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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549
                                    FORM 10-K

[X]     Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
        Act of 1934 for the Fiscal Year ended December 31, 1999

                                       OR

[ ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 Commission file number 0-6272

                                   DATUM INC.
             (Exact name of Registrant as specified in its charter)

               Delaware                                   95-2512237
     (State or other jurisdiction                      (I.R.S. Employer
     of incorporation or organization)                 Identification No.)

                    9975 Toledo Way, Irvine, California 92618
                    (Address of principal executive offices)
       Registrant's telephone number, including area code: (949) 598-7500

           Securities registered pursuant to Section 12(b) of the Act:

    Title of each class               Name of each exchange on which registered
    -------------------               -----------------------------------------
          None                                          None

           Securities registered pursuant to Section 12(g) of the Act:

                                  COMMON STOCK
                                  ------------
                                (Title of Class)

                           ---------------------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   [X]      No    [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sales price of the Common Stock as of March
20, 2000, was approximately $145,209,957

The number of outstanding shares of the Registrant's Common Stock as of March
20, 2000 was 5,897,138.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Proxy Statement for the Annual Meeting of Stockholders
to be held on June 8, 2000 (to be filed with the Commission within 120 days of
December 31, 1999): Part III, Items 10-13.

                               Page 1 of ___ Pages
     Exhibit Index is Located on Sequential Numbered Page __ of this Report.

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                                INTRODUCTORY NOTE

This Annual Report on Form 10-K (this "Report") contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and Datum Inc. ("Datum" or
the "Company") intends that such forward-looking statements be subject to the
safe harbors created thereby. All statements other than statements of historical
fact included in this Report, including, without limitation, the statements
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business" regarding: the Company's ability to design,
develop, manufacture and market products, the ability of the Company's products
to maintain commercial acceptance, the Company's ability to achieve new product
commercialization, the anticipated growth of its target markets, its ability to
maintain profitability, and other matters are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable at this time, it can give no assurance
that such expectations will prove to have been correct. The Company makes no
undertaking to correct or update any such statements in the future. Important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are set forth in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business".
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.

                                     PART I

Item 1. BUSINESS.

General

        Datum designs, manufactures and markets a wide variety of
high-performance time and frequency products used to synchronize the flow of
information in telecommunications networks and in numerous other applications.
Utilizing its more than 30 years of experience with time and frequency
standards, Datum supplies products that can provide accurate time to within a
fraction of one second over 100,000 years. Datum serves the markets for
high-precision time and frequency devices in the telecommunications industry
which is rapidly expanding as a result of the conversion from analog to digital
systems and the expansion of cellular and Personal Communications Services
("PCS") networks. The Company's Efratom subsidiary invented the rubidium
oscillator in 1971 and believes it currently supplies approximately 80% of the
high-precision, rubidium atomic clocks used in cellular and PCS network base
stations in the United States. Datum is a major supplier of extremely precise
cesium standards and Global Positioning System ("GPS") receivers that generate
or capture time and frequency information for use in wireline telecommunications
infrastructures.

        In addition to providing time and frequency products for
telecommunications applications, Datum is a growing supplier of timing products
used to ensure the integrity of information transmitted through enterprise
computing networks. Datum also manufactures time and frequency devices for
satellites, including GPS satellites which utilize the Company's cesium clocks
to provide highly accurate timing and navigation information throughout the
world. The Company also provides time and frequency products and systems for a
wide range of scientific and industrial test and measurement applications,
including missile guidance, geographic mapping and electric utility operations.
The Company is exploring the developing market for encrypted trusted time. The
hardware and software we believe necessary for a market for legal,
non-repudiable electronic business transactions to grow is in development by the
Company.


MARKETS

        Telecommunications

        The telecommunications system is comprised of numerous interconnected
networks employing many different transmission technologies. The traditional
wireline network is itself a series of networks connected through numerous
switches that allow voice, data and video traffic to be transmitted to their
ultimate destinations. Wireless networks, including cellular and PCS, are also
connected to components of the wireline network through switches. In order for
the overall telecommunications system, and the various components within that
system, to operate efficiently, it is critical that each network be synchronized
and operate within extremely narrow frequency tolerances. Accurate and precise
time and frequency devices are necessary at all levels of the telecommunications
system to ensure proper frequency control and to minimize signal degradation.

        Wireless -- Cellular. Cellular telecommunications networks consist of
numerous cells located throughout a service area, each with its own base station
connected by wire or microwave radio to the wireline network through a network
switch. Originally, cellular networks used analog technology and frequency
division multiple access ("FDMA") to fit more channels into existing frequency
bands. This requires accurate frequency control at the base station level, which
is accomplished



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through the use of quartz or higher precision rubidium oscillators. In order to
improve transmission quality, increase network capacity and expand network
coverage, many network operators are converting older networks from analog to
digital technology and expanding their digital wireless networks. Currently, the
three leading digital technologies are Time Division Multiple Access ("TDMA"),
Code Division Multiple Access ("CDMA") and Global System for Mobile
Communications ("GSM"). In each of these transmission protocols, calls are
segmented, transmitted over a wider spectrum of bandwidth than otherwise
available under FDMA and reassembled by the applicable receiver within the
network. As a result of the segmentation/reassembling process, signal
degradation from improper synchronization is more likely to result in dropped
calls and loss of data than would occur in analog networks. Dropped calls and
data losses, in turn, require retransmission, thus decreasing network efficiency
and capacity. In order to minimize the problems resultant from improper
synchronization, many cellular operators utilize highly precise timing equipment
located at each base station and its associated network switch.

        Wireless -- PCS. PCS was developed, in part, to provide an improved
quality of wireless service and accommodate the increasing volume of
transmissions utilizing wireless networks. PCS systems operate in a manner
similar to cellular networks, but at a much higher frequency. As a result, PCS
networks require a greater number of lower powered "microcells," located more
closely together. As in cellular networks, time and frequency devices are
necessary to synchronize the flow of voice and data transmissions. The base
station in each PCS microcell and each PCS network switch connected to the
wireline network requires one or more stable, reliable timing devices to ensure
accurate synchronization.

        Wireline. The wireline sector of the telecommunications market has
experienced increased need for high-accuracy timing and frequency equipment
primarily as a result of the upgrading of existing networks from analog to
digital and the installation of new wireline networks. The wireline sector
currently consists of numerous networks and lines, which are connected by
switches that provide a transferring mechanism to route transmissions to their
ultimate destinations. In order to transfer voice, data or video traffic from
one line or network to another, both lines or segments of the network must
operate at the same frequency within a very narrow tolerance. Increased demand
for higher capacity, higher speed and more accurate information flow has
required the transition of wireline networks from analog to digital systems.
Imperfect synchronization in an analog system may result merely in static or
delayed communication. The failure to synchronize the components in digital
networks, however, may result in the loss of information, requiring
re-transmission and thus decreasing network efficiency, and increasing the costs
to the network operator. As a result, digital systems have a greater need for
accurate synchronization, which is accomplished through the use of precise
timing devices located throughout the networks.

        The wireline sector of the telecommunications market is also growing as
operators expand their networks in order to meet the growing demand for
telecommunications services. In developing countries, new wireline networks are
being installed to provide basic telephony service. In developed countries,
increased demand for new services and government deregulation has encouraged the
development of expanded networks, particularly in the local exchange and long
distance markets. The expansion of wireline networks has led to an increased
need for timing devices to synchronize the flow of information and maximize the
efficiency of the networks.

        e-Business

        The Datum e-Business mission is to build Information Technology (IT)
solutions that meet increasing demand for secure and auditable electronic
timestamps, synchronized IT business infrastructures and secure information
distribution. The Internet is rapidly accelerating the transformation of "paper
to bits" for organizations and is creating operational, security, and auditing
challenges that have never before arisen.

        The Company believes that as of today there is no basis for certifiable
accurate time within the business world's vast network of computers. The ability
to track an electronic transaction's time delivery is important because without
the benefit of a secure and auditable time stamp, any transaction or log file
has the potential to be questioned.

         An examination of physical evidence is needed in order to create an
audit trail of Who, What, Where and When. In the paper world, a notary, a
canceled check, or postage mark accomplished this. In the electronic world, the
use of time stamping is widely used in conjunction with applications to tie
together the who to the when, but there is no security associated with the time
and no audit information with the time-stamp. Most time-stamps are derived from
inaccurate and easily manipulated internal clocks on servers and network
devices. Until recently, this has not been an issue, but with the rapid adoption
of electronic commerce, the security and auditability of the present
time-stamping methods are proving weak and inadequate.

        Trusted Time(TM) is a suite of products that will provide e-Business
with a secure and auditable time stamp. Trusted Time enables any electronic
transaction or log - from digital signatures to stock purchases to document
filings to invoice payments - to have a certifiable, traceable, and verifiable
time stamp. End-user organizations or Digital Trust Authorities will be able to
deploy a world-class, secure time stamp solution within their IT infrastructure
to create non-repudiatable electronic audit trail for time stamps.



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        Trusted Time's security and audit features significantly improve the
authenticity, traceability and verification of electronic time stamps. The
Trusted Time solution is comprised of Datum's Trusted Master Clocks and Trusted
Local Clocks, specialized software and secure network timing devices that will
be linked to National Timing Authorities, such as the National Institute of
Standards and Technology (NIST) in the U.S, the National Physics Laboratory
(NPL) in the United Kingdom, and the Products and Standards Bureau (PSB) in
Singapore.

        Electronic transactions and logs now have a complex interdependency on
multiple servers and network appliances. This complex environment is generating
a need for all IT components participating in electronic business to have their
internal clocks synchronized to a world standard time. Fortunately, through
established international agreement, this time is available anywhere in the
world and is referred to as UTC time or Universal Coordinated Time. Datum's
TymServe NTP time-server product has been the pioneer solution for IT
synchronization to UTC time and will continue its leadership role in the next
generation adding even more timing and administration features.

        For the third consecutive year, the CSI/FBI Computer Crime and Security
Survey found much of an organization's vulnerability is not from external
sources but from within. The 1999 survey indicates insiders committed 55% of
unauthorized access and 26% was theft of confidential information. The need for
better protection of the electronic information is compelling.

        Datum's Confidential Courier product enables companies to securely
distribute information assets over any media or channel, providing organizations
with an easy and cost-effective way to distribute sensitive files to employees,
customers and partners. The turnkey software lets companies control important
parameters of file access, such as who can access which files at what times and
with what application. A key component of controlling information access after a
file reaches its recipient is time. Integration with Datum's e-Business
solutions time references and time stamp technology will strengthen Confidential
Courier's post receipt management benefits and tighten a firm's ability to
securely control its own information.


TIME AND FREQUENCY TECHNOLOGY

        Three sources of timing and frequency information are generally used in
telecommunications and commercial applications: cesium standards, rubidium
oscillators and quartz oscillators. In addition, GPS receivers capture and
process timing information generated by satellite-based cesium and rubidium
timing devices.

        The most stable and accurate timing devices in widespread use are based
on the resonance of cesium atoms. Cesium standards operate by energizing a
reserve of cesium atoms with microwave energy at a precise frequency. At this
frequency, due to the atomic structure of cesium, some of the cesium atoms
experience a change in energy state. These "excited" atoms are directed to a
collector through the use of focusing magnets, resulting in an increased atomic
flow. Since the flow of atoms does not increase unless the cesium atoms are
excited at exactly the correct frequency, the detection of the increased atomic
flow by the collector indicates that the desired frequency has been obtained.
The highly stable frequency is then captured by the standard's electronics
package and generated as a series of user outputs. Cesium clocks are used as
international primary reference standards and are stable to within a fraction of
one second over 100,000 years.

        Rubidium oscillators combine sophisticated glassware, light detection
devices and electronics packages to generate a highly stable frequency output.
Rubidium, when energized by a specific radio frequency, will absorb less light.
The oscillator's electronics package generates this specific frequency and the
light detection device ensures, through monitoring the decreased absorption of
light by the rubidium and the use of feedback control loops, that this specific
frequency is maintained. This highly stable frequency is then captured by the
electronic package and generated as an output signal. Rubidium oscillators
provide atomic oscillator stability, somewhat less stable than cesium over long
durations, but generally at lower cost and in smaller packages.

        Quartz oscillators utilize the unique physical properties of quartz
crystals. Applying a voltage potential across a properly prepared quartz crystal
causes the crystal to vibrate and generate an electric signal with a relatively
stable frequency. Quartz oscillators consist of specially prepared synthetic
quartz crystals and associated electronics to apply the voltage and generate the
frequency signal. Quartz oscillators provide a less stable frequency than
rubidium oscillators, but are available at a substantially lower cost.

        Stable and accurate timing and frequency information is also obtained
through the use of GPS receivers, which capture timing information from cesium
standards or rubidium oscillators aboard GPS satellites. GPS receivers are
typically used in systems integrated with quartz or rubidium oscillators that
provide consistent timing output in the event the receiver



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loses the external satellite-based signal.

        The Company applies its core understanding of timing and frequency
technology and its experience in delivering highly stable and accurate clocking
devices to provide a wide range of timing and frequency products for
telecommunications, enterprise computing and a variety of other commercial
applications. The Company designs, manufactures and markets cesium standards,
rubidium oscillators, quartz oscillators and GPS receivers in numerous
configurations, depending on the desired application. The Company's products are
the result of substantial research and development performed in the areas of
atomic physics, electronics engineering and software design. The Company designs
and manufactures its own physics packages, through which cesium or rubidium is
energized as part of the frequency detection and control process. Datum also
designs the electronics packages for its products, which are necessary to
convert the signal generated by the physics package into highly stable
electronic pulses.

        Datum is a leading supplier of time and frequency products for the
overall telecommunications system, for satellite applications, enterprise
computing networks, and for a variety of other test and measurement
applications. For telecommunications markets, Datum provides rubidium and quartz
oscillators that operate as stand-along frequency sources in cellular and PCS
base stations and network switches or are combined with the Company's GPS
receivers to provide timing information in the event of a loss of signal. In
addition, Datum provides time and frequency cesium standards for network
switches within wireline networks. The Company also supplies cesium standards
for GPS satellites that transmit precise timing information and GPS receivers
that receive and process the satellite timing transmissions throughout wireless
and wireline networks.

        In addition to telecommunications applications, the Company's timing
products help ensure that enterprise computing networks operate in a
synchronized manner. The Company also provides quartz oscillators for a variety
of satellite programs and test and measurement products used for a variety of
applications, including missile guidance, geographic mapping and electric
utility operations.

PRODUCTS

        Datum designs and manufacturers a broad line of time and frequency
products for telecommunications systems, enterprise computing networks,
e-business, satellites and a variety of other test and measurement applications.
Datum's products generate highly precise timing and frequency information
through the manipulation of cesium or rubidium atoms or quartz crystals, or by
capturing cesium or rubidium-based signals from GPS satellite transmissions.

