<PAGE>   1
 
   
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1997
    
   
                                                      REGISTRATION NO. 333-22177
    
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
   
                                AMENDMENT NO. 2
    
   
                                       TO
    
 
                                    FORM S-2
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                                   DATUM INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                <C>
                     DELAWARE                                          95-2512237
          (STATE OR OTHER JURISDICTION OF                           (I.R.S. EMPLOYER
          INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)
                                           9975 TOLEDO WAY,
                                    IRVINE, CALIFORNIA 92618-1819
                                            (714) 380-8880
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
                                          EXECUTIVE OFFICES)
</TABLE>
 
                            ------------------------
 
                                LOUIS B. HORWITZ
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                   DATUM INC.
                 9975 TOLEDO WAY, IRVINE, CALIFORNIA 92618-1819
                                 (714) 380-8880
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                                   Copies to:
 
<TABLE>
<S>                                                     <C>
                 LAWRENCE B. COHN, ESQ.                                   BROOKS STOUGH, ESQ.
                MICHAEL H. MULROY, ESQ.                                  CARLA S. NEWELL, ESQ.
                  RYAN E. DAVIS, ESQ.                                      MARK P. LONG, ESQ.
           STRADLING, YOCCA, CARLSON & RAUTH,                           WILLIAM A. HOLMES, ESQ.
               A PROFESSIONAL CORPORATION                               GUNDERSON DETTMER STOUGH
          660 NEWPORT CENTER DRIVE, SUITE 1600                    VILLENEUVE FRANKLIN & HACHIGIAN, LLP
            NEWPORT BEACH, CALIFORNIA 92660                              155 CONSTITUTION DRIVE
                 PHONE: (714) 725-4000                                MENLO PARK, CALIFORNIA 94025
                  FAX: (714) 725-4100                                    PHONE: (415) 321-2400
                                                                          FAX: (415) 321-2800
</TABLE>
 
                            ------------------------
 
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  As soon as practicable after this Registration Statement becomes effective.
                            ------------------------
 
    If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box:  [ ]
 
    If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box:  [ ]
 
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering:  [ ]
 
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering:  [ ]
 
    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box:  [ ]
                            ------------------------
                        CALCULATION OF REGISTRATION FEE
 
   
<TABLE>
<S>                                          <C>             <C>             <C>             <C>
============================================================================================================
TITLE OF EACH                                    AMOUNT         PROPOSED        PROPOSED        AMOUNT OF
CLASS OF SECURITIES                               TO BE          MAXIMUM         MAXIMUM      REGISTRATION
TO BE REGISTERED                              REGISTERED(1)  OFFERING PRICE     AGGREGATE          FEE
                                                              PER SHARE(2)      OFFERING
                                                                               PRICE(1)(2)
------------------------------------------------------------------------------------------------------------
Common Stock ($.25 par value)...............    2,820,695        $19.125       $53,945,792     $16,347.21
                                                 shares
============================================================================================================
</TABLE>
    
 
   
(1) Includes 367,917 shares of Common Stock which may be purchased by the
    Underwriters to cover over-allotments, if any.
    
 
   
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
    registration fee. Of the $16,347.21 registration fee, $15,847.35 has been
    previously paid by the Registrant.
    
                            ------------------------
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>   2
 
     INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
     REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
     MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
     BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
     THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
     SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
     UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
     OF ANY SUCH STATE.
 
   
                  SUBJECT TO COMPLETION, DATED MARCH 26, 1997
    
 
PROSPECTUS
   
                                2,452,778 SHARES
    
 
                       [DATUM INC. LOGO]
                                  COMMON STOCK
 
   
     Of the 2,452,778 shares of Common Stock offered hereby, 1,000,000 shares
are being sold by Datum Inc. ("Datum" or the "Company") and 1,452,778 shares are
being sold by the Selling Stockholders. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
See "Principal and Selling Stockholders."
    
 
   
     The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "DATM." On March 25, 1997, the last reported sale price of the Common
Stock was $16.375 per share. See "Price Range of Common Stock."
    
