERMINATION), or (iii) if this Lease shall terminate as in Paragraph one and two of this Article provided, this Lease shall terminate and TENANT will then quit and surrender the Premises to LANDLORD, but TENANT shall remain liable as hereinafter provided, LANDLORD or LANDLORD's agents and servants may immediately or at any time thereafter re-enter the Premises and remove all persons and all or any property therefrom, whether by summary dispossess proceedings or by any suitable action or proceeding at law, or with the license and permission of TENANT, which shall under this Contract be deemed given upon expiration of the strict thirty (30) days notice period of subdivision of paragraph Two of this Article, without LANDLORD being liable to indictment, prosecution or damages therefor and repossess and enjoy the Premises with all additions, alterations and improvements. If TENANT shall fail to take possession of the Premises within ten (10) days after the commencement of the term of this Lease, or if TENANT shall vacate and abandon the Premises, LANDLORD shall have the right, at LANDLORD'S option, to terminate this Lease and the term hereof, as well as all the right, title and interest of TENANT hereunder, by giving TENANT five (5) days notice in writing of such intention, and upon the expiration of the time fixed in such latter notice, if such default be not cured prior thereto, this lease and the term hereof, as well as all the right, title and interest of TENANT hereunder, shall wholly cease and expire in the same manner and with the same force and effect (except as to TENANT'S liability) as if the date fixed by such latter notice were the expiration of the term herein originally granted; and TENANT shall immediately quit and surrender to LANDLORD the Premises and each and every part thereof and LANDLORD may enter into or repossess the Premises, either by force, summary proceedings or otherwise. The right granted to LANDLORD in this Article or any other Article of this Lease to terminate this Lease, shall apply to any extension or renewal of the term hereby granted, and the exercise of any such right by LANDLORD during the term hereby granted, shall terminate any extension or renewal of the term hereby granted and any right on the part of TENANT thereto. Upon the termination of this Lease by reason of any of the foregoing event, or in the event of the termination of this Lease by summary dispossess proceedings or under any provisions of law, now or at any time hereafter, in force by reason of, or based upon, or arising out of a default under or breach of this Lease on the part of TENANT, or upon LANDLORD recovering possession of the Premises in the manner or in any of the circumstances hereinbefore mentioned, or in any other manner or circumstances whatsoever , whether with or without legal proceedings, by reason of, or based upon, or arising out of a default under or breach of this Lease on the part of TENANT, LANDLORD, at its option, but without assuming any obligation to do so in any case, may at any time, and from time to time, relet the Premises or any part or parts thereof for the account of TENANT or otherwise on such terms as LANDLORD may elect, including the granting of concessions, and receive and collect the rents therefor, applying the same at a rental not higher than the one stipulated in this Contract, first to the payment of such reasonable expenses as LANDLORD may have incurred in recovering possession of the Premises, including reasonable legal expenses, and for putting the same into good order or condition or preparing or altering the same for re-rental, and expenses, commissions and charges paid, assumed, or incurred by LANDLORD in and about the reletting of the Premises or any portion thereof and then to the fulfillment of the covenants of TENANT hereunder. Any such reletting herein provided for, may be for the remainder of the term of this Lease or for a longer or shorter period or at a higher or lower rental. In any such case, whether or not, the Premises or any part thereof be relet, TENANT shall pay to LANDLORD the rent required to be paid by TENANT up to the time of such termination of this Lease, and/or the full l~nt provided for in the agreement for any holdover of such period after termination and up to the surrender or recovery of possession of the Premises by LANDLORD, as the case may be, and thereafter TENANT covenants and agrees, to pay to LANDLORD until the end of the term of this Lease as originally demised the equivalent of any deficiency amount of all the rent reserved herein, less the net avails of reletting, if any, as specified hereinabove in this Article and the same shall be due and payable by TENANT to LANDLORD as provided herein, that is to say, TENANT shall pay to LANDLORD the amount of any deficiency then existing. FORTY ONE: LANDLORD'S Remedies - In the event TENANT shall default in the performance of any of the terms, covenants or provisions herein contained, LANDLORD may, but without the obligation to do so, perform the same for the account of TENANT and any amount paid or expense incurred by LANDLORD in the performance of the same shall be repaid by TENANT on demand. In the event of a breach or threatened breach by TENANT or any subtenant or other person holding or claiming under TENANT of any of the covenants, conditions or provisions hereof, LANDLORD shall have the right of injunction to restrain the same, and the right to invoke any remedy allowed by law or in equity as if specific remedies, indemnity or reimbursement were not herein provided for. The rights and remedies given to LANDLORD in this Lease are distinct, separate and cumulative, and no one of them, whether or not exercised by LANDLORD, shall be deemed to be a waiver, or an exclusion of any of the others. FORTY TWO: Notice of Default - Anything in this Lease to the contrary notwithstanding, it is specifically agreed that there shall be no enforceable default against LANDLORD under any provisions of this Lease, unless notice of such default be given by TENANT to LANDLORD in which TENANT shall specify the default or omission complained of, and LANDLORD shall have thirty (30) days after receipt of such notice in which to remedy such default, or if said default or omission shall be of such a nature that the same cannot be cured within said period, then the same shall not be an enforceable default if TENANT shall have commenced taking the necessary steps to cure or remedy said default within the said thirty (30) days and diligently proceeds with the correction thereof. FORTY THREE. Capitalization - For the purpose of this Contract, specifically of Article SIX, Capitalization includes the total of owner's equity sources (preferred stock, common stock and surplus accounts) plus long-term debts, it being agreed and understood that the amortization of any such debt shall in no way diminish the amount originally determined as capitalization. FORTY FOUR. Disclosure of Information - TENANT agrees to furnish to LANDLORD within ninety (90) days after the expiration of each fiscal year of TENANT, an annual statement certified by an independent Certified Public Accountant showing as of the end of each such fiscal year. (i) TENANT'S paid-in capital, (ii) long-term debts and capitalization as required by Articles SIX and FORTY THREE hereof, (iii) investment in machinery and its capacity to provide employment, (iv) taxes (including Social Security taxes) paid, and (v) any other information as required by this Lease. In the event such statement is not filed with LANDLORD as herein provided, LANDLORD may obtain such information from TENANT at TENANT'S expense, and for such purpose TENANT shall make available to LANDLORD'S designated representatives, its books of accounts and other necessary data and facilities, all of which shall be provided and made available at TENANT'S principal office in Puerto Rico. FORTY FIVE. Automatic Renewal - In the event TENANT does not vacate the Premises in the manner and under the conditions hereinbefore provided, within ninety (90) days after the normal expiration of the term hereof, LANDLORD shall have the option to be exercised at any time thereafter, to notify TENANT that the lease herein has been renewed for an additional term of ten (10) years from the date of the last normal expiration of the term hereof and, in such event, the parties agree that this Contract shall be held to have been renewed and to continue in full force and effect for such additional term of ten (10) years upon the mere mailing of such notice by LANDLORD to TENANT. This provision shall in no way prejudice, affect or deny