        Telecommunications Products

        Wireless-Cellular and PCS Products

               Cellular and PCS networks require both accurate frequency control
and timing information. The Company provides a variety of products to meet these
needs.

               Quartz and Rubidium Clocks -- For analog cellular and GSM
applications, the Company provides highly cost-effective quartz oscillator
clocking units to synchronize the transmissions of voice and data traffic at the
base-station level. For customers requiring a more stable timing source, the
Company provides rubidium clocks.

               GPS Disciplined Clocks -- For digital TDMA and CDMA applications,
considerably more stable timing sources are required to maintain the base
station's clocking integrity. To meet this need, the Company provides GPS time
and frequency receivers which capture cesium or rubidium-based time signals
produced by GPS satellites. GPS receivers combine the external cesium or
rubidium-based timing signals with internal rubidium or quartz oscillators to
provide consistent timing output in the event the receiver loses the external
signal.

        Wireline Products

               Wireline telecommunications network synchronization systems
involve two principal components, a primary frequency reference, to provide an
accurate frequency source, and a timing signal generator, to provide control,
management and distribution of the timing signals required for network
operations.

               Cesium Beam Primary Reference Sources --Primary Reference Sources
("PRSs") generate the most stable frequency output in general commercial use.
PRSs provide cesium-based stability at the central offices of wireline networks
for distribution of timing and frequency information to other components within
the networks.

               GPS Primary Reference Receivers -- Primary Reference Receivers
("PRRs") capture and process time and frequency signals from GPS satellites.
Integrated rubidium or quartz oscillators back up the external frequency source
to maintain timing accuracy during periods of loss of signal. Typically, a PRR
would be installed in telecommunications network switches to provide a stable
frequency at the network switch level, thereby allowing transmissions to be
efficiently processed



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with minimal degradation or retransmission requirements.

               Timing Signal Generators -- Distribution of network
synchronization information is achieved through timing signals embedded within
the flow of network communications which are referenced to the primary frequency
source, such as the Company's PRS at the central office, or to a PRR at the
network switch level. In the event of the loss of the reference frequency, the
Company's timing signal generators can maintain, for extended time periods,
switch and network synchronization quality by using internal high-stability
rubidium and quartz oscillators as "holdover" clocking sources.

               End Office Primary References -- The Company's End Office Primary
References combines a PRR with a timing signal generator in a single
cost-effective unit designed for use where fewer telecommunications lines
require timing inputs.

        Enterprise Computing Products

               The Company's products provide accurate time-stamping of
information flowing through enterprise computing networks.

               GPS Time Servers -- The Company's time servers, which are
installed in enterprise computing networks, acquire UTC time from GPS satellite
transmissions. Worldwide coverage of GPS provides that all server-equipped sites
operate with time data that is uniform to within a few milliseconds, thereby
allowing time-sensitive information input at one location to be meaningfully
analyzed at any other site in the network. In a typical application of this
technology, the Securities Industry Automation Corporation, which supports
member firms of the New York Stock Exchange, uses the Company's time servers to
accurately time-annotate stock transactions.

               Computer Time Modules -- The Company's computer time modules
acquire time from external sources (such as GPS satellites) to perform a variety
of timing functions within the host computer with a high degree of accuracy. The
products are physically packaged as computer plug-in units and chip sets and are
functionally configured to operate under program control as any other
data-bus-linked component of the user's data system. The Company produces
modules for IBM PC compatible computers and computers manufactured by Sun
Microsystems and Digital Equipment Corporation. The Company also produces
modules for VME and VXI bus architectures. The Company markets its computer
modules in both fully configured forms and as board products and chipsets for
use by original equipment manufacturers ("OEMs") and value-added resellers
("VARs"). Computer time modules are also marketed for use in stand-alone
computers and workstations used for test and measurement applications.

        e-Business Products

               Trusted Time-- Datum e-Business is developing a suite of products
that provides e-businesses with secure and auditable time stamps. Trusted Time
enables any electronic transaction - from digital signatures to stock purchases
to document filings to invoice payments - to have a certifiable, traceable, and
verifiable time stamp. Trusted Time's security and audit features significally
improve the authenticity, traceability and verification of electronic time
stamps. The Trusted Time solution is comprised of Datum's Trusted Master Clocks
and Trusted Local Clocks, specialized software and secure network timing devices
that will be linked to a National Timing Authority, such as the National
Institute of Standards and Technology (NIST) in the U.S.

               Confidential Courier(R)-- Confidential Courier is data encryption
software that provides an easy way for organizations to manage and secure their
confidential, proprietary, and /or sensitive information. It uses powerful,
industry-standard encryption algorithms from RSA to scramble data into
ciphertext format, thus rendering it useless if accessed by an unauthorized
party. Confidential Courier lets the user drag and drop files to easily create
secure information packs - CourierPAKS - for distribution of proprietary
information. A single CourierPAK can contain tens of thousands of files and be
distributed to an unlimited number of clients.

               TymServe -- Tymserve NTP time servers enable companies to ensure
the integrity of e-business operations through computer system and component
synchronization. The TymServe network time server meets the rapidly evolving
need for precise synchronization in TCP/IP enterprise and LAN networks. It
operates as a rack-mounted, stand-alone time serving device providing UTC time
within an organization's firewall. Offering a variety of time sources including
GPS and dial-up services, as well as high performance crystal or very high
performance rubidium oscillators, ensures systems are always synchronized to
standard, UTC time.

        Satellite Products



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               The Company provides time and frequency products for a variety of
satellites used for communications, navigation, television, and military
applications. These products are designed around the Company's core technology
and are highly durable so as to meet the demanding requirements of space.

               Cesium Clocks -- The Company's cesium clocks are installed aboard
each of the twenty-four GPS satellites now operating in space. Because these
satellites have a life expectancy of approximately 7.5 years, it is necessary
that additional units be designed to be available as replenishment. The Company
is a cesium clock supplier for a series of satellites scheduled to be launched
starting in the year 2001.

               Quartz Clocks -- The Company also produces and markets a broad
line of lightweight, highly-stable quartz clocks, particularly suited for space
applications. Space qualified versions of these quartz units are aboard
satellites used for inter-planetary study, missile tracking and weather
monitoring and forecasting, as well as communications and other applications.

        Test and Measurement Products

               The Company's timing and frequency technology was initially
developed to create instrumentation for defense and aerospace applications. This
technology continues to be utilized in test and measurement products for a wide
range of scientific and industrial applications, including missile guidance,
precise geographic mapping and electric utility operation.

        Atomic Frequency Sources

               The Company produces and markets atomic reference frequency
sources for a wide variety of commercial and scientific applications.

               Cesium Frequency Standards -- The Company has developed a broad
line of cesium frequency products for numerous applications that require a
constant frequency reference. Electric utilities use the Company's cesium
frequency standards to set the frequency of electric power. Other uses include
master timing stations for telecommunications networks, global navigation,
satellite communications, missile guidance, and precise geographic mapping for
off-shore oil exploration and accurate placement of off-shore oil drilling
platforms. The Company also supplies spare and replacement cesium tubes for a
broad segment of the industry.

               Rubidium Oscillators -- In addition to their widespread use in
the telecommunications industry, the Company's rubidium oscillators have a
number of other specific applications, such as frequency control for television
networks, Doppler radar, satellite tracking and guidance and laboratory
instrumentation. The Company's rubidium oscillator line includes military
qualified models designed for high stability and reliability in adverse
environments. The Company's newer models feature lower profiles and are on
standard plug-in circuit cards specifically designed for ease of integration.

        GPS Time and Frequency Receivers

               The Company's GPS receivers, in addition to their use in
telecommunications markets, are used in a wide variety of other applications.
Electric utilities use the Company's GPS receivers to determine the exact
geographical location of transmission line faults by comparing the times a which
the fault is detected at various stations in the power distribution network,
eliminating the need to visually search along the right-of-way. Other customers
utilize the Company's GPS receivers to distribute highly accurate time to
multiple sites in order to synchronize the recording of simultaneous test data,
such as during missile testing or astronomical observations. In addition to
fully configured GPS receivers, the Company also manufactures board level
modules for OEM applications.

        Time Code Instrumentation Products

               In addition to the time and frequency standards described above,
the Company manufactures and markets a line of products that process or utilize
basic time and frequency information for various applications. The time is
generated from either an internal or external frequency reference in the form of
digital codes tailored to specific applications, usually to time-annotated data
recording or transmission. To correspond with the time generating equipment
described above, the Company makes devices which "read" the coded time,
transmitting it to computers, displays, or other devices where the recording of
accurate time is required.

        Product Development



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               The Company believes that its future success depends in large
part on its ability to maintain its technological leadership through
enhancements of existing products and development of new products that meet a
wide range of customer needs. The Company focuses its research and development
efforts on improving the core physics and electronics packages in its time and
frequency products. Specifically, the Company is conducting research and
development in three areas: developing new time and frequency technologies,
improving product manufacturability, and enhancing software functionality.

               Although the Company maintains an active development program to
improve its product offerings, including specific goals of smaller product size
and lower unit cost, there can be no assurance such efforts will be successful,
that its new products will achieve customer acceptance or that its customers
products will achieve market acceptance. Failure to develop, or introduce on a
timely basis, new products, or product enhancements that achieve market
acceptance could adversely affect the Company's business, operating results and
financial condition. There can be no assurance that the Company will be
successful in selecting, developing, manufacturing and marketing new products or
enhancing its existing products on a timely or cost-effective basis.

        Research and development expenses totaled $15.2 million, $11.9 million
and $10.7 million in 1999, 1998 and 1997, respectively.

CUSTOMERS

        A small number of customers account for a substantial portion of the
Company's net sales, and the Company expects that a limited number of customers
will continue to represent a substantial portion of the Company's net sales for
the foreseeable future. The Company's largest customer, Lucent Technologies,
Inc. ("Lucent"), accounted for approximately 33% and 34% of net sales for the
years ended December 31, 1999 and 1998, respectively. The Company's five largest
customers accounted for approximately 45% and 52% of net sales during the same
period. The Company believes that its major customers continually evaluate
whether to purchase time and frequency products from alternate or additional
sources. Accordingly, there can be no assurance that a major customer will not
reduce, delay or eliminate its purchases from the Company. Any such reduction,
delay or loss in orders could have a material adverse effect on the Company's
business and results of operations. Major customers also have significant
leverage and may attempt to change the terms, including pricing, upon which the
Company and such customers do business, which could materially adversely affect
the Company's business, results of operations and financial condition.

MARKETING, DISTRIBUTION AND INTERNATIONAL SALES

        The Company's marketing efforts are focused on establishing and
developing long-term relationships with potential customers. Sales cycles for
certain of the Company's products, particularly for its larger
telecommunications timing systems are lengthy, and can range up to 36 months.
Sales are typically made through standard purchase orders which can be subject
to cancellation, postponement or other types of delays. The majority of the
Company's sales occur through independent sales representatives and distributors
that target the specific markets which they serve. Corporate personnel in the
United States and Germany provide additional direct sales and marketing support
for larger accounts.

        Export sales of the Company's products were approximately 25%, 24% and
19% of net sales for the years ended December 31, 1999, 1998 and 1997,
respectively. The Company expects that international revenues will continue to
account for a significant percentage of the Company's total sales for the
foreseeable future. As a result, the Company is subject to various risks, which
include: economic instability in Asia; a greater difficulty of administering its
business globally; compliance with multiple and potentially conflicting
regulatory requirements such as export requirements, tariffs and other barriers;
differences in intellectual property protections; health and safety
requirements; difficulties in staffing and managing foreign operations; longer
accounts receivable cycles; currency fluctuations; restrictions against the
repatriation of earnings; export control restrictions; overlapping or differing
tax structures; political instability and general trade restrictions. There can
be no assurance that any of the foregoing factors will not have a material
adverse effect on the Company's business, results of operations and financial
condition.

        The Company's foreign sales are generally invoiced in U.S. dollars and,
accordingly, the Company does not currently engage in foreign currency hedging
transactions. However, as the Company continues to expand its international
operations, the Company may be paid in foreign currencies and exposure to losses
in foreign currency transactions may increase. The Company may choose to limit
such exposure by the purchase of forward foreign exchange contracts or through
similar hedging strategies. There can be no assurance that any currency hedging
strategy would be successful in avoiding exchange-related losses. In addition,
if the relative value of the U.S. dollar in comparison to the currency of the
Company's foreign customers should increase, the resulting effective price
increase of the Company's products to such foreign customers could result in
decreased sales which could have a material adverse impact on the Company's
business, results of operations



                                       8
<PAGE>   9

and financial condition. See "Quantitative and Qualitative Disclosures About
Market Risk."

COMPETITION

        Intense competition exists among manufacturers of time and frequency
products, and the Company believes that competition in the Company's markets
from both new and existing competitors will increase in the future. The Company
competes principally in several specialized market segments against a limited
number of companies, some of which are more established, enjoy higher name
recognition and possess far greater financial, technological and marketing
resources that the Company. The Company currently competes principally on the
basis of the performance and quality of its products, including reliability, as
well as on cost and timely manufacture and delivery. While the Company believes
that overall it competes favorably with respect to the foregoing elements, there
can be no assurance that it will continue to be able to do so.

        In the cellular and PCS markets, the Company competes primarily with
Frequency Electronics, Inc., and various other quartz oscillator manufacturers.
In the wireline market, the Company competes primarily with Symmetricom, Inc.,
and Oscilloquartz SA. In the enterprise computing market, the Company competes
primarily with Tech-Sym Corp., Odetics, Inc. and True-Time, Inc. In the cesium
standards market, the Company competes primarily with Hewlett-Packard and
Frequency Electronics, Inc. In the rubidium oscillators market, the Company
competes primarily with Frequency Electronics, Inc. In addition, certain
companies, such as EG&G, Inc. that currently manufacture products exclusively
for use in military applications, could enter commercial markets, and compete
directly with the Company. In the e-Business market, the Company's pioneering
efforts do not have defined competitors at this time. There can be no assurance
that the Company will be able to complete successfully in the future against
existing or new competitors, that new technologies will not reduce the demand
for its products or that it will be able to adapt successfully to changes in the
markets served by its products. In addition, there can be no assurance that
competitive pressures will not cause the Company to reduce prices, which would
negatively affect gross margins and could have a material adverse effect on the
Company's results of operations and financial condition.