                               ------------------
 
            THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
                   SEE "RISK FACTORS," COMMENCING ON PAGE 5.
                               ------------------
 
    THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
       AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
         THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
      COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
 
           ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
<TABLE>
<S>                       <C>               <C>               <C>               <C>
=================================================================================================
                                                                                   PROCEEDS TO
                              PRICE TO        UNDERWRITING       PROCEEDS TO         SELLING
                               PUBLIC          DISCOUNT(1)       COMPANY(2)       STOCKHOLDERS
-------------------------------------------------------------------------------------------------
Per Share................         $                 $                 $                 $
-------------------------------------------------------------------------------------------------
Total(3).................         $                 $                 $                 $
=================================================================================================
</TABLE>
 
(1) See "Underwriting" for indemnification arrangements with the several
    Underwriters.
 
   
(2) Before deducting expenses payable by the Company estimated at $500,000.
    
 
   
(3) The Company has granted to the Underwriters a 30-day option to purchase up
    to an aggregate of 367,917 additional shares of Common Stock, solely to
    cover over-allotments, if any. If all such shares are purchased, the total
    Price to Public, Underwriting Discount and Proceeds to Company will be
    $          , $          and $          , respectively. See "Underwriting."
    
                               ------------------
 
     The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be made
available for delivery on or about             , 1997, at the office of the
agent of Hambrecht & Quist LLC in New York, New York.
 
HAMBRECHT & QUIST
                          OPPENHEIMER & CO., INC.
                                                VAN KASPER & COMPANY
            , 1997
<PAGE>   3
 
--------------------------------------------------------------------------------
 
   
                               DATUM PRODUCTS IN
    
   
                           GLOBAL TELECOMMUNICATIONS
    
 
            [SCHEMATIC DRAWING OF A FULLY INTEGRATED
            TELECOMMUNICATIONS NETWORK WITH WIRELESS AND WIRELINE
            SEGMENTS, SHOWING COMPANY'S TIME SYNCHRONIZATION DEVICES
            AT WIRELESS BASE STATION, WIRELESS NETWORK SWITCHES, GPS
            SATELLITES, ETC.]
 
   
     PRECISE TIME AND FREQUENCY CONTROL IS REQUIRED TO MAINTAIN THE
     INTEGRITY OF VOICE, DATA AND VIDEO TRAFFIC THROUGHOUT THE
     TELECOMMUNICATIONS SYSTEM. DATUM DESIGNS, MANUFACTURES AND MARKETS A
     WIDE RANGE OF HIGHLY STABLE AND ACCURATE TIME AND FREQUENCY PRODUCTS
     FOR UTILIZATION IN WIRELESS AND WIRELINE TELECOMMUNICATIONS
     APPLICATIONS, AS DEPICTED ABOVE.
    
--------------------------------------------------------------------------------
 
   
     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
    
 
   
     IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF
    
REGULATION M. SEE "UNDERWRITING."
<PAGE>   4
 
                               PROSPECTUS SUMMARY
 
   
     This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve risks and uncertainties, such as statements of the
Company's strategies, plans, objectives, expectations and intentions. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus. The cautionary
statements made in this Propsectus should be read as being applicable to all
related forward-looking statements wherever they appear in this Prospectus. The
following summary is qualified in its entirety by the more detailed information
and the financial statements and notes thereto appearing elsewhere in this
Prospectus. Except as otherwise noted herein, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
    
 
                                  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 and in numerous other applications. Utilizing its
more than 28 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 PCS networks. The Company invented the rubidium oscillator in
1971 and believes it currently supplies more than 80% of the high-precision,
rubidium atomic clocks used in cellular and PCS network base stations. Datum is
a major supplier of extremely precise cesium standards and 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 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. Finally, the Company
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.
    
 
   
     Customers for the Company's telecommunications products include Lucent
Technologies, Inc. ("Lucent"), Motorola Corporation ("Motorola"), Hyundai
Electronics Industries Co., MCI Communications, Inc., Symmetricom, Inc., AT&T
Wireless Services, Inc. and telephone companies in Mexico, Australia, South
Korea and Spain. Customers for the Company's other products include LM Ericsson
Telephone Co., Hughes Information Systems, Inc., Boeing North American, Inc.,
TRW, Inc., Lockheed Martin Corporation and Northrop Grumman Corp., and various
U.S. government agencies and contractors.
    