any right which LANDLORD may otherwise have because, or at the time, of any such termination of the term hereof, particularly whenever LANDLORD does not exercise such option; it being agreed and understood that such renewal shall be upon the same terms and conditions contained herein except that the rental rate to be charged shall be the rate then currently being charged by LANDLORD for similar building in the area, but in no event shall it be less than the rate herein stipulated. FORTY SIX. Partial Invalidity and Applicable Law - If any term or provisions of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable the remainder of this Lease and the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforceable to the fullest extent permitted by law. This Contract is entered into and shall be interpreted in accordance with the laws of the Commonwealth of Puerto Rico. FORTY SEVEN. Lease Termination and Holdina Over - Upon the expiration or termination of this Lease: (i) TENANT shall inform LANDLORD in writing of TENANT'S activities affecting each or any environmental area of concern during the period of TENANT'S operation, including a description from an environmental standpoint of the physical conditions of the premises and landsite. TENANT shall also inform to LANDLORD in writing of any environmental regulatory violations, compliance plans, permits, closure plans, clean- up actions or any other regulatory procedures related to the operation. In the event that the information reveals TENANT'S noncompliance of any of the above, or in the event that a physical inspection of the Premises and adjacent areas by LANDLORD, or any other source of information reveal the possibility of contamination, in that event, TENANT shall, at LANDLORD'S request submit a plan of action with the appropriate financial provisions to execute it. LANDLORD shall hold TENANT responsible for any and all environmental damage, or any damage to third parties as a result of any environmental damage, or any remedial action (including monitoring) to be performed at landsite or otherwise as a result of TENANT'S operations after termination of Lease and until such a time as complete remediation or fulfillment of TENANT'S obligations is effected. In case TENANT fails to comply with the foregoing provisions, LANDLORD may elect to effect them at TENANT'S expense and responsibility. (ii) TENANT shall remove all hazardous and toxic substances belonging to TENANT or to a third party. TENANT shall also ren.ove all other property of TENANT and that of any third party and failing so to do, TENANT hereby appoints LANDLORD its agent so that LANDLORD may cause all of the said property to be removed at the expense and risk of TENANT. TENANT covenants and agrees to give full and timely observance and compliance to this covenant to remove all its property and surrender the Premises broom clean. TENANT hereby agrees to pay all reasonable necessary cost and expenses thereby incurred by LANDLORD. If, as the sole result of the removal of TENANT'S property any portion of the Additional Premises or of the building of which they are a part, are damaged, TENANT shall pay to LANDLORD the reasonable cost of repairing such damages unless due to the gross negligence of LANDLORD, its agents, servants, employees and contractors. TENANT'S obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this Lease. FORTY EIGHT. Chanqe of Address - TENANT shall promptly notify LANDLORD of any change in the addresses other than those required from it in Article SEVEN hereof. FORTY NINE. TENANT will indemnify LANDLORD for any and all liability, loss, damages, expenses, penalties and/or fines, and any additional expenses including any attorney fees LANDLORD may suffer as a result of claims, lawsuits, demands, administrative orders, costs, resolutions or judgements against it arising out of negligence and/or failure of TENANT or those acting under TENANT to conform to the statutes, ordinances, or other regulations or requirements of any governmental authority, be it Federal, of the Commonwealth of Puerto Rico, its instrumentalities or public corporations, in connection with the performance of this Lease. FIFTY: Inasmuch as TENANT is presently in possession of the demised premises pursuant to a certain Lease Contract executed between the parties hereto, TENANT hereby accepts the Premises in their present condition. FIFTY ONE: LANDLORD shall provide a basic electrical distribution system consisting of a 200 AMP meterbase, conduits, conductors, receptacles and junction boxes as indicated in PRIDCO'S Electrical Distribution System Drawings for indicated building. FIFTY TWO: TENANT shall, at is own cost and expense, construct and/or install all necessary equipment required to connect the building's electrical system to the Puerto Rico Electrical Power Authority's electrical distribution lines, such connection to be made in compliance with the requirement of PREPA. FIFTY THREE: Anything contained in this Contract to the contrary notwithstanding, if required by TENANT, it shall be at TENANT's own cost and expense the construction and/or installation of a sprinkler system; it being agreed and understood that such construction shall be in accordance with the provisions hereof. FIFTY FOUR: TENANT shall, at its own cost and expense, install a fire protection system and shall obtain the endorsement and approval from said Fire Department for such installation. TENANT must also provide security measures to prevent or reduce fire hazard due to the storage of inflammable materials and products. FIFTY FIVE: TENANT hereby acknowledges that in the industrial park there are other industries; therefore TENANT hereby specifically agrees and undertakes to take such steps and install such equipment as may be necessary to prevent that any hazard and/or noise which may be created by its operations may in any way or manner unduly affect the operations of the other industries and therefore TENANT hereby releases and saves LANDLORD harmless from any and all claims or demands arising therefrom or in connection therewith. FIFTY SIX: TENANT must comply with the rules and regulations of pre-treatment established by the Puerto Rico Aqueduct and Sewer Authority, the Environmental Quality Board and the Environmental Protection Agency related to the effluent industrial discharge in the sanitary sewer system and their final disposition. Also, any improvement necessary to provide pre-treatment facilities for the above mentioned effluents shall be at TENANT'S own cost and expense and in coordination and with the approval of LANDLORD's Engineering and Maintenance Departments. FIFTY SEVEN: TENANT shall procure and obtain a permit for the operation of a solid waste emission source from the Environmental Quality Board and authorization for the Office of Solid Waste and/or from the Municipality of AGUADA for the final disposition of wastes. FIFTY EIGHT: TENANT, at its own cost and expense, shall implement the necessary measures and install the control equipment to maintain the atmospheric air quality levels in compliance with the environmental laws and regulations of the Environmental Quality Board and the Environmental Protection Agency, as promulgated by any succeeding law or regulations. FIFTY NINE: It is hereby agreed and understood that TENANT shall take the necessary steps to comply with the regulations and law requirements of the PUERTO RICO OCCUPATIONAL SAFETY AND HEALTH OFFICE (PROSHO). SIXTY : TENANT certifies and guarantees that at the date of subscribing this Contract it has submitted the Corporate Tax Returns Forms during the last five (5) years and does not have any tax debt pending with the Commonwealth of Puerto Rico, or is complying with the terms of a payment plan duly approved. TENANT also certifies and guarantees that at the date of execution of this contract it has paid unemployment insurance compensation, temporary disability insurance, and the driver's social security (as applicable); or is complying with a payment plan duly approved. TENANT acknowledges that this is an essential condition of the Contract and if the above certification is incorrect in any of its parts, LANDLORD may cancel this contract. SIXTY ONE: LANDLORD reserves the right to audit the leased premises from time to time during the term of this contract, as LANDLORD may deem necessary, in order to assess all aspects of the environmental condition of said premises and TENANT's compliance with all environmental legislation and regulations, under Commonwealth and federal law; TENANT hereby agrees to provide access to all areas and structures of the premises