BACKLOG

        The Company's backlog of orders was approximately $29.7 million on
December 31, 1999, compared to approximately $20.8 million a year earlier. The
increase was primarily due to increased demand in both the wireless and wireline
markets. The Company considers as backlog all orders that are expected to be
shipped to customers within a 6-month period. As part of the Company's close
working relationships with its major OEM customers, such customers expect the
Company to respond quickly to changes in the volume and delivery schedule of
their time and frequency product requirements and to inventory products at the
Company's facilities for just-in-time delivery to the OEM customers. Therefore,
although contracts with such customers typically specify aggregate volumes of
products to be purchased over an extended time period, such contracts also
provide that scheduled shipment dates of particular volumes are generally
released to the Company only days or a few weeks prior to the required delivery
date to the OEM customer. As a result of possible changes in product delivery
schedules, cancellations of orders and potential delays in product shipments and
orders received for products shipped in the same quarter, the Company's backlog
at any particular date may not necessarily be representative of actual sales for
any succeeding period.

GOVERNMENT CONTRACTS

        The Company believes that approximately 10% of its sales in 1999 were
made either directly to United States government agencies or indirectly to U.S.
government agencies through subcontracts as compared to approximately 12% in
1998 and 13% in 1997 for these sales. Because several of the Company's customers
are involved in commercial as well as governmental activities, it is difficult
to accurately determine the percentage of its business attributable to the U.S.
government.

        Government-related contracts and subcontracts are subject to standard
provisions for termination at the convenience of the government. In such event,
however, the Company is generally entitled to reimbursement of costs incurred on
the basis of work completed plus other amounts specified in each individual
contract. These contracts and subcontracts are either fixed price or cost
reimbursable contracts. Fixed-price contracts provide fixed compensation for
specified work. Under cost reimbursable contracts, the Company agrees to perform
specified work in return for reimbursement of costs (to the extent allowable
under government regulations) and a specified fee. In general, while the risk of
loss is greater under fixed-price contracts than under cost reimbursable
contracts, the potential for profit under such contracts is greater than under
cost reimbursable contracts.



                                       9
<PAGE>   10

MANUFACTURING

        The Company manufactures its products at its plants in Irvine and San
Jose, California; Austin, Texas; Beverly, and Lexington, Massachusetts; and
Hofolding, Germany. The Company's Irvine, Austin and Beverly facilities have
received ISO 9001 certification, and the Company intends to seek such
certification for its San Jose facility. The manufacturing process involves the
assembly of numerous individual components by technically oriented production
personnel. The parts and materials used by the Company consist primarily of
printed circuit boards, fabricated housings, relays, and small electric circuit
components, such as integrated circuits, semiconductors, resistors and
capacitors. The Company also manufactures the physics packages for its cesium
and rubidium oscillators. The Company manufactures products to fill firm orders
and to meet forecasts received from its major customers. In some cases, as a
result of customer requirements and the long manufacturing process of certain of
the Company's products, the Company maintains up to four weeks of forecasted
amounts in finished goods inventory and up to an additional eight weeks of
forecasted amounts in work-in-process inventory.

        The Company currently procures various components from single-sources
due to unique component designs as well as certain quality and performance
requirements. If single-sourced components were to become unavailable or were to
become unavailable on terms satisfactory to the Company, the Company would be
required to purchase comparable components from other sources. If for any reason
the Company could not obtain comparable replacement components from other
sources in an timely manner, the Company's business, results of operations and
financial condition could be adversely affected. In addition, many of the
Company's suppliers require long lead-times to deliver requested quantities of
components. If the Company were unable to obtain sufficient quantities of
components used in the manufacture of its time or frequency products, resulting
delays or reductions in product shipments could occur and could have a material
adverse effect on the Company's business, result of operations and financial
condition. Due to rapid changes in semiconductor and other technology, on
occasion one or more of the electronic components used in the Company's products
have become unavailable, resulting in unanticipated redesign and related delays
in shipments. There can be no assurance that the Company will not experience
similar delays in the future, the occurrence of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

INTELLECTUAL PROPERTY RIGHTS

               The Company seeks to protect certain key technologies through
U.S. and foreign patents and by maintaining such technologies as trade secrets.
The Company has licenses under various other patents. While the Company believes
that its patents and licenses have value, it does not regard any such patents or
licenses as essential to its business or to the maintenance of its competitive
position. Accordingly, the Company does not have any material patent protection
on its technology. To the extent that it depends on proprietary information it
primarily relies on the protections afforded to trade secrets. There can be no
assurance that others will not independently develop or otherwise acquire
equivalent technology or that the Company can maintain such technology as trade
secrets. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as the laws of the United
States. The failure of the Company to protect its intellectual property rights
could have a material adverse effect on its business, operating results and
financial condition.

        From time to time the Company has received communications from third
parties asserting that features of certain of its products may infringe upon the
intellectual property rights of such third parties. Although the Company makes
reasonable efforts to ensure that its products do not violate the intellectual
property rights of others, there can be no assurance that patent or other
intellectual property infringement claims will not be asserted against the
Company in the future. Although patent and intellectual property disputes may be
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and there can be no assurance that necessary
licenses would be available to the Company on satisfactory terms or at all.
Accordingly, an adverse determination in a judicial or administrative proceeding
or failure to obtain necessary licenses could prevent the Company from
manufacturing and selling certain of its products, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, should the Company decide to, or be forced to, litigate
such claims, such litigation could be expensive and time consuming, could divert
management's attention from other matters and could have a material adverse
effect on the Company's business, operating results and financial condition,
regardless of the outcome of the litigation.

EMPLOYEES

        The Company had 539 employees at December 31, 1999. None of the Company
employees are represented by a union. The Company believes its relations with
its employees are good.

        The Company's success depends upon the continued services of its key
management personnel. The Company and Erik van der Kaay, its President and a
Director, have entered into an employment agreement with an indefinite term. The



                                       10
<PAGE>   11

Company's other key personnel, including technical personnel, would be difficult
to replace and are not parties to employment or noncompetition agreements. The
Company's growth and future success will depend in large part upon its ability
to attract and retain additional highly qualified engineering, sales and
marketing personnel. In certain of the Company's locations, the Company has
experienced difficulty in attracting and retaining highly qualified technical
personnel. The loss of technical personnel who become known and trusted by
customers of the Company can have an adverse impact on the Company's
relationships with such customers. Delay in adding appropriately trained
personnel can lead to program delays, higher product costs, and customer
dissatisfaction.

Item 2. PROPERTIES

        The Company's Irvine, California, manufacturing and executive office
facilities occupy an aggregate of 109,000 square feet in two sites under leases,
each expiring July 31, 2005. The Company also operates at a facility located in
San Jose, California, consisting of a 21,800 square foot engineering and
manufacturing building, under a lease expiring on February 28, 2001. The Company
has leased office facilities in Lexington, Massachusetts, consisting of 7,280
square feet, that expires on October 31, 2004. The Company also operates a
facility located in Hofolding, Germany, consisting of an 8,600 square foot
manufacturing facility, expiring on May 31, 2004. The Company owns its facility
in Beverly, Massachusetts, comprised of a 32,000 square foot building located on
approximately four acres of land. The Company also owns its facility in Austin,
Texas, comprised of a 50,000 square foot building, located on approximately nine
acres of land. The Company believes that its current facilities are adequate for
its present level of operations.

Item 3. LEGAL PROCEEDINGS

        In late 1996, the Company received notice of potential environmental
contamination from the owner of premises in Austin, Texas that had previously
been occupied by Austron, Inc., the Company's wireline operation ("Austron"),
prior to the Company's acquisition of Austron in 1988. Although Austron had
remediated the site pursuant to then-existing environmental regulations in
connection with vacating the site in 1983, the applicable environmental
regulations were modified after 1983, providing the basis for the property
owner's claim that the soil at the site contains the same contaminants that were
the focus of Austron's previous remediation efforts. In compliance with current
law, the Company has established the extent of the site contamination, which
contamination extends to adjoining properties owned by third parties. The
Company believes that it will continue to incur monitoring costs for the next
three years in connection with the site contamination and may be subject to
claims from adjoining landowners in addition to the claim for remediation
discussed above, and the amount of such costs and the extent of the Company's
exposure to such claims cannot be determined at this time. Although there can be
no assurance that the remediation efforts, the property owners' claims or any
related governmental action will not singly or in the aggregate have a material
adverse effect on the Company's business, financial condition and results of
operations, the Company does not believe the aggregated potential liability will
have such an effect.

        The Company is also a party to ordinary disputes arising in the normal
course of business. The Company does not believe that the outcome of these
matters will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended December 31, 1999.


Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the executive officers of the Registrant:

<TABLE>
<CAPTION>
        Name                 Age       Positions and Offices with the Registrant
        ----                 ---       -----------------------------------------
<S>                          <C>       <C>
Erik H. van der Kaay          59       President and Chief Executive Officer
                                       since April 1998. Prior to joining Datum,
                                       he served as Allen Telecom's Executive
                                       Vice President from 1997 to 1998 and a
                                       variety of senior positions from 1990 to
                                       1997. He was President and Chief
                                       Executive Officer of Millitech
                                       Corporation from 1988 to 1990. He
                                       currently serves on the Boards of RF
                                       Micro-Devices and TranSwitch Corporation.
</TABLE>



                                       11
<PAGE>   12

<TABLE>
<S>                          <C>       <C>
Paul Baia                     47       Vice President of the Company since
                                       January 1996 and President of its
                                       Frequency Time Systems subsidiary since
                                       January 1996. From January 1990 to
                                       January 1996 he was General Manager of
                                       FTS. From March 1988 to January 1990 he
                                       was Director of Operations for FTS.

T. Mark Hastings              44       Vice President of the Company and
                                       President of Datum's eBusiness Solutions
                                       unit since July 1999. From September 1992
                                       to July 1999, he served as President, CEO
                                       and Chairman of Digital Delivery, Inc.
                                       From October 1990 to September 1992, he
                                       was President, CEO and Chairman of
                                       Strategic Business Partners, Inc. From
                                       January 1988 to October 1990, he was Vice
                                       President of Sales and Marketing at
                                       Custom Applications, Inc.

Michael J. Patrick            43       Vice President of the Company and
                                       President of the Company's Efratom Time
                                       and Frequency Products, Inc. subsidiary
                                       since October 1999. He also served as
                                       Executive Vice President of Operations
                                       from March 1999 to October 1999, and was
                                       Vice President of Operations from
                                       February 1998 to May 1998 for the
                                       Company. From 1980 to 1998 he worked at
                                       Interstate Electronics where he served as
                                       Vice President Operations.

John (Jack) R. Rice           55       Vice President of the Company since April
                                       1994 and President of the Company's
                                       Austron, Inc. subsidiary since May 1995.
                                       He also served as President of the
                                       Company's Efratom Time & Frequency
                                       Products, Inc. subsidiary from April 1998
                                       to March 1999. From April 1994 to May
                                       1995 he was General Sales Manager of the
                                       Company. From 1987 to 1994, he served as
                                       Director of North American Sales and of
                                       OEM Sales for Emulex Corporation, a
                                       computer hardware manufacturing company.

Raymond L. Waguespack         68       Vice President of the Company since 1989
                                       and Secretary of the Company from October
                                       1993 to July 1994 and Vice President,
                                       International Sales since April 1996. He
                                       was President of the Company's Timing
                                       Division from October 1993 through April
                                       1996. From April 1993 to September 1993,
                                       he served as International Sales and
                                       Marketing Manager of the Timing Division.
                                       From September 1989 to March 1993, Mr.
                                       Waguespack served as President of TCXO
                                       Enterprises, formerly Spectrum
                                       Technology, Inc., a former subsidiary of
                                       the Company, which manufactured quartz
                                       oscillators.

David A. Young                56       Vice President, Chief Financial Officer,
                                       Secretary and Treasurer of the Company
                                       since July 1994. From January 1993 to
                                       July 1994, he served as Executive Vice
                                       President and Chief Executive Officer of
                                       Blower-Dempsay Corporation, a paper and
                                       chemical company. From July 1990 to March
                                       1992, he served as Vice President Finance
                                       and Administration, Chief Financial
                                       Officer and Secretary of Alpha
                                       Microsystems, a computer company.
</TABLE>



                                       12
<PAGE>   13

                                    PART II

Item 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS.

    Shares of the Company's common stock are traded on The NASDAQ Stock Market
under the symbol "DATM". The following table sets forth the range of high and
low closing sales price per share of common stock of the Company as reported on
The NASDAQ Stock Market for each quarter of the two most recent fiscal years:

<TABLE>
<CAPTION>
                                                            HIGH          LOW
                                                            ----          ---
<S>                                                       <C>            <C>
YEAR ENDED DECEMBER 31, 1999
1st Quarter........................................        9             6-1/4
2nd Quarter........................................       12-13/16       6-9/32
3rd Quarter........................................       11-1/16        6-5/8
4th Quarter........................................       10-5/16        6

YEAR ENDED DECEMBER 31, 1998
1st Quarter........................................       18-1/2        12
2nd Quarter........................................       18-1/8        13
3rd Quarter........................................       18-1/8         6-1/4
4th Quarter........................................        9-3/4         5-5/16
</TABLE>

        It is the policy of the Company to retain earnings to finance the future
growth and development of its business. Therefore, the Company does not
anticipate paying cash dividends on its common stock in the foreseeable future.
In addition, the Company's existing credit arrangements restrict the Company
from paying cash dividends.


       At March 20, 2000, there were 356 stockholders of record.



                                       13
<PAGE>   14

Item 6. SELECTED FINANCIAL DATA

       The following selected consolidated financial data has been derived from
the financial statements of the Company audited by PricewaterhouseCoopers LLP,
independent accountants. The consolidated balance sheet at December 31, 1999 and
1998 and the related consolidated statements of operations and of cash flows for
the three years ended December 31, 1999 and notes thereto appear elsewhere in
this Report.