 
   
     The Company applies its core understanding of time and frequency technology
and its experience in manufacturing highly stable and accurate clocking devices
to provide a wide range of products for telecommunications, enterprise computing
and a variety of other commercial applications. The Company's strategy is to
enhance its position as a leading, worldwide supplier of a broad range of time
and frequency products and to capitalize on its core competencies in the
technology of rubidium and cesium atomic clocks and GPS satellite signal
processing. Key aspects of this strategy include: (i) targeting high-growth
sectors of the telecommunications markets, (ii) offering a broad range of
uniquely tailored products, (iii) maintaining technological leadership in
rubidium and cesium atomic clock technology and GPS satellite signal processing,
(iv) expanding relationships with leading OEMs, (v) increasing international
sales and (vi) pursuing strategic acquisitions and alliances.
    
 
     The Company was incorporated in California in 1959 and reincorporated in
Delaware in 1987. Unless the context otherwise requires, the terms "Datum" and
the "Company" refer to Datum Inc. and its wholly-owned subsidiaries. The Company
maintains its executive offices at 9975 Toledo Way, Irvine, California
92618-1819, and its telephone number is (714) 380-8880.
 
                                        3
<PAGE>   5
 
                                  THE OFFERING
 
   
<TABLE>
<S>                                            <C>
Common Stock Offered by the Company..........  1,000,000 shares
Common Stock Offered by the Selling
  Stockholders...............................  1,452,778 shares
Common Stock to be Outstanding After the
  Offering...................................  5,266,291 shares(1)
Use of Proceeds..............................  General corporate purposes, including working
                                               capital
Nasdaq National Market Symbol................  DATM
</TABLE>
    
 
                      SUMMARY CONSOLIDATED FINANCIAL DATA
 
   
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
    
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                            ---------------------------------------------------------
                                              1996       1995(2)      1994        1993        1992
                                            ---------   ---------   ---------   ---------   ---------
<S>                                         <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
  Net sales...............................  $  91,854   $  67,257   $  30,897   $  24,593   $  27,340
  Operating income (loss).................      5,593       1,864       1,772         298        (962)
  Loss on discontinued operations.........                                                      1,750
  Net income (loss).......................  $   1,974   $      60   $     936   $      72   $  (2,207)
  Net income (loss) per share.............  $     .46   $     .02   $     .34   $     .03   $    (.89)
  Weighted average number of shares
     outstanding..........................  4,253,019   3,954,307   2,732,812   2,558,356   2,488,829
</TABLE>
 
   
<TABLE>
<CAPTION>
                                                                       DECEMBER 31, 1996
                                                                   --------------------------
                                                                   ACTUAL      AS ADJUSTED(3)
                                                                   -------     --------------
<S>                                                                <C>         <C>
BALANCE SHEET DATA:
  Working capital................................................  $26,029        $ 43,057
  Total assets...................................................   68,688          85,716
  Total long-term debt...........................................   17,318          17,318
  Total stockholders' equity.....................................   34,623          51,651
</TABLE>
    
 
---------------
   
(1) Excludes 574,474 shares subject to options outstanding as of December 31,
    1996 under the Company's 1984 Stock Option Plan and 1994 Stock Incentive
    Plan at a weighted average exercise price of $7.51 per share.
    
 
(2) In March 1995, the Company acquired Efratom Time and Frequency Products,
    Inc. and Efratom Elektronik GmbH. As a result of the acquisition, the
    Company experienced an increase in all categories of sales and expenses.
 
   
(3) Adjusted to reflect the sale of the shares of Common Stock offered by the
    Company hereby and the application of the net proceeds therefrom at an
    assumed public offering price of $16.375 per share and the exercise by the
    Prudential Insurance Company of America of a warrant for 175,000 shares of
    common stock at $11.50 per share. See "Use of Proceeds" and
    "Capitalization."
    