for these purposes, upon LANDLORD's request, and to also provide access to all books, records, documents and instruments which LANDLORD may deem necessary in order to fully audit the premises as herein stated. SIXTY TWO: TENANT shall furnish to LANDLORD, in addition to any other information, documents or instruments that may be required in this contract: a) Prompt written notice of the occurrence of any event that by law or regulation would require any oral, telephonic or written notice or communication to the US Environmental Protection Agency and/or to the Puerto Rico Environmental Quality Board, or any successor agency, and copies of all orders, notices or other communications and reports received, made or given in connection with any such event, and any enforcement action taken against TENANT or against any property owned, occupied or used by TENANT; b) Quarterly certifications subscribed by an authorized representative designated by TENANT, as to the environmental condition of the leased premises, containing the information required by LANDLORD, which is specified in the form included as Schedule "B" of this contract, or any subsequent modification thereto; c) Any other information and documents relating to TENANT's compliance with environmental legislation and regulations under federal and commonwealth laws. SIXTY THREE: TENANT hereby guarantees to LANDLORD that, neither he, or any of its stockholders, in case of a corporation, owes any money to LANDLORD under its corporate name or any other corporate name and/or person. SIXTY FOUR: TENANT shall not transfer, lease, burden or dispose of in any way of the equipment used on its operations without the previous written notice to LANDLORD. SIXTY FIVE: TENANT shall not sell, lease or transfer in any way its operations to any other tenant without the previous written consent of LANDLORD. SIXTY SIX: If TENANT is not in default hereunder, beyond the period for the cure of defaults hereunder, TENANT shall have the right to further extend this lease for an additional FIVE (5) years period, upon written notice given to LANDLORD of ninety (90) days prior to the termination date of the term hereof, such extension to be upon the terms, covenants and conditions contained herein, except that the rental rate will be the rate then currently being charged by LANDLORD in the area. If so requested by any of the parties hereto, both parties agree to promptly execute such documents as may be necessary to incorporate in the lease the agreements for said extended period. If TENANT does not excersise this option, the Article FORTY-FIVE (45) shall apply in full force and effect. SIXTY SEVEN: TENANT agrees to submit to LANDLORD within thirty (30) days from the date of execution of this Contract: (a) evidence of its registration in the Department of State of the Commonwealth of Puerto Rico and the name and address of its resident agent; and (b) a certificate of a resolution of its Board of Directors either authorizing or ratifying the execution of this Contract. IN WITNESS WHEREOF, LANDLORD and TENANT have respectively signed upon proper authority this Lease, this day of PUERTO RICO INDUSTRIAL DEVELOPMENT COMPANY BY:_____________________________________ TELECOM PUERTO RICO, INC. (FORMERLY ZELTEX P.R., INC.) SOCIAL SECURITY # BY:_____________________________________ TELECOM PUERTO RICO, INC. (FORMERLY ZELTEX P.R., INC.) SCHEDULE "A" - - --------------------------------------------------------------- - - -------- Description of Building No. T-0796-1-67 Located at Aguada, Puerto Rico This is a pitched roof type building consisting of reinforced concrete foundation, columns and girders supporting 30 feet long steel joists which in turn support prestressed concrete slabs poretes covered by 1/2" fiberglass insulation and a 3 ply built-up roofing. Roof ventilators are provided. The structure consists of a main floor 120' - 0" x 90' - 6" out to out dimensions with an area of 10,860.00 sq. ft. of manufacturing space; a lean-to 37' - 2" x 11' - 6 3/4" for an area of 429.78 sq. ft. This amounts to a total area of 11,289.78 sq. ft. of covered floor space. The floor consists of a 4" thick reinforced concrete slab with a monolithic cement finish; floor slab designed for a load capacity of 150 pounds p.s.f. Exterior walls are of concrete blocks plastered and painted on both sides. Interior walls at lean-to are plastered and painted. Ceiling is rubbed and painted throughout the building. Windows are Miami aluminum type throughout the building. Interior doors are made of plywood and exterior are industrial type metal ones. Clearance in the manufacturing area from finish floor to lowest part of beams at the side eaves is 12'-0". Description of Parcel of Land, Lot No. 2 Located at Aguada Industrial Area, Aguada, Puerto Rico Parcel of land, lot no. 2, located at Aguada Industrial Area, Aguada, Puerto Rico. It bounds by the North, with lot no. 4 of the same industrial area, by the South, with State Road No. 115, by the East, with Street "A", of the same industrial area and by the West, with land owned by Sucn. Raffucci. It has a surface area of 5753.8898 sq. meters, equivalent to 1.4639 cuerdas. Encumbrances: It is affected by a 5.0 feet wide right of way in favor of P.R.E.P.A. running along its western boundary. Building: Project No. T-0796-0-67 This is a pitched roof type building consisting of reinforced concrete foundations, columns and girders supporting 30 feet long steel joists which in turn support prestressed concrete slabs poretes, covered by 1/2" fiberglass insulation and a 3 plies built-up roofing. Roof ventilators are provided. TELECOM PUERTO RICO, INC. (FORMERLY ZELTEX P.R., INC.) SCHEDULE "A" - - --------------------------------------------------------------- - - -------- The structure consists of a main floor 120'- 6" x 90' - 6" out to out dimensions with an area of 10,905.25 sq. ft. of manufacturing space, lean-to 37' - 2" x 11' - 6" - 6 3/4 for an area of 429.69 sq. ft. This amounts to a total area of 11,334.94 sq. ft. of covered floor space. The floor consists of 4" thick reinforced concrete slab with a monolithic cement finish. Designed for a live load of 150 p.s.f. on both sides. Interior walls at the lean-to are plastered and painted together with a 6'-1" high sprayed-on glazed finish wainscoat. Ceiling is rubbed and painted throughout the building. Interior doors are made of plywood and exterior are industrial type metal ones. Clearance in the manufacturing area from finished floor to lowest part of beams at the side eaves is 12'-0". Windows are miami aluminum louvers throughout the building. EX-10.12 7 EXHIBIT 10.12 COMERICA LINE OF CREDIT 1 REVOLVING CREDIT LOAN AGREEMENT THIS REVOLVING CREDIT LOAN AGREEMENT made and delivered this _1st__ day of December, 1993, by and between SYMMETRICOM, INC. and COMERICA BANK-CALIFORNIA. WITNESSETH WHEREAS, the Borrower desires to borrow up to Seven Million Dollars ($7,000,000) from the Bank from time to time for the working capital needs of the Borrower; and WHEREAS, the Bank is willing to supply such financing subject to the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree as follows: 1. Definitions. 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following respective meanings: "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. "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 Revolving Credit Loan Agreement. "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. "Borrower" shall mean SYMMETRICOM, INC., a California Corporation. "Business Day" shall mean a day on which the Bank is open to carry on its normal commercial lending business. "Commitment Amount" shall mean, as of any applicable date of determination, Seven Million Dollars ($7,000,000). "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 the 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 Sections 2.4 and 2.5 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 deter-mination, (i) all liabilities of a person that should be classified as current in accordance with GAAP, including without limitation any portion of the principal of the Note classified as current, plus (ii) to the extent not otherwise included, all liabilities of the 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 unma-tured, 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 the Bank makes a loan to the 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 8.1 of this Agreement. "Financial Statements" shall mean all those balance sheets, earnings sta-tements and other financial data (whether of the Borrower, any of its Subsidiaries, the Guarantor or otherwise) which have been furnished