<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                      ---------------------------------------------------------------------------
                                                         1999             1998            1997           1996           1995(1)
                                                      -----------     -----------     -----------     -----------     -----------
                                                                   (In thousands, except share and per share data)
<S>                                                   <C>             <C>             <C>             <C>             <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net Sales ........................................    $   100,168     $   101,233     $   114,092     $    91,854     $    67,257
  Costs and expenses:
     Cost of goods sold ..........................         60,097          65,172          68,235          56,285          40,010
     Selling .....................................         14,475          15,003          15,808          12,182           9,836
     Product development .........................         15,237          11,903          10,650           7,667           7,087
     General and administrative (2)(3) ...........         10,842           9,946           9,479          10,127           8,460
                                                      -----------     -----------     -----------     -----------     -----------
     Operating income (loss) .....................           (483)           (791)          9,920           5,593           1,864
                                                      -----------     -----------     -----------     -----------     -----------
     Interest expense ............................          1,919           2,051           2,085           2,255           1,667
     Interest income .............................           (524)           (434)           (349)             (7)            (17)
                                                      -----------     -----------     -----------     -----------     -----------
Income (loss) before income taxes ................         (1,878)         (2,408)          8,184           3,345             214
Income tax provision (benefit) ...................           (728)           (951)          3,355           1,371             154
                                                      -----------     -----------     -----------     -----------     -----------
Net income (loss) ................................    $    (1,150)    $    (1,457)    $     4,829     $     1,974     $        60
                                                      ===========     ===========     ===========     ===========     ===========
Net income (loss) per share:
     Basic .......................................    $      (.20)    $      (.27)    $       .97     $       .49     $       .02
                                                      ===========     ===========     ===========     ===========     ===========
     Diluted .....................................    $      (.20)    $      (.27)    $       .90     $       .46     $       .02
                                                      ===========     ===========     ===========     ===========     ===========
Shares used in per share calculation:
     Basic .......................................      5,663,146       5,414,075       4,973,228       4,061,014       3,713,710
                                                      ===========     ===========     ===========     ===========     ===========
     Diluted .....................................      5,663,146       5,414,075       5,389,862       4,253,019       3,954,307
                                                      ===========     ===========     ===========     ===========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                      ---------------------------------------------------------------------------
                                                         1999            1998             1997            1996            1995
                                                      -----------     -----------     -----------     -----------     -----------
<S>                                                   <C>             <C>             <C>             <C>             <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital ..................................    $    42,017     $    46,089     $    47,482     $    26,029     $    12,310
Total assets .....................................         87,782          86,920          85,746          68,688          66,137
Long-term debt ...................................         11,671          14,533          17,418          17,318           7,938
Stockholders' equity .............................         58,320          56,978          56,844          34,623          31,313
                                                      ===========     ===========     ===========     ===========     ===========
</TABLE>

----------

1       In March 1995, the Company acquired Efratom Time and Frequency Products,
        Inc. and Datum GmbH (formerly Efratom Elektronik GmbH). As a result of
        the acquisition, the Company experienced an increase in all categories
        of sales and expenses.

2       Includes $1.5 million, $1.5 million, $1.5 million, $1.5 million and $1.1
        million for 1999, 1998, 1997, and 1996, respectively, of amortized
        goodwill and increased depreciation resulting from the step-up of the
        assets purchased in the March 1995 acquisition of Efratom.

3       Includes $545 thousand in 1999 of amortized goodwill relating to the
        purchase of Digital Delivery on July 29, 1999.



                                       14
<PAGE>   15

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

        The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this report.

OVERVIEW

        Datum designs, manufactures and markets a wide variety of
high-performance time and frequency products used to synchronize the flow of
information in telecommunications networks. The Company is also a leading
supplier of precise timing products for enterprise computing networks,
e-business, and a wide variety of space, scientific and industrial test and
measurement applications.

RESULTS OF OPERATIONS

        The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results on an annual and quarterly basis. As
a result, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful, and that such comparisons
cannot be relied upon as indicators of future performance. A significant
component of these fluctuations may result from rescheduling of orders by the
Company's major customers. Due to these and other unanticipated factors, it is
likely that in some future quarters the Company's operating results may be below
the expectations of public market analysts or investors.

        Net Sales. The Company's net sales are derived primarily from the sale
of time and frequency products for use in telecommunications networks,
enterprise computing networks, e-business, satellites and in a variety of other
test and measurement and e-business applications. Net sales for the Company
decreased by 1.1% from $101.2 million in 1998 to $100.2 million in 1999.
Wireline telecommunications sales increased by 25.7% in 1999, offset by
decreased sales in the cellular and PCS wireless telecommunications market. Net
sales for the Company decreased by 11.3% from $114.1 million in 1997 to $101.2
million in 1998. Softness in the cellular and PCS wireless telecommunications
market throughout 1998 accounted for the reduction. However, it was partially
offset by the growth of nearly 36.2% in the Company's wireline
telecommunications sales.

        A small number of customers account for a substantial portion of the
Company's net sales, and the Company expects that a limited number of customers
will continue to represent a substantial portion of the Company's net sales for
the foreseeable future. The Company's largest customer, Lucent Technology,
accounted for approximately 33%, 34%, and 38% of net sales for the fiscal years
ended December 31, 1999, 1998 and 1997, respectively. Further, the Company's
five largest customers, including Lucent, accounted for approximately 45%, 52%,
and 58% of net sales during the same periods. The reduction in orders by, or
loss of any major customer could adversely affect the Company's business,
financial condition and results of operations.

        Direct and indirect sales to the United States government decreased by
20.5% from $12.5 million in 1998 to $9.9 million in 1999, constituting
approximately 12.3% and 9.9% of net sales. Direct and indirect sales to the
United States government decreased by 16.6% from $15.1 million in 1997 to $12.5
million in 1998, constituting approximately 13.2% and 12.3% of net sales,
respectively. Government-related contracts and subcontracts are subject to
standard provisions for termination at the convenience of the government. In
such event, however, the Company is generally entitled to reimbursement of costs
incurred on the basis of work completed plus other amounts specified in each
individual contract.

        Gross Margins. Gross margins are derived from net sales and cost of
goods sold, which consists primarily of raw materials, labor, overhead and
warranty costs. Gross margins were 40.0% and 35.6% in 1999 and 1998,
respectively. The increase in gross margin in 1999 was primarily the result of
increased gross margins in the wireline telecommunication, enterprise computing,
and satellite markets. A decrease in lower margin sales in the wireless
telecommunication market also contributed to the increase in gross margin. Gross
margins were 35.6% and 40.2% in 1998 and 1997, respectively. The decrease in
gross margin in 1998 was primarily the result of decreased sales in the wireless
telecommunications market and continual price pressures on these products. Gross
margins were adversely affected in each year as a result of Lucent accounting
for an increased percentage of the Company's net sales and price reductions on
certain products purchased by Lucent pursuant to the terms of an agreement with
the Company. Gross margins can be adversely affected by a number of factors,
including pricing pressure from the Company's customers and the difficulty of
reducing fixed expenses in connection with the Company's rescheduling of
customers' orders.

        Selling Expense. Selling expense consists primarily of salaries and
other expenses of its sales and marketing personnel, along with sales
commissions paid to the Company's third-party representatives and distributors.
Selling expense as a percentage of net sales was 14.5% and 14.8% in 1999 and
1998, respectively. Selling expense decreased by 3.5% to $14.5 million in 1999



                                       15
<PAGE>   16

from $15.0 million in 1998, primarily from the reduction in commissions where
the Company replaced outside sales representatives with internal sales staff.

        Selling expense as a percentage of net sales was 14.8% and 13.9% in 1998
and 1997, respectively. Selling expense decreased by 5.1% from $15.8 million in
1997 to $15.0 million in 1998, primarily from the reduction in commissions on
decreased net sales.

        Product Development. Product development expense consists primarily of
salary, applied overhead, materials and third-party design services. Product
development expense increased 28.0% from $11.9 million in 1998 to $15.2 million
in 1999, representing 11.8% and 15.2% of net sales, respectively. Product
development expense increased 11.8% from $10.7 million in 1997 to $11.9 million
in 1998, representing 9.3% and 11.8% of net sales, respectively. The increases
reflect the continual emphasis on new product design and enhancement of current
products.

         Although the Company maintains an active development program to improve
its product offerings, there can be no assurance that such efforts will be
successful, that its new products will be developed on a timely basis or will
achieve customer acceptance. Failure to develop, or introduce on a timely basis,
new products or product enhancements that achieve market acceptance could
adversely affect the Company's business, operating results and financial
condition.

        General and Administrative. General and administrative expense consists
primarily of salaries and other expenses for management, finance, accounting and
human resources, as well as amortization of goodwill and depreciation charges.
General and administrative expenses increased by 9.0% from $9.9 million in 1998
to $10.8 million in 1999, and increased as a percentage of net sales from 9.8%
in 1998 to 10.8% in 1999. This increase included legal and other expenses
related to an unsolicited merger proposal and a receivable write-off related to
bankruptcy of a telecom customer, both in the fourth quarter; an accrual for
compliance costs related to a prior disclosed environmental issue at a previous
Austin facility; and costs related to a potential acquisition no longer pursued.
General and administrative expense increased by 4.9% from $9.5 million in 1997
to $9.9 million in 1998, and increased as a percentage of net sales from 8.3% in
1997 to 9.8% in 1998. Hiring and moving costs along with overlapping transition
salaries for two CEO's accounted for the increased costs in 1998. Such expenses
include $2.1 million, $1.5 million and $1.5 million for 1999, 1998 and 1997,
respectively, of amortized goodwill and increased depreciation resulting from
the step-up of the assets purchased in the March 1995 acquisition of Efratom and
the July 1999 acquisition of Digital Delivery.

        Interest, Net. Interest decreased by 13.7% from $1.6 million in 1998 to
$ 1.4 million in 1999, primarily the result of the reduced debt level in 1999.
Interest decreased by 5.9% from $1.7 million in 1997 to $1.6 million in 1998, as
a result of increased cash investment balances in 1998.

LIQUIDITY AND CAPITAL RESOURCES

        The Company finances its operations primarily through a combination of
cash provided from operations, a commercial bank line of credit and long-term
debt. In addition, on April 2, 1997, the Company completed a follow-on public
offering of 1,035,000 shares of its common stock, raising net proceeds of
approximately $14.2 million. Cash provided by operations was approximately $5.5
million in 1999, compared to approximately $6.4 million in 1998, and cash used
for operations of approximately $4.9 million in 1997. The increase in cash for
the year ended December 31, 1999, primarily resulted from decreased inventory
and increased accounts payable balances, offset by an increase in accounts
receivable. The increase in cash for the year ended December 31, 1998, was
primarily the result of a decrease in inventory offset by a net loss for the
year. Cash flows in 1997 were adversely affected by increasing inventories due
to lower than planned revenues.

        Capital expenditures were approximately $2.4 million, $2.7 million, and
$4.5 million in 1999, 1998, and 1997, respectively. The increase in 1997 was
primarily the result of the need to provide manufacturing test equipment for the
increased volumes produced in 1997.

        At December 31, 1999, the Company had working capital of $42.0 million
and a current ratio of 3.7:1, compared to working capital of $46.1 million and a
current ratio of 4.6:1, at December 31, 1998. The decrease in working capital
was primarily the result of the decrease in inventories of approximately $2.7
million in 1999, decreased cash of $2.0 million, and increased accounts payable
balances of $2.5 million in 1999. This was offset by an increased accounts
receivable balance of approximately $3.6 million.

        The Company's credit facility includes: (i) $6.0 million of Series A
Senior Secured promissory notes maturing September 27, 2000, bearing interest at
the rate of 9.07% on the unpaid principal, payable quarterly, with the principal
repaid in equal installments of $1.5 million on March 27 and September 27 of
each year, commencing March 27, 1999; and (ii) $12.0 million of Series B Senior
Secured promissory notes maturing September 27, 2003, bearing interest at the
rate of 10.25% on the unpaid principal, payable quarterly, with the principal
repaid in equal installments of $2.0 million on March 27 and September 27 of
each



                                       16
<PAGE>   17

year, commencing March 27, 2001. In addition, in connection with the issuance of
these promissory notes, the Company issued to The Prudential Insurance Company
of America common stock warrants which currently allow for the purchase of
176,303 shares of common stock at an exercise price per share of $11.415.

         The maturity date of the revolving component of the Company's line of
credit with Wells Fargo Bank has been extended to June 15, 2001 in a principal
amount not to exceed $10.0 million and bearing interest at Wells Fargo's prime
rate or at LIBOR plus 2.75%. Under both the Wells Fargo credit facility and the
senior secured promissory notes, the Company is required to maintain certain
financial ratios, limit other indebtedness and may not pay dividends. Other
restrictions include limitations on the amounts of leases and capital
expenditures that may be incurred. The Company currently is in compliance or has
received waivers on all such covenants and restrictions.

FORWARD-LOOKING STATEMENTS

        All statements other than statements of historical fact included in this
Report, including, without limitation, the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" regarding the Company's strategies, plans, objectives and
expectations, the Company's exposure to quarterly fluctuations, the Company's
future capital needs, the anticipated growth of its target markets and other
matters are forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable at this
time, it can give no assurance that such expectations will prove to have been
correct. Important factors that could cause actual results to differ materially
from the Company's expectations ("Cautionary Statements") are set forth in this
Section as well as in "Business." All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.


Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

        The Company is primarily exposed to market risks that relate to changes
in foreign currency fluctuations. The Company's foreign sales are generally
invoiced in U.S. dollars, and the Company does not presently enter into foreign
currency forward exchange contracts. The Company generally does not enter into
derivative financial instrument transactions for speculative purposes.
Additional information for this item is contained under the captions
"Disclosures About Fair Value of Financial Instruments" and "Foreign Currency
Translation" in Note A, "Description of the Company and Summary of Significant
Accounting Policies" in Notes to the Consolidated Financial Statements set forth
elsewhere in this Report.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The consolidated financial statements and report of independent
accountants thereon are filed with this Annual Report on Form 10-K as shown on
the Index to Consolidated Financial Statements covered by Report of Independent
Accountants.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

        None.



                                       17
<PAGE>   18

                                    PART III


Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        There is hereby incorporated by reference the information appearing
under the captions "Election of Directors" and "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" from the Company's definitive proxy
statement for the Annual Meeting of the Stockholders to be held June 8, 2000 to
be filed with the Commission on or before May 1, 2000. Information as to the
Company's executive officers is included in Item 4A of Part I of this Annual
Report on Form 10-K.

Item 11. EXECUTIVE COMPENSATION

        There is hereby incorporated by reference information appearing under
the caption "Executive Compensation" from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held June 8, 2000 to be
filed with the Commission on or before May 1, 2000

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        There is hereby incorporated by reference the information appearing
under the caption "Security Ownership of Certain Beneficial Owners and
Management" from the Company's definitive proxy statement for the Annual Meeting
of Stockholders to be held June 8, 2000 to be filed with the Commission on or
before May 1, 2000.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        There is hereby incorporated by reference the information appearing
under the caption "Executive Compensation" from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held June 8, 2000 to be
filed with the Commission on or before May 1, 2000.



                                       18
<PAGE>   19

                                     PART IV


Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)         The following documents are filed as part of this report:

       (1)  Financial Statements

            The list of financial statements contained in the accompanying Index
            to Consolidated Financial Statements covered by Report of
            Independent Accountants is herein incorporated by reference.

       (2)  Financial Statement Schedules

            The list of financial statement schedules contained in the
            accompanying Index to Consolidated Financial Statements covered by
            Report of Independent Accountants is herein incorporated by
            reference.

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

       (3)  Exhibits

            The list of exhibits on the accompanying Exhibit Index is herein
            incorporated by reference.

(b)   Reports on Form 8-K.

      The Company filed the following Current Reports on Form 8-K during the
last quarter of the period covered by this Report.