to the Bank for the purposes of, or in connection with, this Agreement and the transactions con-templated hereby. "GAAP" shall mean, as of any applicable date of determination, generally accepted accounting principles consistently applied. "Guarantor" shall mean (jointly and severally if more than one) TELECOM SOLUTIONS PUERTO RICO, INC. and LINFINITY MICROELECTRONICS INC. "Guaranty" shall mean a guaranty (or separate guaranties) in the form and content of Exhibit C to this Agreement pursuant to which the Guarantor (jointly and severally if more than one) unconditionally guarantees repayment to the Bank of all the Indebtedness. "Indebtedness" shall mean all loans, advances, indebtedness, obligations and liabilities of the Borrower to the Bank under this Agreement, together with all other indebted-ness, obligations and liabilities whatsoever of the Borrower to the 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 the Borrower or received by the Bank with respect to the Indebtedness represented by the Note under applicable law. "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 the 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. "Note" shall mean the Revolving Credit Note. "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 the Bank; (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 the Bank, bonded in an amount and manner satisfactory to the 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 as reported in the Financial Statements provided to the Bank by Borrower; and (g) Liens for the purchase or acquisition of fixed assets. "Person" or "person" shall mean any individual, corporation, partnership, joint ven-ture, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity. "Prime Rate" shall mean that annual rate of interest designated by the Bank as its prime rate, which rate may not be the lowest rate of interest charged by the Bank to any of its customers, and which rate is changed by the Bank from time to time. "Quarterly Operating Profits" shall mean operating profits (or Loss) of a person for each quarter determined in accordance with GAAP. "Quick Assets" shall mean, as of any applicable date of determination, all cash, non-affiliated customer receivables, United States government securities and claims against the United States government. "Revolving Credit Note" shall mean a promissory note conforming to Section 2.3 of this Agreement and in the form and content of Exhibit E to this Agreement. "Revolving Loan" shall mean an advance made by the Bank to the 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 the Borrower. "Tangible Net Worth" shall mean, as of any applicable date of deter-mination, 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 December 1, 1995 (or such earlier date on which the Borrower shall permanently terminate the 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. "Working Capital" shall mean, as of any applicable date of determination, Current Assets less Current Liabilities. 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. 2. Commitment, Interest and Fees. 2.1 Revolving Credit Commitment. Subject to the terms and conditions of this Agreement, the Bank agrees to make loans to the Borrower on a revolving basis in such amount as the 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 lesser of the Commitment Amount, provided that each Disbursement Date under this Agreement must be a Business Day. 2.2 Borrowing Procedures. 2.2.1 Notice. The Borrower shall by telephone give the Bank notice of the 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 be 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 telephone notice, Borrower shall have executed and delivered to the Bank a Telephone Notice Authorization. 2.2.2 Bank Obligations. The Bank agrees to make the Revolving Loan on the Disbursement Date established by notice to the Bank from the Borrower conforming to the requirements of Section 2.2.1 by crediting the deposit account of the Borrower with the Bank specified in the Advance & Payment Agreement in the amount of such Revolving Loan, provided, however, that the Bank shall not be obligated if: (a) Any of the conditions precedent set forth in Section 4 of this Agreement shall not have been satisfied or waived by the 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 the Borrower, dated the date of this Agreement, payable to the 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 the Bank and of each repayment of principal thereon received by the Bank shall be recorded by the Bank in its records. The aggregate unpaid principal amount so recorded by the Bank shall constitute the best evidence of the principal amount owing and unpaid on the Revolving Credit Note, provided, however, that the failure by the 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 the Borrower under this Agreement or the Note to repay the principal amount of all the Revolving Loans together with all interest accrued or accruing thereon. 2.4 Interest. The Revolving Credit Note shall bear interest on the principal balance from time to time outstanding under the Revolving Credit Note at a rate equal to the Prime Rate of the Bank until maturity, whether by acceleration or otherwise, and thereafter 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. Interest shall be payable to the extent then accrued on the first day of each consecutive calendar month, beginning December 1, 1993, in the case of the Revolving Credit Note until maturity (whether by acceleration or otherwise) and from and after such maturity, on demand. The rate of interest applicable to the Note shall change as and when the Bank's Prime Rate changes. 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 the Bank in excess of the Legal Rate, the 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 the Borrower to the Bank; and third, any remaining excess returned to the Borrower. 2.6 Fees. 2.6.1 Commitment Fee. The Borrower shall pay to the Bank a commitment fee for the period from the date of this Agreement to and including the Termination Date equal to Twenty Five Thousand Dollars ($25,000) per annum. Such commitment fee shall be payable in quarterly installments on the first Business Day of each quarter, beginning October 1, 1993, and on the Termination Date, for the periods ending on such date. 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. The 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 the Bank, may permanently terminate the 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 the Borrower, on the effective date of such termination or reduction, shall pay to the 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. The Borrower may not revoke any such notice of termination or reduction without the prior written consent of the Bank. 2.10 Basis of Payments. All sums payable by the Borrower to the Bank under this Agreement or the other documents contemplated hereby shall be paid directly to the Bank at its principal office set forth Section 9.10 hereof in immediately available United States funds, without set off, deduction or coun-terclaim. In its sole discretion, the Bank may charge any and all deposit or other accounts (including without limit an account evidenced by a certificate of deposit) of the Borrower with the Bank for all or a part of any Indebtedness then due; provided, however, that this authorization shall not affect the 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 the Bank at the address designated for such payment, whether or not the 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. The 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 the 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, the Bank shall be entitled to exercise any and all rights conferred upon it herein upon the occurrence of an Event of Default. The Borrower waives the right to direct the application of any and all payments at any time or times hereafter received by the Bank from or on behalf of the Borrower. The Borrower agrees that the 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 the Bank may deem advisable, notwithstanding any entry by the Bank upon any of its books and records. The Borrower expressly agrees that to the extent that the 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 the Bank, to the extent that the Bank did not directly receive a corresponding cash payment, shall be added to and be additional Indebtedness payable upon demand by the Bank. 4. Conditions Precedent to Obligations of Bank. 4.1 Conditions to First Disbursement. The obligations of the Bank under this Agreement are subject to the occurrence, prior to or simultaneously with the Disbursement Date first occurring, of each of the following conditions: 4.1.1 Documents Executed and Filed. The Borrower shall have exe-cuted (or caused to be executed) and delivered to the Bank and, as appropriate, there shall have been filed or recorded with such filing or recording offices as the Bank shall deem appropriate, the following: (a) The Revolving Credit Note; (b) The Guaranty: 1. TELECOM SOLUTIONS PUERTO RICO, INC.; 2. LINFINITY MICROELECTRONICS Inc.; (c) The Corporate Resolution Authorizing Execution Of Guaranty: 1. TELECOM SOLUTIONS PUERTO RICO, INC.; 2. LINFINITY MICROELECTRONICS Inc.; (d) The Loan Disbursement Order; (e) The Advance & Payment Agreement; 4.1.2 Certified Resolutions. If the Borrower is a corporation, the Borrower shall have furnished to the Bank a copy of resolutions of the Board of Directors of the Borrower authorizing the execution, 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 the Borrower as of the Disbursement Date first occurring as being complete, accurate and in effect. If the Borrower is a partnership, the Borrower shall have furnished to the Bank a copy of resolutions of the partners of the Borrower authorizing the execution, 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 general partners of the Borrower as of the Disbursement Date first occurring as being complete, accurate and in effect. 4.1.3 Certified Articles/Partnership Certificate. If the Borrower is a corporation, the Borrower shall have furnished to the Bank a copy of the Articles of Incorporation including all amendments thereto and restatements thereof, and all other charter documents of the Borrower, all of which shall have been certified by the California Secretary of State as of a date within thirty days of the Disbursement Date first occurring. If the Borrower is a general partnership, the Borrower shall have furnished to the Bank a copy of the Certificate of Co-Partnership and all other documents required to be filed by the Borrower to create a general partnership, including all amendments thereto and restatements thereof, all of which shall have been certified by the office of the county clerk or other appropriate filing office as of a date within thirty days of the Disbursement Date first occurring. If the Borrower is a limited partnership, the Borrower shall have furnished to the Bank a copy of the Certificate of Limited Partnership and all other documents required to be filed by the Borrower to create a limited partnership, including all amendments thereto and restatements thereof, all of which shall have been certified by the California Secretary of State or other appropriate filing office as of a date within thirty days of the Disbursement Date first occurring. 4.1.4 Certified Bylaws/Partnership Agreement. If the Borrower is a corporation, the Borrower shall have furnished to the Bank a copy of the Bylaws of the Borrower, including all amendments thereto and restatements thereof, which shall have been certified by the Secretary or Assistant Secretary of the Borrower as of the Disbursement Date first occurring as being complete, accurate and in effect. If the Borrower is a partnership, the Borrower shall have furnished to the Bank a copy of the partnership agreement of the Borrower, including all amendments thereto and restatements thereof, which shall have been certified to by the general partners of the Borrower as of the Disbursement Date first occurring as being complete, accurate and in effect. 4.2 Conditions to All Disbursements. The obligations of the 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: 4.2.3 Bank Satisfaction. The 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 5 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, the Guaranty, the Corporate Resolution To Borrow, the Corporate Resolution Authorizing Execution Of Guaranty by (i) TELECOM SOLUTIONS PUERTO RICO, INC. and (ii) LINFINITY MICROELECTRONICS Inc. or the other documents contemplated hereby. 5. 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 the Borrower has performed all of its other obligations hereunder, the Borrower represents and warrants to the Bank that: 5.1 Corporate Existence and Power. (a) The Borrower and the Guarantor are a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and California, (b) the Borrower, its Subsidiaries and the Guarantor 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) the Borrower has the power and authority to execute, deliver and perform this Agreement, to borrow money in accordance with its terms, to execute, deliver and perform the Revolving Credit Note and other documents contemplated hereby, to grant to the Bank liens and security interests in the Collateral as hereby contemplated and to do any and all other things required of it hereunder. 5.2 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, the Guaranty, and other documents contemplated hereby (a) have been duly authorized by all requisite corporate action of the Borrower, (b) will not violate any provision of law, any order of any court or other agency of government, the Articles of Incorporation or Bylaws of the Borrower, any provision of any indenture, note, agreement or other instrument to which the Borrower is a party, or by which it or any of its properties or assets are bound, (c) 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 inden-ture, note, agreement or other instrument, and (d) 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 the Borrower other than in favor of the Bank and as contemplated hereby. References to the "Borrower" in this Section 5.2 shall instead be deemed to be references to the Guarantor as the case may be, with respect to the Guaranty. 5.3 Valid and Binding Agreement. This Agreement is, and the Revolving Credit Note, the Corporate Resolution To Borrow, the Corporate Resolution Authorizing Execution Of Guaranty by (i) Telecom Solutions Puerto Rico, Inc. and (ii) Linfinity Microelectronics Inc. or the other documents contemplated hereby will be, when delivered, valid and binding obli- gations of the Borrower, and the Guaranty will be valid and binding obligations of the Guarantor in accordance with their terms. 5.4 Actions, Suits or Proceedings. There are no actions, suits or proceedings, at law or in equity, and no pro-ceedings before any arbitrator or by or before any governmental commission, board, bureau, or other administrative agency, pending, or, to the best knowledge of the Borrower, threatened against or affecting the Borrower, any of its Subsidiaries or the Guarantor or any properties or rights of the Borrower, any of its Subsidiaries or the Guarantor, which, if adversely determined, could materially impair the right of the Borrower, any of its Subsidiaries or the Guarantor to carry on business substantially as now conducted or could have a material adverse effect upon the financial condition of the Borrower, any of its Subsidiaries or the Guarantor. 5.6 Accounting Principles. All consolidated and consolidating balance sheets, earnings statements and other financial data furnished to the 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 the Borrower, its Subsidiaries and the Guarantor, as of the dates, and the results of their operations for the periods, for which the same are furnished to the 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 the Borrower, its Subsidiaries and, if relevant, the Guarantor as of the dates, and the results of its operations for the fiscal periods, for which the same are furnished to the Bank. The Borrower has no material con-tingent obligations, liabilities for taxes, long-term leases or unusual for-ward or long-term commitments not disclosed by, or reserved against in, the Financial Statements. 5.7 Financial Condition. The Borrower and the Guarantor 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 neither the Borrower nor the Guarantor will be rendered insolvent, under-capitalized or unable to pay maturing debts by the execution or performance of this Agreement, the Guaranty or the other documents contemplated hereby. There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower, any of its Subsidiaries or the Guarantor since the date of the latest of the Financial Statements. 5.8 Conditions Precedent. As of each Disbursement Date, all appropriate conditions precedent referred to in Section 4 hereof shall have been satisfied or waived in writing by the Bank. 5.9 Taxes. The Borrower, its Subsidiaries and the Guarantor 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. The Borrower has no knowledge of any deficiency or assessment in connection with any taxes, assessments or other governmen-tal charges not adequately disclosed in the Financial Statements. 