      (1)   Current Report on Form 8-K, dated November 17, 1999, describing four
            amendments to the Company's bylaws. The Current Report did not
            contain financial statements. The first amendment provides that
            special meetings of the Company's stockholders may be called only by
            a majority of the Board of Directors, the Chairman of the Board of
            the President. The second amendment provides that with respect to
            stockholder action without a meeting, the Board of Directors may fix
            a record date which shall not be more than ten days after the date
            upon which the resolution fixing the record ate is adopted by the
            Board of Directors. The third amendment adds a section to the bylaws
            providing that any stockholder entitled to vote in the election of
            directors generally may nominate one or more persons for election as
            directors at an annual meeting of stockholders, but only if written
            notice of such intent has been received by the Secretary of the
            Corporation not less than 60 or more than 90 days prior to the first
            anniversary of the preceding year's annual meeting of stockholders.
            The fourth amendment adds a section to the bylaws which provides
            that at any meeting of the stockholders, only such business shall be
            conducted as shall have been properly brought before such a meeting.
            The amendment also prohibits stockholder proposals at special
            meetings of the stockholders. The foregoing description of the bylaw
            amendments is qualified in its entirety by reference to the full
            text of the Company's Current Report on Form 8-K dated November 17,
            1999.

      (2)   Current Report on Form 8-K, dated December 7, 1999, describing an
            amendment to the Company's Certificate of Incorporation and an
            amendment to the Company's bylaws. The Current Report did not
            contain financial statements. The amendment to the Certificate of
            Incorporation required approval by a majority of the Company's
            issued and outstanding shares in order to become effective, and the
            amendment to the Bylaws was effective immediately but automatically
            expired when the special meeting of the Company' stockholders
            required to be called for the purpose of approving the amendment to
            the Certificate of Amendment was not held. The foregoing description
            of the amendments to the Certificate of Incorporation and bylaws is
            qualified in its entirety by reference to the full text of the
            Company's Current Report on Form 8-K, dated December 7, 1999.



                                       19
<PAGE>   20

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, at
Irvine, California this 29th day of March, 2000.

                                        DATUM INC.

                                            By   /s/ Erik H. van der Kaay
                                                --------------------------------
                                                 Erik H. van der Kaay
                                                 President and Director

                                POWER OF ATTORNEY

The undersigned directors and officers of Datum Inc. constitutes and appoints as
their true and lawful attorney and agent with power of substitution, to do any
and all acts and things in our name and behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorney and agent, may deem
necessary or advisable to enable said corporation to comply with the Securities
Exchange Act of 1934, as amended and any rules, regulations and requirements of
the Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to
sign for us or any of us in our names in the capacities indicated below, any and
all amendments (including post-effective amendments) hereto: and we do hereby
ratify and confirm all that said attorney and agent, shall do or cause to be
done by virtue hereof.

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 date indicated.

<TABLE>
<S>                                <C>                                             <C>
/s/ Erik H. van der Kaay           President, CEO, Chairman                        March 29, 2000
------------------------------     (Principal Executive Officer)
Erik H. van der Kaay

/s/ David A. Young                 Chief Financial Officer                         March 29, 2000
------------------------------     (Principal Financial and Accounting Officer)
David A. Young

/s/ Elizabeth A. Fetter            Director                                        March 29, 2000
------------------------------
Elizabeth A. Fetter

 /s/ G. Tilton Gardner             Director                                        March 29, 2000
------------------------------
G. Tilton Gardner

 /s/ R. David Hoover               Director                                        March 29, 2000
------------------------------
R. David Hoover

 /s/ Louis B. Horwitz              Director                                        March 29, 2000
------------------------------
Louis B. Horwitz

 /s/ Dan L. McGurk                 Director                                        March 29, 2000
------------------------------
Dan L. McGurk

 /s/ Michael M. Mann               Director                                        March 29, 2000
------------------------------
Michael M. Mann

/s/ Edward A. Money                Director                                        March 29, 2000
------------------------------
Edward A. Money
</TABLE>



                                       20
<PAGE>   21

                           DATUM INC. AND SUBSIDIARIES

               Index To Consolidated Financial Statements Covered
                      By Report of Independent Accountants

                              Item 14(a)(1) and (2)

<TABLE>
<CAPTION>
                                                                                 Page references
                                                                                 ---------------

                                                                                       Form
                                                                                       10-K
                                                                                       ----
<S>                                                                              <C>
The information under the following captions, is included herein:

     Financial Statements

     Report of independent accountants..................................................F-1

     Consolidated balance sheet at December 31,
       1999 and 1998....................................................................F-2

     Consolidated statement of operations for each
       of the three years in the period ended
       December 31, 1999................................................................F-3

     Consolidated statement of stockholders' equity
       for each of the three years in the period
       ended December 31, 1999..........................................................F-4

     Consolidated statement of cash flows for each
       of the three years in the period ended
       December 31, 1999................................................................F-5

     Notes to consolidated financial statements.........................................F-6


     Financial Statement Schedules

     VIII - Valuation and Qualifying Accounts...........................................S-1
</TABLE>



                                       21
<PAGE>   22

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Datum Inc.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 21 present fairly, in all material
respects, the financial position of Datum Inc. and its subsidiaries at December
31, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14(a)(2) on page 21 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Costa Mesa, California
February 17, 2000



                                      F-1
<PAGE>   23

                           DATUM INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                    ---------------------
                                                                                      1999         1998
                                                                                    --------     --------
<S>                                                                                 <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents ....................................................    $  8,271     $ 10,307
  Accounts receivable, less allowance for doubtful accounts of $561 and
     $153 ......................................................................      22,927       19,327
  Inventories ..................................................................      21,811       24,555
  Prepaid expenses .............................................................         495          479
  Deferred income taxes ........................................................       3,359        3,056
  Income tax refund receivable .................................................         463        1,190
                                                                                    --------     --------
          Total current assets .................................................      57,326       58,914
Land, buildings and equipment, net .............................................      14,759       16,048
Excess of purchase price over net assets acquired, net of accumulated
  amortization of $5,285 and $3,845 ............................................      14,722       11,231
Other assets ...................................................................         975          727
                                                                                    --------     --------
                                                                                    $ 87,782     $ 86,920
                                                                                    ========     ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable .............................................................    $  6,706     $  4,241
  Accrued salaries and wages ...................................................       2,269        2,485
  Accrued warranty .............................................................       1,635        1,498
  Other accrued expenses .......................................................       1,144        1,287
  Income taxes payable .........................................................         553          289
  Current portion of long-term debt ............................................       3,002        3,025
                                                                                    --------     --------
          Total current liabilities ............................................      15,309       12,825
                                                                                    --------     --------
Long-term debt .................................................................      11,671       14,533
                                                                                    --------     --------
Post-retirement benefits .......................................................       1,034          818
                                                                                    --------     --------
Other long-term liabilities ....................................................         418          144
                                                                                    --------     --------
Deferred income taxes ..........................................................       1,030        1,622
                                                                                    --------     --------
Stockholders' equity:
  Preferred stock, par value $.25 per share
     Authorized - 1,000,000 shares
     Issued none
  Common stock, par value $.25 per share
     Authorized 10,000,000 shares
     Issued 5,854,997 shares in 1999 and 5,505,843 shares in 1998 ..............       1,464        1,376
  Additional paid-in capital ...................................................      47,709       44,941
  Retained earnings ............................................................      10,178       11,328
  Unamortized stock compensation ...............................................        (309)        (368)
  Accumulated other comprehensive income .......................................        (722)        (299)
                                                                                    --------     --------
          Total stockholders' equity ...........................................      58,320       56,978

Commitments (Note H)
                                                                                    --------     --------
                                                                                    $ 87,782     $ 86,920
                                                                                    ========     ========
</TABLE>


                 See Notes to Consolidated Financial Statements



                                      F-2
<PAGE>   24

                           DATUM INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                 -------------------------------------------
                                                    1999            1998            1997
                                                 -----------     -----------     -----------
<S>                                              <C>             <C>             <C>
Net sales ...................................    $   100,168     $   101,233     $   114,092
                                                 -----------     -----------     -----------
Costs and expenses:
  Cost of goods sold ........................         60,097          65,172          68,235
  Selling ...................................         14,475          15,003          15,808
  Product development .......................         15,237          11,903          10,650
  General and administrative ................         10,842           9,946           9,479
  Interest expense ..........................          1,919           2,051           2,085
  Interest income ...........................           (524)           (434)           (349)
                                                 -----------     -----------     -----------
                                                     102,046         103,641         105,908
                                                 -----------     -----------     -----------
Income (loss)  before income taxes ..........         (1,878)         (2,408)          8,184
Income tax provision (benefit) ..............           (728)           (951)          3,355
                                                 -----------     -----------     -----------
Net income (loss) ...........................    $    (1,150)    $    (1,457)    $     4,829
                                                 ===========     ===========     ===========
Net income (loss) per share:
  Basic .....................................    $      (.20)    $      (.27)    $       .97
                                                 ===========     ===========     ===========
  Diluted ...................................    $      (.20)    $      (.27)    $       .90
                                                 ===========     ===========     ===========
Shares used in per share calculation:
  Basic .....................................      5,663,146       5,414,075       4,973,228
                                                 ===========     ===========     ===========
  Diluted ...................................      5,663,146       5,414,075       5,389,862
                                                 ===========     ===========     ===========
</TABLE>


                 See Notes to Consolidated Financial Statements



                                      F-3
<PAGE>   25

                           DATUM INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                                                             ACCUMULATED
                                                                                                               OTHER
                                                                        ADDITIONAL             UNAMORTIZED  COMPREHENSIVE
                                                                          PAID-IN   RETAINED      STOCK        INCOME
                                                      COMMON STOCK        CAPITAL   EARNINGS   COMPENSATION    (LOSS)       TOTAL
                                                  --------------------- ----------  ---------  ------------ ------------- ---------
<S>                                               <C>         <C>       <C>         <C>        <C>          <C>           <C>
Balances at December 31, 1996 ..................  4,091,291   $   1,023  $  25,845  $   7,956           --    $    (201)  $  34,623
  Issuance of common stock under
    401(k) and ESP plans .......................     31,744           7        688                                              695
  Exercise of stock options ....................    174,825          44      1,155                                            1,199
  Income tax benefit from stock
    options exercised ..........................                             1,646                                            1,646
  Issuance of common stock, net of
    costs incurred .............................  1,035,000         259     13,897                                           14,156
  Comprehensive income:
   Cumulative translation adjustment ...........                                                                   (304)       (304)
   Net income ..................................                                        4,829                                 4,829
                                                                                                                          ---------
  Total comprehensive income ...................                                                                              4,515
                                                  ---------   ---------  ---------  ---------    ---------    ---------   ---------
Balances at December 31, 1997 ..................  5,332,860       1,333     43,231     12,785           --         (505)     56,844
  Issuance of common stock under
    401(k) and ESP plans .......................    100,733          25        970                                              995
  Exercise of stock options ....................     42,250          11        208                                              219
  Income tax benefit from restricted
    stock issued and stock options exercised ...                               127                                              127
  Issuance of restricted stock .................     30,000           7        405               $    (412)                      --
Amortization of stock compensation .............                                                        44                       44
  Comprehensive income:
   Cumulative translation adjustment ...........                                                                    206         206
   Net loss ....................................                                       (1,457)                               (1,457)
                                                                                                                          ---------
  Total comprehensive income (loss) ............                                                                             (1,222)
                                                  ---------   ---------  ---------  ---------    ---------    ---------   ---------
Balances at December 31, 1998 ..................  5,505,843       1,376     44,941     11,328         (368)        (299)     56,978
  Issuance of common stock under
    401K and ESP Plans .........................    114,877          29        796                                              825
  Exercise of stock options ....................     20,000           5         81                                               86
  Income tax benefit from stock
    Options issued .............................                                30                                               30
  Amortization of stock compensation ...........                                                        59                       59
  Acquisition of Digital Delivery ..............    214,277          54      1,861                                            1,915
  Comprehensive income:
       Cumulative translation adjustment .......                                                                   (423)       (423)
       Net loss ................................                                       (1,150)                               (1,150)
                                                                                                                          ---------
   Total comprehensive income (loss)  ..........                                                                             (1,573)
                                                  ---------   ---------  ---------  ---------    ---------    ---------   ---------
 Balances at December 31, 1999 .................  5,854,997   $   1,464  $  47,709  $  10,178    $    (309)   $    (722)  $  58,320
                                                  =========   =========  =========  =========    =========    =========   =========
</TABLE>


                 See Notes to Consolidated Financial Statements



                                      F-4
<PAGE>   26

                           DATUM INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                          ----------------------------------
                                                                            1999         1998         1997
                                                                          --------     --------     --------
<S>                                                                       <C>          <C>          <C>
Cash flows from operating activities:
  Net income (loss) ..................................................    $ (1,150)    $ (1,457)    $  4,829
                                                                          --------     --------     --------
  Adjustments to reconcile net income (loss) to net cash
    provided by (used for) operating activities:
       Depreciation and amortization .................................       3,913        3,636        3,152
       Amortization of goodwill ......................................       1,439          894          894
       Contribution of shares of common stock to the Company's
          401(k) plan ................................................         603          706          628
       Amortization of stock compensation ............................          59           44           --
Changes in assets and liabilities:
     (Increase) decrease in accounts receivable ......................      (3,585)      (4,284)       1,773
     (Increase) decrease in inventories ..............................       2,743        6,664      (11,949)
     (Increase) decrease in prepaid expenses .........................         (14)        (116)          62
     Decrease in income tax refund receivable ........................         727          258           --
     (Increase) decrease in deferred income taxes ....................        (895)        (609)         187
     Increase in other assets ........................................        (282)        (416)         (26)
     Increase (decrease) in accounts payable .........................       1,744          899       (4,199)
     Increase (decrease) in accrued expenses .........................        (235)        (297)         320
     Increase (decrease) in income taxes payable .....................         264          289         (724)
     Increase (decrease) in other long-term liabilities ..............         (18)          16          (30)
     Increase in post-retirement benefits ............................         216          216          156
                                                                          --------     --------     --------
  Total reconciling items ............................................       6,679        7,900       (9,756)
                                                                          --------     --------     --------
  Net cash provided by (used for) operating activities ...............       5,529        6,443       (4,927)
                                                                          --------     --------     --------
Cash flows from investing activities:
  Book value of equipment disposals ..................................          --           55           50
  Capital expenditures ...............................................      (2,359)      (2,699)      (4,494)
  Payment for acquisition, net of cash acquired ......................      (2,111)          --       (1,270)
  Other ..............................................................        (407)         203         (292)
                                                                          --------     --------     --------
  Net cash used in investing activities ..............................      (4,877)      (2,441)      (6,006)
                                                                          --------     --------     --------
Cash flows from financing activities:
  Reductions of line of credit .......................................          --           --          (21)
  Repayment of long-term debt and notes payable ......................      (3,025)         (22)         (38)
  Proceeds from issuance of common stock .............................          --           --       14,156
  Proceeds from exercise of stock options and ESP plans ..............         337          508        1,266
                                                                          --------     --------     --------
  Net cash provided by (used for) financing activities ...............      (2,688)         486       15,363
                                                                          --------     --------     --------
Net increase (decrease) in cash and cash equivalents .................      (2,036)       4,488        4,430
Cash and cash equivalents at beginning of year .......................      10,307        5,819        1,389
                                                                          --------     --------     --------
Cash and cash equivalents at end of year .............................    $  8,271     $ 10,307     $  5,819
                                                                          ========     ========     ========
</TABLE>


                 See Notes to Consolidated Financial Statements



                                      F-5
<PAGE>   27

                           DATUM INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE A DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Description of the Company: Datum designs, manufactures and markets a wide
variety of high-performance time and frequency products used to synchronize the
flow of information in telecommunications networks. The Company is also a
leading supplier of precise timing products for enterprise computing networks
and a wide variety of space, scientific and industrial test and measurement
applications.

     Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly-owned.
All significant intercompany transactions and accounts have been eliminated.

     Revenue Recognition: Most revenues are recorded when products are shipped.
However, in 1997, a major customer enacted a consignment inventory policy
requiring finished goods to be kept at the customer's location. Revenues from
the sale of these products in consigned inventory are recognized when the
customer uses the product.

     Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the respective reporting periods. Actual results could differ from those
estimates.

     Inventory Valuation: Inventories are stated at lower of cost or market;
cost is determined on a first-in, first-out basis.

Inventories comprise the following:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                --------------------
                                                 1999         1998
                                                -------      -------
<S>                                             <C>          <C>
            Purchased parts ..............      $ 8,720      $ 7,156
            Work-in-process ..............        8,082       10,524
            Finished products ............        5,009        6,875
                                                -------      -------
                                                $21,811      $24,555
                                                =======      =======
</TABLE>

     Land, Buildings and Equipment: Land, buildings and equipment, which are
recorded at cost and depreciated where appropriate by the straight-line method,
consist of the following:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                             --------------------       DEPRECIABLE
                                                              1999         1998            LIFE
                                                             -------      -------      --------------
<S>                                                          <C>          <C>          <C>
Land ..................................................      $ 2,040      $ 2,040
Buildings .............................................        5,210        5,060      30 to 40 years
Equipment .............................................       21,974       20,450      3 to 10 years
Leasehold improvements ................................        1,185        1,149      5 to 10 years
                                                             -------      -------
                                                              30,409       28,699
Less accumulated depreciation and  amortization .......       15,650       12,651
                                                             -------      -------
                                                             $14,759      $16,048
                                                             =======      =======
</TABLE>

    Expenditures for maintenance and repairs are charged directly to income, and
betterments and major renewals are capitalized.



                                      F-6
<PAGE>   28

     Excess of Purchase Price Over Fair Value of Net Assets of Businesses
Acquired: The excess of the purchase price of businesses or assets acquired over
the fair value of the net assets ("goodwill") is amortized over varying periods
ranging from 4 to 40 years. At each balance sheet date, the Company reviews the
recoverability of long-lived assets and certain intangible assets, including
goodwill. In the event the sum of expected undiscounted future cash flows
resulting from the use of the asset is less than the carrying amount of the
asset, an impairment loss equal to the excess of the asset's carrying value over
its fair value is recorded.

     Income Taxes: The Company uses the liability method of accounting for
income taxes. Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is calculated as the change in
net deferred liabilities or assets.

     Consolidated Statement of Cash Flows: For purposes of the consolidated
statement of cash flows, cash equivalents include highly liquid investments,
with an original maturity of less than three months. Cash paid for interest
totaled $1,711, $ 1,805 and $2,019 in 1999, 1998 and 1997, respectively. Cash
paid for income taxes totaled $222, $315 and $3,935 in 1999, 1998 and 1997,
respectively. Significant non-cash transactions affecting the Company's accounts
consisted of tax benefits from the exercise of common stock options of $30, $127
and $1,646 in 1999, 1998 and 1997, respectively.

     Stock Options and Awards: The Company accounts for employee stock-based
compensation in accordance with Accounting Principles Bulletin No. 25. See the
disclosures in accordance with Statement of Financial Accounting Standards No.
123 (FAS 123) in Note E.

     Net Income Per Share: Effective in the fourth quarter of 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (FAS 128). FAS 128 requires dual presentation of Net income per
share-Basic and Net income per share-Diluted. Net income per share-Basic
excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding during the reported period. Net income per
share-Diluted reflects the potential dilution that could occur if stock options
were exercised. In 1999 and 1998, the Company did not include potential common
stock in the calculation of Net income per share -- Diluted as such inclusion
would have an anti-dilutive effect. Net income per share is calculated as
follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   --------------------------------------------
                                                      1999             1998             1997
                                                   ----------       ----------       ----------
<S>                                                <C>              <C>              <C>
Net income (loss) ...........................      $   (1,150)      $   (1,457)      $    4,829
                                                   ==========       ==========       ==========
Shares outstanding - Basic ..................       5,663,146        5,414,075        4,973,228
Effect of dilutive securities:
    Warrants ................................              --               --           89,200
    Stock options ...........................              --               --          327,434
                                                   ----------       ----------       ----------
Shares outstanding - Diluted ................       5,663,146        5,414,075        5,389,862
                                                   ==========       ==========       ==========
Net income (loss) per share - Basic .........      $     (.20)      $     (.27)      $      .97
                                                   ==========       ==========       ==========
Net income (loss) per share - Diluted .......      $     (.20)      $     (.27)      $      .90
                                                   ==========       ==========       ==========
</TABLE>


     Because the effect would have been anti-dilutive, stock options totaling
134,957 and 87,461 in 1999 and 1998, and warrants totaling 21,093 in 1998 have
been excluded from the computation of diluted earnings per share.

     Disclosures About Fair Value of Financial Instruments: The carrying values
of cash, cash equivalents, accounts receivable, accrued liabilities and notes
payable approximate their fair values because of the short maturity of these
instruments. The carrying value of long-term debt approximates its fair value.

     Comprehensive Income: Comprehensive income is defined as a change in equity
of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The only component of comprehensive income
other than net incomes of the Company is currency translation adjustments.

     Foreign Currency Translation: Assets and liabilities of the Company's
German subsidiary are translated at current exchange rates, while revenue and
expenses are translated at average rates prevailing during the year. Translation
adjustments are reported in other comprehensive income.

     Concentration of Credit Risk: A small number of customers accounts for a
substantial portion of the Company's net sales, and therefore also represents a
substantial amount of receivables at any point in time. As of December 31, 1999,
one customer accounted for approximately 18% of accounts receivables and four
others collectively accounted for approximately 9% . The Company performs
regular credit evaluations of its customers and has not experienced any
significant credit losses.



                                      F-7
<PAGE>   29

     New Accounting Pronouncements: In June 1998 the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 133;
Accounting for Derivative instruments and Hedging Activities ("SFAS 133") SFAS
133 is required to be adopted in fiscal years beginning after June 15, 2000 and
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The Company does not anticipate that the adoption of
SFAS 133 will have a material impact on its financial position or results of
operations.



                                      F-8
<PAGE>   30

 NOTE B DEBT

    Long-term obligations outstanding are as follows:

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                             -----------------------
                                                                               1999           1998
                                                                             --------       --------
<S>                                                                          <C>            <C>
$6,000 Series A Senior Secured Notes (net of discount of $49),
  principal due semi-annually beginning March 27, 1999, to
  September 27, 2000, with interest payable quarterly at 9.07%,
  secured by all assets ...............................................      $  2,951       $  5,843
$12,000 Series B Senior Secured Notes (net of discount of $281),
  principal due semi-annually beginning March 27, 2001, to
  September 27, 2003, with interest payable quarterly at 10.25%,
  secured by all assets ...............................................        11,719         11,687
Capital equipment leases for machinery and equipment with
  interest at 11.59% maturing in 2001 .................................             3             28
                                                                             --------       --------
Total debt ............................................................        14,673         17,558
  Less current portion ................................................        (3,002)        (3,025)
                                                                             --------       --------
Long-term debt, less current portion ..................................      $ 11,671       $ 14,533
                                                                             ========       ========
</TABLE>

     Aggregate maturities of long-term debt before debt discount at December 31,
1999 are as follows:


<TABLE>
<S>                                                   <C>
                   2000 ........................      $ 3,002
                   2001 ........................        4,001
                   2002 ........................        4,000
                   2003 ........................        4,000

                   2004 ........................           --
                                                      -------
                            Total ..............      $15,003
                                                      =======
</TABLE>

    The Company's current two-year revolving line of credit was renewed on June
15, 1999 at an amount not to exceed $10,000. Interest is payable at prime or at
LIBOR plus 2.75% (8.5% at December 31, 1999). The line is secured by all assets
of the Company. No amounts were outstanding under this line at December 31, 1999
and 1998.

     The Company issued common stock warrants in connection with the Series A
and Series B Senior Secured Notes allowing for the purchase of up to 175,000
shares of common stock at an exercise price of $11.50 per share. The common
stock warrants, which were valued by the Company at $785, have been reflected as
debt discount and amortized as additional interest expense. As a result of the
Company's follow-on public offering in 1997 and the acquisition of Digital
Delivery in 1999, the warrants were adjusted to allow for the purchase of
176,303 shares of common stock at an adjusted exercise price of $11.415. The
value of the common stock warrants is included in additional paid-in capital.

     The current credit agreements impose operating and financial restrictions
on the Company, including a requirement to maintain certain financial ratios and
a certain profitability level. Such restrictions affect, and in some respects
limit or prohibit, among other things, the ability of the Company to incur
additional indebtedness, repay certain indebtedness prior to its stated
maturity, create liens, engage in mergers and acquisitions, transfer assets,
make certain capital expenditures and pay dividends. At December 31, 1999, the
Company was not in compliance with the line of credit agreement due to a
financial ratio covenant related to profitability level. The Company has
received a waiver for the non-compliance.



                                      F-9
<PAGE>   31

NOTE C INCOME TAXES


     In 1999, 1998, and 1997, pretax income (loss) was attributed to the
following jurisdictions:

<TABLE>
<CAPTION>
                                        1999          1998          1997
                                       -------       -------       -------
<S>                                     <C>          <C>           <C>
      Domestic Operations .......       $(2095)      $(2,696)      $ 8,094
      Foreign Operations ........          217           288            90
                                       -------       -------       -------
      Total .....................      $(1,878)      $(2,408)      $ 8,184
                                       =======       =======       =======
</TABLE>

     The income tax provision (benefit) comprises the following:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                   -----------------------------------
                                                    1999          1998          1997
                                                   -------       -------       -------
<S>                                                <C>           <C>           <C>
Provision (benefit) for income taxes:
  Current:
     Federal ................................      $  (613)      $  (682)      $ 2,587
     State ..................................          682           210           537
     Foreign ................................           98           130            44
                                                   -------       -------       -------
                                                       167          (342)        3,168
                                                   -------       -------       -------
  Deferred:
     Federal ................................         (207)         (336)          223
     State ..................................         (688)         (273)          (36)
                                                   -------       -------       -------
                                                      (895)         (609)          187
                                                   -------       -------       -------
                                                   $  (728)      $  (951)      $ 3,355
                                                   =======       =======       =======
</TABLE>

     The tax benefits associated with the exercise of non-qualified stock
options reduced taxes currently payable as shown above by $30, $127 and $1,646
in 1999, 1998 and 1997, respectively. Such benefit was credited to additional
paid in capital.

     The income tax provision (benefit) differs from the amount computed by
applying the statutory federal income tax rate to income (loss) before taxes as
follows:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                      ------------------------------------------------------------------------
                                                              1999                      1998                      1997
                                                      --------------------      --------------------      --------------------
                                                                   Pretax                    Pretax                    Pretax
                                                      Amount       Income       Amount       Income       Amount       Income
                                                      -------      -------      -------      -------      -------      -------
<S>                                                   <C>          <C>          <C>          <C>          <C>          <C>
Computed expected tax expense (benefit) ..........    $  (640)       (34.0%)    $  (819)       (34.0%)    $ 2,809         35.0%
State income tax (benefit), net of federal
  income tax effect ..............................       (127)        (6.8%)        (63)        (2.6%)        326          4.0%
Amortization of excess of purchase price
  over net assets acquired .......................        209         11.0%          31          1.2%          27          0.3%
Foreign earnings taxed at different  rates .......         22          1.2%          28          1.2%         (12)        (0.2%)
Research and development tax credits .............       (242)       (12.9%)       (123)        (5.1%)       (150)        (1.8%)
Other ............................................         50          2.8%          (5)        (0.2%)        355          4.3%
                                                      -------      -------      -------      -------      -------      -------
                                                      $  (728)       (38.7%)    $  (951)       (39.5%)    $ 3,355         41.0%
                                                      =======      =======      =======      =======      =======      =======
</TABLE>



                                      F-10
<PAGE>   32

     The primary components of temporary differences which give rise to the
Company's net deferred tax asset are as follows:

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                            ----------------
                                             1999      1998
                                            ------    ------
<S>                                         <C>       <C>
Deferred tax assets:
  Inventory ............................    $1,522    $2,018
  Accruals and reserves ................     2,247     1,338
  Net operating loss carryovers ........       246       135
   Tax credits .........................       580       225
                                            ------    ------
                                             4,595     3,716

Deferred tax liabilities:
  Property, plant and equipment ........     2,237     2,235
  Other ................................        29        47
                                            ------    ------
                                             2,266     2,282
                                            ------    ------
                                            $2,329    $1,434
                                            ======    ======
</TABLE>

     The Company has California and New Jersey net operating loss carryovers of
$3,684 and $318, respectively, that begin expiring in 2003. The Company also has
research and development tax credit carryovers of $581 that begin expiring in
2003.



                                      F-11
<PAGE>   33

NOTE D POST-RETIREMENT BENEFITS

     Post-retirement benefits are recognized over the employee's service period
based on the expected costs of providing such benefits to the employee and the
employee's beneficiaries after retirement. The Company elected to recognize the
transition obligation over a 20-year period.

     The Company's post-retirement benefit program comprises two plans, the life
insurance plan and the health care plan. Any permanent full-time employee is
eligible upon retirement after age 62 and with 12 years of service. The health
care plan is a contributory plan.