5.10 Compliance with Laws. The Borrower, its Subsidiaries and the Guarantor has each complied with all applicable laws, to the extent that failure to comply would materially interfere with the conduct of the business of the Borrower, any of its Subsidiaries or the Guarantor. 5.11 Indebtedness. Except as disclosed in the Financial Statements, neither the Borrower, any of its Subsidiaries nor the Guaranto has any indebtedness for money borrowed or any direct or indirect obligations under any leases (whether or not required to be capita-lized under GAAP) or any agreements of guarantee or surety except for the endorsement of negotiable instruments by the Borrower, its Subsidiaries or the Guarantor in the ordinary course of business for deposit or collection. 5.12 Material Agreements. Except as disclosed in the Financial Statements, neither the Borrower, any of its Subsidiaries nor the Guarantor has any material leases, contracts or commit-ments 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 the 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. 5.13 Margin Stock. Neither the 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. The Borrower does not own any margin stock. 5.14 Pension Funding. Neither the Borrower, any of its Subsidiaries nor the Guarantor has incurred any accumu-lated 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 the Borrower, any of its Subsidiaries or the Guarantor and no reportable event or prohibited transaction, as defined in ERISA, has occurred with respect to such plans. 5.15 Misrepresentation. No warranty or representation by the Borrower contained herein or in any certificate or other document furnished by the Borrower pursuant hereto contains any untrue statement of material fact or omits to state a material fact necessary to make such warranty or represen-tation not misleading in light of the circumstances under which it was made. There is no fact which the Borrower has not disclosed to the Bank in writing which materially and adversely affects nor, so far as the 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 the Borrower, any of its Subsidiaries or the Guarantor or ability of the Borrower to perform this Agreement or the ability of the Guarantor to perform the Guaranty. 5.19 No Conflicting Agreements. Neither the Borrower, any of its Subsidiaries nor the Guarantor 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 the Borrower, any of its Subsidiaries or the Guarantor. No provision of the Certificate of Incorporation, By-Laws or preferred stock, if any, of the 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 the Borrower or affecting the property of the 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 the Borrower pursuant to the terms of any such mortgage, indenture, note, contract or agreement. 6. 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 the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will: 6.1 Financial and Other Information. 6.1.1 Annual Financial Reports. Furnish to the Bank, in form and reporting basis satisfactory to the Bank, not later than ninety (90) days after the close of each fiscal year of the Borrower, beginning with the fiscal year ending June 30, 1994, financial statements of the Borrower on a consolidated basis containing the balance sheet of the 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 the Borrower and acceptable to the Bank and shall contain unqualified opinions as to the fairness of the statements therein contained. 6.1.2 Quarterly Financial Statements. Furnish to the Bank not later than forty-five (45) days after the close of each quarter of each fiscal year of the Borrower, beginning with the fiscal quarter ending December 31, 1993, financial statements on a consolidated basis containing the balance sheet of the Borrower as of the end of each such period, statements of income and retained earnings of the Borrower and a statement of cash flows of the 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 6.1.1 of this Agreement and shall be in such detail as the Bank may reasonably require, and the accuracy of the statements shall be certified by the chief executive or financial officer of the Borrower. 6.1.4 Aging of Accounts Certificate. In the event that Indebtedness exceeds $3,500,000.00 Borrower shall furnish to the Bank by the 15th of each month an aging of Borrower's Accounts Receivable as of the end of the preceding month in a form satisfactory to the Bank. 6.1.8 Adverse Events. Promptly inform the 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 the Borrower's or any of its Subsidiaries' business, properties, or financial condition or upon the Borrower's ability to comply with its obligations hereunder. 6.1.9 Shareholder Reports. Promptly furnish to the Bank upon becoming available a copy of all financial statements, reports, notices, proxy statements and other communications sent by the Borrower or any of its Subsidiaries to their stockholders, and all regular and periodic reports filed by the Borrower or any of its Subsidiaries with any securities exchange, the Securities and Exchange Commission or any governmental authorities succeeding to any or all of the functions of said Commission or Bureau. 6.1.10 Management Letters. Furnish to the Bank, promptly upon receipt thereof, copies of all management letters and other reports of substance submitted to the Borrower or any of its Subsidiaries by independent certified public accountants in connection with any annual or interim audit of the books of the Borrower or any of its Subsidiaries. 6.1.11 Other Information As Requested. Promptly furnish to the Bank such other information regarding the operations, business affairs and financial condition of the Borrower and its Subsidiaries as the Bank may reasonably request from time to time and permit the Bank, its employees, attorneys and agents, to inspect all of the books, records and properties of the Borrower and its Subsidiaries at any reasonable time. References in Section 6 to "the chief executive or financial officer" shall mean "the general partners" where the Borrower is a partnership. 6.3 Taxes. 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 the Borrower or its Subsidiaries, and their property, except to the extent being contested in good faith and, if requested by the Bank, bonded in an amount and manner satisfactory to the Bank. If the Borrower shall fail to pay such taxes and assessments within the time they can be paid without penalty, late charge or interest the Bank shall have the option to do so, and the Borrower agrees to repay the Bank upon demand, with interest at the Contract Rate, all amounts so expended by the Bank. 6.4 Maintain Corporation and Business. Do or cause to be done all things necessary to preserve and keep in full force and effect the 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 con-ducted at all times. 6.5 Maintain Tangible Net Worth. On a consolidated and non- consolidated basis, maintain a Tangible Net Worth for it of not less than the amounts specified during the periods specified below: (a) $35,000,000.00 from the date of this Agreement until December 1, 1995. 6.6 Maintain Debt Ratio. On a consolidated basis, maintain the ratio of its Debt to Tangible Net Worth at not more than 1.00 to 1.00. 6.7 Maintain Quick Ratio. On a consolidated basis, maintain the ratio of its Quick Assets to Current Liabilities at not less than 1.25 to 1.00. 6.8 Maintain Profitability. On a consolidated basis, Quarterly Operating Profits shall be greater than zero if the prior quarter's Quarterly Operating Profits were less than zero. 6.10 ERISA. (a) At all times meet and cause each of the Subsidiaries to meet the minimum funding requirements of ERISA with respect to the Borrower's and Subsidiaries' employee benefit plans subject to ERISA; (b) promptly after the 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 the Borrower has instituted or will institute proceedings to terminate an employee pension plan, deliver to the Bank a certificate of the chief financial officer of the Borrower setting forth details as to such event or proceedings and the action which the 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 the Bank (or cause the plan administrator to furnish the Bank) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by the Borrower not later than ten (10) days after such report has been so filed. 6.11 Use of Loan Proceeds. Use the proceeds of the loan hereunder only for the purposes set forth in the recitals to this Agreement. 7. 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 the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will not, and will not permit any Subsidiary to: 7.3 Stock Acquisition. Purchase, redeem, retire or otherwise acquire any of the shares of its capital stock, or make any commitment to do so in excess of $1,000,000 in any given fiscal year. 7.4 Liens and Encumbrances. 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 limit 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. 7.5 Indebtedness. 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 the Bank, (c) existing indebtedness to the extent set forth on attached Schedule 5.11, (d) trade indebtedness incurred and paid in the ordinary course of business, (e) contingent indebtedness to the extent permitted by Section 7.7 of this Agreement, and (f) indebtedness secured by Permitted Liens. 7.6 Extension of Credit. Make loans, advances or extensions of credit to any Person, except for sales on open account and otherwise in the ordinary course of business. 7.7 Guarantee Obligations. 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 fur-nishing 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 the Borrower in the ordinary course of business for deposit or collection; and except for aggregate guarantees not to exceed $500,000 at any one point in time. 7.8 Subordinate Indebtedness. Subordinate any indebtedness due to it from a Person to indebtedness of other creditors of such Person. 7.9 Acquire Securities. 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 the 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 $100,000,000 and except for money market funds mutually agreed to by Bank and Borrower, and direct obligations States Government maturing within one year from the date of acquisition thereof. 7.12 Pension Plan. (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 the Borrower or any of its Subsidiaries to the PBGC which, in the opinion of the Bank, will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower or any of its Subsidiaries. 7.13 Misrepresentation. Furnish the Bank with any certificate or other document that contains any untrue statement of a material fact or omits to state a material fact necessary to make such certificate or document not misleading in light of the circumstances under which it was furnished. 7.14 Margin Stock. 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. 8. Events of Default, Enforcement, Application of Proceeds. 8.1 Events of Default. The occurrence of any of the following events shall constitute an Event of Default hereunder: 8.1.1 Failure to Pay Monies Due. If the 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 the Borrower under this Agreement or if the Borrower, any of its Subsidiaries or the Guarantor shall fail to pay, when due, any indebtedness, obligation or liability whatsoever of the Borrower, any of its Subsidiaries or the Guarantor to the Bank. 8.1.2 Misrepresentation. If any warranty or representation of the Borrower in connection with or contained in this Agreement, or if any financial data or other information now or hereafter furnished to the Bank by or on behalf of the Borrower, shall prove to be false or misleading in any material respect. 8.1.3 Noncompliance with Bank Agreement. If the Borrower, any of its Subsidiaries or the Guarantor shall fail to perform in the time and manner required any of its obligations or cove-nants under, or shall fail to comply with any of the provisions of, this Agreement or any other agreement with the 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 the Borrower within thirty (30) days after the earlier of the date of notice to the Borrower by the Bank of such Default or the date the Bank is notified, or should have been notified pursuant to the Borrower's obligation under Section 6.1.8 hereof, of such Default. 8.1.4 Other Defaults. If the Borrower, any of its Subsidiaries or the Guarantor shall default in the payment when due of any of its indebted-ness (other than to the 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. 8.1.5 Judgments. If there shall be rendered against the Borrower, any of its Subsidiaries or the Guarantor one or more judgments or decrees involving an aggregate liability of One Million Dollars ($1,000,000.00) or more, which has or have become non-appealable and shall remain undischarged, unsatisfied by insurance and unstayed for more than thirty (30) days, whether or not consecutive; or if a writ of attachment or garnishment against the pro-perty of the Borrower, any of its Subsidiaries or the Guarantor shall be issued and levied in an action claiming One Million Dollars ($1,000,000.00) or more and not released or appealed and bonded in an amount and manner satisfactory to the Bank within thirty (30) days after such issuance and levy. 8.1.6 Business Suspension, Bankruptcy, Etc. If the Borrower, any of its Subsidiaries or the Guarantor shall voluntarily suspend transaction of its business; or if the Borrower, any of its Subsidiaries or the Guarantor 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 the Borrower, any of its Subsidiaries or the Guarantor under the Bankruptcy Code or under any other state or federal law for the relief of debtors shall be commenced or shall be commenced against the Borrower, any of its Subsidiaries or the Guarantor and shall not be discharged within thirty (30) days of commencement; or a receiver, trustee or custodian shall be appointed for the Borrower, any of its Subsidiaries or the Guarantor or for any substantial portion of their respective properties or assets. 8.1.8 Inadequate Funding or Termination of Employee Benefit Plan(s). If the Borrower, any of its Subsidiaries or the Guarantor 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, any of its Subsidiaries or the Guarantor to the PBGC which in the opinion of the Bank will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower, any of its Subsidiaries or the Guarantor, as the case may be. 8.1.9 Occurrence of Certain Reportable Events. If there shall occur, with respect to any pension plan maintained by the Borrower, any of its Subsidiaries or the Guarantor any reportable event (within the meaning of Section 4043(b) of ERISA) which the Bank shall determine constitutes a ground for the termination of any such plan, and if such event continues for thirty (30) days after the Bank gives written notice to the Borrower, provided that termination of such plan or appointment of such trustee would, in the opi-nion of the Bank, have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower, any of its Subsidiaries or the Guarantor, as the case may be. 8.2 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 the Bank without presentation, demand, pro-test, 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, the Bank shall have and may exercise any one or more of the rights and remedies for which provision is made for a secured party under the UCC, under the Security Agreements, the Continuing Collateral Mortgage or under any other document contemplated hereby or for which provision is provided by law or in equity, including, without limitation, the right to take possession and sell, lease or otherwise dispose of any or all of the Collateral and to set off against the Indebtedness any amount owing by the Bank to the Borrower and/or any property of the Borrower in possession of the Bank. The Borrower agrees, upon request of the Bank, to assemble the Collateral and make it available to the Bank at any place designated by the Bank which is reasonably convenient to the Bank and the Borrower. 8.3 Application of Proceeds. All of the Indebtedness shall constitute one loan secured by the Bank's security interest in the Collateral and by all other security interests, mortgages, liens, claims, and encumbrances now and from time to time hereafter granted from the Borrower to the Bank. Upon the occurrence of an Event of Default which is not cured within the cure period, if any, provided under Section 8.2, the Bank may in its sole discretion apply the Collateral to any portion of the Indebtedness. The proceeds of any sale or other disposition of the Collateral authorized by this Agreement shall be applied by the 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 the 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 the Borrower or to such other Person or Persons as may be entitled thereto under applicable law. The Borrower shall remain liable for any deficiency, which the Borrower shall pay to the Bank immediately upon demand. 