     The following sets forth the Company's post-retirement program's status
reconciled with amounts reported in the consolidated balance sheet:

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                       --------------------
                                                                                        1999         1998
                                                                                       -------      -------
<S>                                                                                    <C>          <C>
Accumulated post-retirement benefit obligation:
    Benefit obligation at beginning of year ......................................     $ 1,239      $ 1,248
        Service cost .............................................................         127          127
        Interest cost ............................................................          86           86
        Actuarial gains ..........................................................           5         (192)
        Expected benefits paid ...................................................         (30)         (30)
                                                                                       -------      -------
    Benefit obligation at end of year ............................................       1,427        1,239
    Plan assets at fair value ....................................................          --           --
                                                                                       -------      -------
    Accumulated post-retirement benefit obligation in excess of plan assets ......       1,427        1,239

    Unrecognized transition obligation ...........................................        (391)        (422)
    Unrecognized net gain (loss) .................................................          (2)           1
                                                                                       -------      -------

    Accrued post-retirement benefit obligation ...................................     $ 1,034      $   818
                                                                                       =======      =======
</TABLE>

      Net periodic post-retirement benefit cost includes the following
components:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                  ------------------------------
                                                   1999        1998        1997
                                                  ------      ------      ------
<S>                                               <C>         <C>         <C>
Service cost ................................     $  127      $  127      $   71
Interest cost ...............................         86          86          70
Amortization of transition obligation .......         30          30          31
Amortization of actuarial loss ..............          3           3          --
                                                  ------      ------      ------
Net periodic postretirement expense .........     $  246      $  246      $  172
                                                  ======      ======      ======
Discount rate ...............................       6.75%       6.75%       7.00%
                                                  ======      ======      ======
</TABLE>

      For measurement purposes, an 8.5% annual rate of increase in the per
capita cost of covered healthcare benefits was assumed for 1999. The rate was
assumed to decrease gradually to 4.75% for 2007 and remain at that level
thereafter. The effect of one percentage point increase in the assumed
healthcare cost trend rate would increase the total of the service and interest
cost components by $7 and increase the post-retirement benefit obligation by
$32. A one percent decrease in the assumed trend rate would decrease the total
of the service and interest components by $7 and decrease the post-retirement
benefit obligation by $27.



                                      F-12
<PAGE>   34

NOTE E -- COMMON STOCK RESERVED

In June 1994, the stockholders of the Company approved the 1994 Incentive Stock
Plan. This plan provides for the granting of incentive or nonqualified options
or restricted shares of the Company's common stock to the Company's officers,
directors and employees and also to consultants, business associates and others
with important business relationships with the Company. The exercise price of
the shares covered by each nonqualified option granted and purchase price of
restricted shares is determined by the Administrator. The exercise price of
common stock covered by each incentive option cannot be less than the fair
market value of such shares on the date of grant. As of December 31, 1998 there
have been no nonqualified options issued less than the market value on the date
of grant and there have been no incentive options granted. Generally, options
vest in 25% increments over four years and have a 10-year term. The initial
shares available under the Plan for issuance was 250,000 with annual increases
of 50,000 on the last day of each calendar year. The stockholders of the Company
approved amendments of the Plan, providing for 200,000 additional option shares
in March 1995, June 1997, and June 1998, to be reserved for issuance thereunder.
In June 1998, the stockholders also approved an amendment to change the annual
increase from 50,000 to 2% of the number of shares of common stock outstanding
as of the Company's fiscal year-end. As of December 31, 1999, 1,277,217 shares
have been reserved for the Plan. This plan replaced the prior stock plan and
Restricted Stock Award Plan that expired in 1994.

    The stock option activity includes the cancellation of options for 170,750
shares in November 1998 and the corresponding grant of new options for 170,750
shares in November 1998 at an exercise price of $10.76, an amount greater than
the fair market value on the date the new options were granted. This option
repricing was made available to employees only and excluded directors and
officers. The new options vest in annual installments of 25%, 25% and 50% from
the date of grant and expire 10 years from the date of grant.

     The stock option activity also includes 30,000 shares of restricted stock
awarded in April 1998. These shares were issued with a purchase price less than
the market value of shares on the date of grant. The shares vest over seven
years with provisions to accelerate vesting if certain financial milestones are
met.

     Stock option activity for years ended December 31, 1999, 1998 and 1997 is
as follows:


<TABLE>
<CAPTION>
                                                      OPTIONS OUTSTANDING
                                               ----------------------------------
                                                 NUMBER          WEIGHTED AVERAGE
                                                OF SHARES         EXERCISE PRICE
                                               -----------       ----------------
<S>                                            <C>               <C>
Outstanding at December 31, 1996                   574,474           $ 7.64
     Granted                                       170,750           $21.82
     Exercised                                    (174,825)          $ 6.86
     Cancelled                                     (14,376)          $17.88
                                                ----------           ------
Outstanding at December 31, 1997                   556,023           $11.84
     Granted                                       564,250           $12.36
     Exercised                                     (72,250)          $ 3.03
     Cancelled                                    (225,875)          $17.73
                                                ----------           ------
Outstanding at December 31, 1998                   822,148           $11.35
     Granted                                       316,500           $ 7.18
     Exercised                                     (20,000)          $ 4.28
     Cancelled                                     (89,000)          $13.89
                                                ----------           ------
Outstanding at December 31, 1999                 1,029,648           $ 9.99
                                                ==========           ======
</TABLE>

     The number of options exercisable and the related weighted average exercise
price were 409,585 shares at $9.95 at December 31, 1999, 276,022 shares at $8.16
at December 31, 1998 and 197,693 shares at $6.17 at December 31, 1997.

    As of December 31, 1999, 1998 and 1997, there were 188,542, 298,942 and
327,200 shares, respectively, available for grant under the 1994 Incentive Stock
Plan.



                                      F-13
<PAGE>   35

Additional information regarding options outstanding at December 31, 1999 is as
follows:

<TABLE>
<CAPTION>
                                           OPTIONS OUTSTANDING                              OPTIONS EXERCISABLE
                           ----------------------------------------------------      --------------------------------
                               NUMBER        WEIGHTED AVERAGE        WEIGHTED           NUMBER            WEIGHTED
RANGE OF                     OUTSTANDING        REMAINING            AVERAGE          EXERCISABLE         AVERAGE
EXERCISE PRICES            AS OF 12/31/99    CONTRACTUAL LIFE    EXERCISE PRICE      AS OF 12/31/99    EXERCISE PRICE
---------------            --------------    ----------------    --------------      --------------    --------------
<S>                        <C>               <C>                 <C>                 <C>               <C>
$ 3.75 - $ 6.88                 212,523               5.98          $    5.45            129,648          $    4.61
$ 7.00 - $ 7.56                 212,000               9.63          $    7.09                625          $    7.38
$ 7.81 - $10.76                 343,375               7.41          $   10.45            184,562          $   10.46
$10.81 - $15.75                 207,000               8.14          $   13.93             63,375          $   14.26
$16.25 - $24.50                  54,750               7.19          $   20.95             31,375          $   20.35
---------------               ---------          ---------          ---------          ---------          ---------
$ 3.75 - $24.50               1,029,648               7.71          $    9.99            409,585          $    9.95
===============               =========          =========          =========          =========          =========
</TABLE>

      In June 1997, the stockholders of the Company approved the Employee Stock
Purchase Plan ("the Purchase Plan"), which authorized the Company to issue and
reserve for the Purchase Plan, or purchase up to an aggregate of 250,000 shares
of common stock in open market transactions for the benefit of participating
employees during the term of the Purchase Plan. The purchase price per share for
which shares of common stock are purchased in an offering period under the
Purchase Plan is the lessor of 90% of the fair market value of a share of common
stock on the grant date or 90% of the fair market value of a share of common
stock on the purchase date. Shares issued under the Plan were 35,922 in 1999,
34,931 in 1998 and 5,244 shares in 1997 at a weighted average price of $6.16,
$8.31, and $12.88, respectively.

      Had compensation cost been determined on the basis of fair value pursuant
to FAS 123 net income (loss) and net income (loss) per share would have been as
follows:

<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31,
                                       -----------------------------------------
                                         1999            1998            1997
                                       ---------       ---------       ---------
<S>                                    <C>             <C>             <C>
Net income (loss)
  As reported ...................      $  (1,150)      $  (1,457)      $   4,829
                                       =========       =========       =========

  Pro forma .....................      $  (2,108)      $  (2,497)      $   4,330
                                       =========       =========       =========

Net income (loss) per share
  As reported - Diluted .........      $    (.20)      $    (.27)      $     .90
                                       =========       =========       =========

  Pro forma - Diluted ...........      $    (.37)      $    (.46)      $     .80
                                       =========       =========       =========
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following assumptions: risk free interest rates
of 5.55% in 1999, 4.94% in 1998 and 6.37% in 1997, expected volatility of 79% in
1999, 79% in 1998 and 77% in 1997, and an expected option life of 5 years and no
expected dividends in 1999, 1998 and 1997.

NOTE F SAVINGS AND RETIREMENT PLAN

     Effective July 1, 1984, the Company adopted a savings and retirement plan
which covers all eligible employees. The plan provides for matching by the
Company of 100% of the first 3% of employee deferral. Employer matching
contributions are made in the form of shares of the Company's common stock.
Total retirement expense under the Plan amounted to $627, $728 and $741 for the
years ended December 31, 1999, 1998 and 1997, respectively. Employees vest in
increments of 20% for each year of service and are fully vested after 5 years.



                                      F-14
<PAGE>   36

NOTE G SEGMENT AND RELATED INFORMATION

      The Company has six reportable segments: Irvine, CA, Austin, TX, Beverly,
MA, San Jose, CA, Lexington, MA, and Hofolding, Germany. The Irvine, CA segment
produces product primarily for the wireless telecommunication market. At the
Austin, TX segment, products are primarily produced for the wireline
telecommunication market. At the Beverly, MA segment, cesium standards are
produced for the telecommunications test and measurement and satellite markets.
The San Jose, CA segment produces product for both the enterprise computing and
test and measurement markets. The Lexington, MA segment produces products for
the e-business market. The Hofolding, Germany segment produces product for the
wireless and wireline telecommunications and test and measurement markets.

      The accounting policies for the segments are the same as those described
in the "Summary of Significant Accounting Policies." The Company evaluates the
performance of its segments and allocates resources to them based on operating
income. Segment net sales includes sales to external customers and to other
Company segments (intersegment sales). Segment operating income does not include
corporate expenses, amortization of goodwill, and intersegment profit
elimination. Identifiable assets include accounts receivable, inventories, and
land, building and equipment and does not include cash, income tax refund
receivable and deferred income taxes, prepaid expenses, goodwill and other
long-term corporate assets.

      The Company accounts for intersegment sales and transfers at terms that
allow a reasonable profit to the seller.

      The Company's reportable segments are strategic business units that offer
different product and services. They are managed separately because each
business utilizes different technology and requires different marketing
strategies. All of the businesses were acquired as a unit, and the management
teams at the time of the acquisitions were retained.

      The table below presents information about reported segments for the years
ended December 31:

<TABLE>
<CAPTION>
                             IRVINE,         AUSTIN,       BEVERLY,     SAN JOSE,    LEXINGTON,    HOLFOLDING,
1999                           CA              TX            MA           CA             MA          GERMANY        TOTAL
                             --------       --------      --------      --------     ----------    -----------     --------
<S>                          <C>            <C>           <C>           <C>          <C>           <C>             <C>
Net sales                    $ 43,277       $ 31,824      $ 14,901      $ 14,511      $    130       $  5,413      $110,056
Operating income (loss)        (2,259)         5,081         1,555           363          (504)           380         4,616
Identifiable assets            17,126         19,436        12,260         4,977           206          1,920        55,925
Capital expenditures              601            866           365           326            74             92         2,324

1998
Net sales                    $ 48,340       $ 25,309      $ 14,882      $ 14,128      $     --       $  6,249      $108,908
Operating income (loss)        (2,565)         5,083         1,117           188            --            536         4,359
Identifiable assets            22,722         14,765         9,867         6,027            --          2,251        55,632
Capital expenditures            1,177            538           772           115            --             97         2,699

1997
Net sales                    $ 65,934       $ 18,586      $ 12,016      $ 20,863      $     --       $  4,275      $121,674
Operating income                9,398          1,525           669         2,532            --            205        14,329
Identifiable assets            32,032         10,225         7,192         6,339            --          1,972        57,760
Capital expenditures            3,420            351           286           313            --             44         4,414
</TABLE>



                                      F-15
<PAGE>   37

           A reconciliation of total segment net sales, operating income,
identifiable assets and capital expenditures to total consolidated amounts, for
the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                                                     1999            1998            1997
                                                                   ---------       ---------       ---------
<S>                                                                <C>             <C>             <C>
NET SALES
      Total segment net sales ...............................      $ 110,056       $ 108,908       $ 121,674
      Elimination of intersegment revenue ...................         (9,888)         (7,675)         (7,582)
                                                                   ---------       ---------       ---------
           Consolidated net sales ...........................      $ 100,168       $ 101,233       $ 114,092
                                                                   =========       =========       =========
OPERATING INCOME
      Total operating income for segment sales ..............      $   4,616       $   4,359       $  14,329
      Corporate expense .....................................         (2,952)         (3,242)         (2,706)
      Amortization of goodwill ..............................         (2,179)         (1,634)         (1,634)
      Intercompany profit ...................................             32            (274)            (69)
                                                                   ---------       ---------       ---------
           Consolidated operating income ....................      $    (483)      $    (791)      $   9,920
                                                                   =========       =========       =========
IDENTIFIABLE ASSETS
      Total segment assets ..................................      $  55,925       $  55,632       $  57,760
      Goodwill ..............................................         18,883          16,131          17,764
      Cash ..................................................          8,271          10,307           5,819
      Income tax receivable and deferred income taxes .......          3,822           4,287           3,969
      Other assets ..........................................            881             563             435
                                                                   ---------       ---------       ---------
           Consolidated assets ..............................      $  87,782       $  86,920       $  85,747
                                                                   =========       =========       =========
CAPITAL EXPENDITURES
      Total segment capital expenditures ....................      $   2,324       $   2,699       $   4,414
      Other additions .......................................             35              --              80
                                                                   ---------       ---------       ---------
           Consolidated capital expenditures ................      $   2,359       $   2,699       $   4,494
                                                                   =========       =========       =========
</TABLE>

      The following table sets forth the geographical components of
international sales for the years ended December 31:

<TABLE>
<CAPTION>
INTERNATIONAL SALES                       1999            1998            1997
                                         -------         -------         -------
<S>                                      <C>             <C>             <C>
    Canada .....................         $ 3,209         $ 5,280         $ 2,320
    South Korea ................           2,974           1,367           6,263
    Germany ....................           2,965           3,190           1,738
    Brazil .....................           1,530             649              59
    Indonesia ..................           1,257              --              27
    France .....................           1,145           2,418           1,257
    Other ......................          11,516          11,453          10,081
                                         -------         -------         -------
                                         $24,596         $24,357         $21,745
                                         =======         =======         =======
</TABLE>

      Sales from one customer of the Company's Irvine, CA segment represented
33%, 34% and 38% of the Company's consolidated net sales in 1999, 1998 and 1997,
respectively. Another customer of the Company's Irvine, CA segment represented
10% of the Company's consolidated net sales in 1997.