8.4 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 mortgage, security agreement or other document contemplated hereby. Nothing herein contained is intended, nor shall it be construed, to preclude the Bank from pursuing any other remedy for the recovery of any other sum to which the Bank may be or become entitled for the breach of this Agreement by the Borrower. 9. Miscellaneous. 9.1 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. 9.2 Covenant Independence. Each covenant in this Agreement shall be deemed to be independent of any other covenant, and an exception or illegality in one cove-nant shall not create an exception or illegality in another covenant. 9.3 Waivers and Amendments. No forbearance on the part of the 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 the 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 the Bank except in a writing signed and delivered by an officer of the 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 or 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 the Bank. 9.4 Governing Law. This Agreement, and each and every term and provi-sion hereof, shall be governed by and construed in accordance with the internal law of the 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. 9.5 Survival of Warranties, Etc. All of the 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 the Bank, notwithstanding any investigation heretofore or hereafter made by the Bank. All statements contained in any certificate or other docu-ment delivered to the Bank at any time by or on behalf of the Borrower pur-suant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower in connection with this Agreement. 9.6 Costs and Expenses. The Borrower agrees that it will reimburse the Bank, upon demand, for all costs and expenses incurred by the Bank in connection with (i) collecting or attempting to collect the Indebtedness or any part thereof, (ii) maintaining or defending the Bank's security interests or liens (or the priority thereof), (iii) the enforcement of the Bank's rights or remedies under this Agreement or the other documents contemplated hereby, (iv) the preparation or making of any amendments, modifications, waivers or consents with respect to this Agreement or the other documents contemplated hereby, and/or (v) any other matters or proceedings arising out of or in connection with any lending arrangement between the Bank and the Borrower, which costs and expenses include without limit payments made by the Bank for taxes, insurance, assessments, or other costs or expenses which the Borrower is required to pay under this Agreement or the other documents contemplated hereby; expenses related to the examination of the Collateral; audit expenses; court costs and reasonable attorneys' fees (whether in-house 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 the Bank incurred in connection with any of the foregoing. 9.7 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. 9.8 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 the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Bank. 9.9 Maintenance of Records. The Borrower will keep all of its records concerning its business operations and accounting at its principal place of business. The Borrower will give the Bank prompt written notice of any change in its principal place of business, or in the location of its records. 9.10 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 the Borrower, to: 85 West Tasman Drive, San Jose, CA 95134; and (b) if to the Bank, to: Pier 33 South Bulkhead, San Francisco, CA 94111; 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 the 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 the Bank to give five day notice or any notice if not specifically required in this Agreement. 9.11 Counterparts. This Agreement may be signed in any number of coun-terparts with the same effect as if the signatures were upon the same instrument. 9.12 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. 9.13 Release and Discharge. Upon full payment of the Indebtedness and performance by the Borrower of all its other obligations hereunder, 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. 9.14 Waiver of Jury Trial. The Borrower and the Bank hereby irrevocably waive the right to trial by jury with respect to any and all actions or proceedings at any time in which the Borrower and the Bank are parties arising out of this Agreement or the other documents contemplated hereby. 9.15 Integration. This Agreement, Master Revolving Note, Security Agreements, Financing Statements, and such other agreements, 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. 9.16 Further Assurances. Borrower shall execute such instruments and documents as Bank may request from time to time, and take such other actions to perfect and continue the security interest granted hereunder and otherwise to effect the purposes of this Agreement. IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be executed by their duly authorized officers as of the day and year first written above. By: /s/ William D. Rasdal By: /s/ J. Scott Kamsler _____________________ ____________________ William D. Rasdal J. Scott Kamsler Its: Chief Executive Officer Its: Chief Financial Officer COMERICA BANK-California By: /s/ Greg Atkinson _________________ Greg Atkinson Its: Corporate Banking Officer LIST OF EXHIBITS EXHIBIT E - Revolving Credit Note EXHIBIT E REVOLVING CREDIT MASTER NOTE $7,000,000.00San Francisco, California December __1__, 1993 FOR VALUE RECEIVED, the undersigned promises to pay to the order of COMERICA BANK-CALIFORNIA (the "Bank") at Pier 33 South Bulkhead, San Francisco, California, on December __1_, 1993, the principal sum or so much of the principal sum of Seven Million Dollars ($7,000,000.00) as may from time to time have been advanced and be outstanding under that certain Revolving Credit Loan Agreement dated December _1__, 1993, between the undersigned and the Bank (the "Agreement") plus all accrued but unpaid interest thereon. The unpaid principal amount of 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 day of each consecutive calendar month, beginning December 1, 1993, 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 the Bank pursuant to the terms and conditions of the Agreement, and the books and records of the Bank shall constitute the best evidence of the amount of the indebtedness at any time owing hereunder. The Bank is hereby granted a security interest in all property of the undersigned at any time in the possession of the Bank or any Affiliate (as defined in the Agreement) of the Bank (or as to which the Bank or any Affiliate of the Bank at any time controls possession by documents or otherwise) and in all balances of deposit or other accounts (including without limit an account evidenced by a certificate of deposit) of the undersigned from time to time with the Bank or any Affiliate of the Bank. 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, the 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 secured party under applicable law, including without limit 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 the Bank to the undersigned, (ii) any property of the undersigned at any time in the possession of the Bank or any Affiliate of the Bank and (iii) any amount in any deposit or other account (including without limit an account evidenced by a certificate of deposit) of the undersigned with the Bank or any Affiliate of the 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 security, whether with or without notice, shall affect the obligations of any accommodation 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 attorney 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, 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 Note as of the ___1__ day of December, 1993. By: /s/ William D. Rasdal _____________________ William D. Rasdal Its: Chief Executive Officer By: /s/ J. Scott Kamsler ____________________ J. Scott Kamsler Its: Chief Financial Officer EX-21.1 8 EXHIBIT 21.1 SUBSIDIARIES 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 EX-23.1 9 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-38384 on Form S-8, Post-Effective Amendment No. 2 to Registration Statement No. 33-3456 on Form S-8, Post-Effective Amendment No. 2 to Registration Statement No. 33-11317 on Form S-8, Post-Effective Amendment No. 3 to Registration Statement No. 2-70291 on Form S-8 and Registration Statement No. 33-52356 on Form S-8 of our report dated July 28, 1994, appearing in and incorporated by reference in the Annual Report on Form 10-K of Symmetricom, Inc. and Subsidiaries for the year ended June 30, 1994. /s/ Deloitte & Touche LLP _________________________ DELOITTE & TOUCHE LLP San Jose, California September 16, 1994 -----END PRIVACY-ENHANCED MESSAGE-----