                                      F-16
<PAGE>   38

NOTE H COMMITMENTS

     Total rental expense for operating leases amounted to $1,614, $1,866 and
$1,454 in 1999, 1998 and 1997, respectively. The future minimum rental
commitments under all non-cancelable operating leases, exclusive of property
taxes and certain occupancy costs, are as follows:

<TABLE>
<S>                                                             <C>
          2000 ...........................................      $1,928
          2001 ...........................................       1,678
          2002 ...........................................       1,541
          2003 ...........................................       1,458
          2004 ...........................................       1,306
          Thereafter .....................................       1,384
                                                                ------
                    Total minimum lease payments .........      $9,295
                                                                ======
</TABLE>

NOTE I ACQUISITION

     On July 29, 1999, the Company acquired all of the outstanding capital stock
of Digital Delivery, Inc. (DDI), a Massachusetts corporation. The Company issued
214,277 shares of its Common Stock, and paid $1,500 in cash. The DDI
stockholders will also receive additional consideration based on certain
performance criteria through December 31, 2001. The acquisition has been
accounted for using the purchase method of accounting. Goodwill of approximately
$4,931 will be amortized over four years using the straight-line method.

     DDI is a leading provider of secure information and management software.
DDI's patented encryption models and leading-edge compression technologies
enable organizations to distribute data and conduct electronic commerce securely
via the Internet, Intranet, Extranet, CD-ROM and digital versatile disk.

    The unaudited pro forma combined results of operations of the Company and
DDI for the twelve months ended December 31, 1999, 1998, and 1997, presuming the
acquisition had taken place on January 1, 1997, after giving effect to certain
pro forma adjustments, are as follows:


  (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                   YEAR ENDED
                                                   DECEMBER 31,
                                    -----------------------------------------
                                      1999            1998            1997
                                    ---------       ---------       ---------
<S>                                 <C>             <C>             <C>
  Net sales                         $ 100,523       $ 101,349       $ 114,359
                                    =========       =========       =========
  Net income (loss)                 $  (2,335)      $  (3,227)      $   3,382
                                    =========       =========       =========
  Net income (loss) per share:
       Basic                        $   (0.40)      $   (0.57)      $     .65
                                    =========       =========       =========
       Diluted                      $   (0.40)      $   (0.57)      $     .60
                                    =========       =========       =========
</TABLE>

     The condensed pro forma combined financial information is provided for
informational purposes only and does not purport to be indicative of the future
results of the Company or what the results of operations would have been had the
acquisition been effective on the date indicated.



                                      F-17
<PAGE>   39

DATUM INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                  BALANCE AT                                 BALANCE
                                                                  BEGINNING                                 AT END OF
                      DESCRIPTION                                 OF PERIOD     ADDITIONS     DEDUCTIONS      PERIOD
------------------------------------------------------------     -----------   -----------   ------------   ----------
<S>                                                              <C>           <C>           <C>            <C>
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts ............................        $  153        $  420        $   12        $  561
Reserve for inventories ....................................         4,536         2,684         3,063         4,157
Accumulated amortization of acquired intangible assets .....         3,845         1,440                       5,285
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts ............................        $   71        $  119        $   37        $  153
Reserve for inventories ....................................         3,737         2,275         1,476         4,536
Accumulated amortization of acquired intangible assets .....         2,951           894                       3,845
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts ............................        $  107        $   70        $  106        $   71
Reserve for inventories ....................................         2,084         2,394           741         3,737
Accumulated amortization of acquired intangible assets .....         2,056           895                       2,951
</TABLE>



                                      S-1
<PAGE>   40

                                   DATUM INC.

                            FORM 10-K - ITEM 14(a)(3)

                  EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

<TABLE>
<S>                 <C>
10.4                1984 Stock Option Plan, as amended to date (incorporated by
                    reference to Registrant's Registration Statements on Form
                    S-8 Registration numbers 2-96564, 33-10035 and 33-41709).

10.10               Form of Indemnification Agreement dated May 27, 1987 as
                    entered into with certain directors and officers of
                    Registrant (incorporated by reference to same numbered
                    exhibit to Registrant's Annual Report on Form 10-K for the
                    year ended December 31, 1991).

10.21               Consulting Agreement dated October 9, 1992 with Louis B.
                    Horwitz (incorporated by reference to same numbered exhibit
                    to Registrant's Annual Report on Form 10-K for the year
                    ended December 31, 1992).

10.21.1             First Amendment to Consulting Agreement, dated as of March
                    1, 1996, between Louis B. Horwitz and the Registrant
                    (incorporated by reference to the same numbered exhibit to
                    Registrant's Quarterly Report on Form 10-Q for the quarter
                    ended September 30, 1996).

10.29               1994 Stock Incentive Plan (incorporated by reference to
                    Registrant's Registration Statement on Form S-8,
                    Registration No. 33-79772).

10.29.1             Amendment to 1994 Stock Incentive Plan, effective March 16,
                    1995 (incorporated by reference to the same numbered exhibit
                    to Registrant's Form 10-K for the year ended December 31,
                    1994).

10.29.2             Second Amendment to 1994 Stock Incentive Plan, effective
                    June 5, 1997 (incorporated by reference to Registrant's
                    Registration Statement on Form S-8, Registration No.
                    33-79772).

10.41               Employee Stock Purchase Plan (incorporated by reference to
                    registrant proxy statement for its Annual Meeting of
                    Stockholders on June 5, 1997, filed with the commission on
                    May 1, 1997).

10.42               Employment Agreement, dated March 27, 1998, between the
                    Company and Erik H. van der Kaay (incorporated by reference
                    to the same numbered exhibit to the Registrant's Quarterly
                    Report on Form 10-Q for the quarter ended March 31, 1998).

10.43               Non-qualified stock option agreement, dated April 6, 1998,
                    between the Company and Erik H. van der Kaay (incorporated
                    by reference to the same numbered exhibit to the
                    Registrant's Quarterly Report on Form 10-Q for the quarter
                    ended June 30, 1998).

10.44               Restricted stock grant agreement, dated April 6, 1998,
                    between the Company and Erik H. van der Kaay (incorporated
                    by reference to the same numbered exhibit to the
                    Registrant's Quarterly Report on Form 10-Q for the quarter
                    ended June 30, 1998)

10.46               Employment Agreement, dated July 29, 1999, between the
                    Company and Thomas Mark Hastings.
</TABLE>

<PAGE>   41

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
                                                                                    SEQUENTIALLY
EXHIBIT                                                                               NUMBERED
NUMBER              DESCRIPTION                                                         PAGE
------              -----------                                                     ------------
<S>                 <C>                                                             <C>
 2.2                Agreement and Plan of Merger Agreement, dated July 29, 1999,
                    among the Registrant, Digital Delivery, Inc., certain
                    stockholders of Digital Delivery and Datum Acquisition Sub,
                    Inc. (incorporated by reference to the Registrant's Current
                    Report on Form 8-K, dated July 29, 1999, as amended)

 3.1                Certificate of Incorporation of Datum Inc., a Delaware
                    corporation, as amended to date (incorporated by reference
                    to the same numbered exhibit on Form 10-Q for the quarter
                    ended June 30, 1996).                                                --

 3.2                Bylaws of Datum Inc. as amended to date (incorporated by
                    reference to the exhibit 1 on Form 8-K dated November 17,
                    1999).                                                               --

 4.2                Rights Agreement, dated as of November 8, 1999, between the
                    Registrant and ChaseMellon Shareholder Services, L.L.C.
                    (incorporated by reference to Exhibit 1 to the Company's
                    Registration Statement on Form 8-A, Registration No.
                    000-06272)

10.4                1984 Stock Option Plan, as amended to date (incorporated by
                    reference to Registrant's Registration Statements on Form
                    S-8, Registration No.'s 2-96564, 33-10035 and 33-41709).             --

10.10               Form of Indemnification Agreement dated May 27, 1987 as
                    entered into with certain directors and officers of
                    Registrant (incorporated by reference to same numbered
                    exhibit to Registrant's Annual Report on Form 10-K for the
                    year ended December 31, 1991).                                       --

10.19               Savings and Retirement Plan, as amended to date
                    (incorporated by reference to same numbered exhibit to
                    Registrant's Annual Report on Form 10-K for the year ended
                    December 31, 1991).                                                  --

10.21               Consulting Agreement dated October 9, 1992 with Louis B.
                    Horwitz (incorporated by reference to same numbered exhibit
                    to Registrant's Annual Report on Form 10-K for the year
                    ended December 31, 1992).                                            --

10.21.1             First Amendment to Consulting Agreement, dated as of March
                    1, 1996, between Louis B. Horwitz and the Registrant
                    (incorporated by reference to the same numbered exhibit to
                    Registrant's Quarterly Report on Form 10-Q for the quarter
                    ended September 30, 1996).                                           --

10.29               1994 Stock Incentive Plan (incorporated by reference to
                    Registrant's Registration Statement on Form S-8,
                    Registration No. 33-79772).                                          --

10.29.1             Amendment to 1994 Stock Incentive Plan, effective March 17,
                    1995. (incorporated by reference to the same numbered
                    exhibit on Form 10-K for the year ended December 31, 1994).          --
</TABLE>

<PAGE>   42

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
                                                                                    SEQUENTIALLY
EXHIBIT                                                                               NUMBERED
NUMBER              DESCRIPTION                                                         PAGE
------              -----------                                                     ------------
<S>                 <C>                                                             <C>
10.29.2             Second Amendment to 1994 Stock Incentive Plan, effective
                    June 5, 1997 (incorporated by reference to Registrant's
                    Registration Statement on Form S-8, Registration No.
                    33-79772).                                                           --

10.30.5             Amended and Restated Credit Agreement dated as of September
                    27, 1996, by and between the Registrant and Wells Fargo
                    Bank, N.A. (incorporated by reference to the same numbered
                    exhibit to the Registrant's Quarterly Report on Form 10-Q
                    for the quarter ended September 30, 1996).                           --

10.32               Lease Agreement dated September 15, 1986 by and between The
                    Irvine Company and Efratom Division, Ball Corporation, for
                    Efratom Time and Frequency Products, Inc.'s facility at 3
                    Parker, Irvine, California. (incorporated by reference to
                    the same numbered exhibit on Form 10-K for the year ended
                    December 31, 1994).                                                  --

10.32.1             First Amendment to Lease dated March 15, 1995 by and between
                    The Irvine Company and Efratom Division, Ball Corporation
                    for Lease Agreement dated September 15, 1986 (Exhibit 10.32)
                    (incorporated by reference to the same numbered exhibit on
                    Form 10-K for the year ended December 31, 1994).                     --

10.32.2             Amendment to Leases dated May 11, 1995 between the Irvine
                    Company and the Registrant (incorporated by reference to the
                    same numbered exhibit on Form 10-Q for the quarter ended
                    June 30, 1995).                                                      --

10.32.4             Second Amendment to Lease dated May 11, 1995 for 3 Parker
                    (incorporated by reference to the same numbered exhibit on
                    Form 10-Q for the quarter ended June 30, 1995).                      --

10.34               Industrial Lease dated May 11, 1995 between the Irvine
                    Company and the Registrant (incorporated by reference to the
                    same numbered exhibit to the Registrant's Form 10-Q for the
                    quarter ended June 30, 1995).                                        --

10.35               Lease Agreement dated January 4, 1996, by and between Berg &
                    Berg Developers and the Registrant relating to Registrant's
                    Facility at 6781 Via Del Oro, San Jose, California
                    (incorporated by reference to the same numbered exhibit to
                    the Registrant's Form 10-K for the year ended December 31,
                    1995.                                                                --

10.36               Note and Warrant Purchase Agreement, dated as of September
                    27, 1996, by and between The Prudential Insurance Company of
                    America and the Registrant (incorporated by reference to the
                    same numbered exhibit to the Registrant's Quarterly Report
                    on Form 10-Q for the quarter ended September 30, 1996.               --
</TABLE>

<PAGE>   43

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
                                                                                    SEQUENTIALLY
EXHIBIT                                                                               NUMBERED
NUMBER              DESCRIPTION                                                         PAGE
------              -----------                                                     ------------
<S>                 <C>                                                             <C>
10.37               Common Stock Purchase Warrant, dated September 27, 1996
                    (incorporated by reference to the same numbered exhibit to
                    the Registrant's Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 1996).                                   --

10.38               Series A Senior Secured Notes, dated September 27, 1996, in
                    favor of The Prudential Insurance Company of America
                    (incorporated by reference to the same numbered exhibit to
                    the Registrant's Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 1996).                                   --

10.39               Series B Senior Secured Notes, dated September 27, 1996, in
                    favor of The Prudential Insurance Company of America
                    (incorporated by reference to the same numbered exhibit to
                    the Registrant's Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 1996).                                   --

10.41               Employee Stock Purchase Plan (incorporated by reference to
                    registrant proxy statement for its Annual Meeting of
                    Stockholders on June 5, 1997, filed with the commission on
                    May 1, 1997).                                                        --

10.42               Employee Agreement, dated March 27, 1998, between the
                    Company and Erik H. van der Kaay (incorporated by reference
                    to the same numbered exhibit to the Registrant's Quarterly
                    Report on Form 10-Q for the quarter ended March 31, 1998).           --

10.43               Non-qualified stock option agreement, dated April 6, 1998,
                    between the Company and Erik H. van der Kaay (incorporated
                    by reference to the same numbered exhibit to the
                    Registrant's Quarterly Report on Form 10-Q for the quarter
                    ended June 30, 1998.                                                 --

10.44               Restricted stock grant agreement, dated April 6, 1998,
                    between the Company and Erik H. van der Kaay (incorporated
                    by reference to the same numbered exhibit to the
                    Registrant's Quarterly Report on Form 10-Q for the quarter
                    ended June 30, 1998.                                                 --

10.45               Agreement with Lucent Technologies Inc., signed July 2,
                    1998. (incorporated by reference to the same numbered
                    exhibit to the Registrant's Annual Report on Form 10-K for
                    the year ended December 31, 1998. Portions of this Exhibit
                    are omitted and were filed separately with the Secretary of
                    the Commission pursuant to the Company's application
                    requesting confidential treatment under Rule 406 of the
                    Securities Act of 1933.)

10.46               Employment Agreement, dated July 29, 1999, between the
                    Company and Thomas Mark Hastings.                                    --

21                  List of Subsidiaries                                                 --

23.1                Consent of Independent Accountants

23.2                Consent of Independent Accountants                                   --

27.4                Financial Data Schedule Year Ended 1999                              --
</TABLE>