 
                                        4
<PAGE>   6
 
                                  RISK FACTORS
 
     The following Risk Factors should be considered carefully, in addition to
the other information in this Prospectus, before purchasing shares of the Common
Stock offered hereby:
 
RISKS ASSOCIATED WITH THE COMPANY'S DEPENDENCE ON SMALL NUMBER OF 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, accounted for
approximately 36% and 30% of net sales for the years ended December 31, 1996 and
1995, respectively. Further, the Company's five largest customers, including
Lucent, accounted for approximately 53% and 46% of net sales during the same
periods. See "Business -- Customers."
 
     Risk of Delay or Loss of Orders; Negotiating Leverage.  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 of orders
could have a material adverse effect on the Company's business, results of
operations and financial condition. 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. Under the
terms of the Company's supply agreement with Lucent, the Company has agreed to
price reductions at specified times, most recently on January 1, 1997. In
addition, many of the Company's customers, including Lucent, are original
equipment manufacturers ("OEMs") for telecommunications service providers. As
OEMs are pressured to reduce prices by service providers, the Company may be
required to contractually commit to price reductions for its products before it
knows how, or if, cost reductions can be obtained. If the Company is unable to
achieve such cost reductions, the Company's gross margins could decline and such
decline could have a material adverse effect on the Company's business,
financial condition and results of operations. Also, several of the Company's
larger customers, including Lucent and Motorola, require the Company to continue
investing in statistical quality control programs to measure, maintain, and
improve quality standards. The costs related to such programs may adversely
affect the Company's ability to deliver product within cost expectations, in
turn affecting the Company's business, financial condition and results of
operations.
 
     Discrepancies Between Forecasted Orders and Actual Shipments.  While the
Company receives periodic order forecasts from its major customers, certain of
these customers have no obligation to purchase the forecasted amounts. As a
result of fluctuating market demand for major customers' equipment and such
customers' attempts to minimize inventory, the Company has experienced and
expects to continue experiencing rescheduling of shipments, creating
discrepancies between forecasted orders and actual shipments. Such discrepancies
have in the past resulted in significant increases in inventory and necessitated
significant reductions in the Company's production staff. Specifically, Lucent
operates its factories under a "just-in-time" system of inventory control to
operate with a minimum of in-plant inventory. As a result, Lucent may from time
to time require many of its vendors, including the Company, to delay delivery of
product. The Company's contract with Lucent requires the Company to maintain
significant work-in-progress and finished goods inventory to meet forecasted
orders. To the extent Lucent or any of the Company's major customers do not
purchase forecasted amounts, the Company could have excess levels of inventory
and production staff. Such an excess of inventory or employees will increase the
Company's expenses and the amount of the Company's resources invested in working
capital, will reduce the Company's cash flow and may increase the risk of
product obsolescence, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the manufacturing process of many of the Company's products requires significant
post-manufacture aging time. As a result, it is difficult for the Company to
increase production of many of its products on short notice. The inability of
the Company to satisfy customer orders could have a material adverse effect on
the
 
                                        5
<PAGE>   7
 
Company's relationships and future business with its customers. See
"-- Potential Fluctuations in Quarterly Operating Results" and "-- Volatility of
Stock Price."
 
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
 
   
     The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter to quarter. 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. In addition, there can be no
assurance that the Company will maintain its current profitability in the
future. A significant component of such quarterly fluctuations results from
rescheduling of orders by the Company's major customers, in some cases due in
part to the customers' attempts to minimize inventories. Other factors that
could cause the Company's sales and operating results to vary significantly from
period to period include: contractual price reductions on products sold to
certain major customers; the time, availability and sale of new products;
changes in the mix of products having differing gross margins; variations in
manufacturing capacities, efficiencies and costs; the availability and cost of
components; warranty expenses; and variations in product development and other
operating expenses. In addition, the Company has experienced seasonality
resulting in increased sales in its fourth quarter which the Company believes is
due to increased year-end spending by its OEM customers and a higher level of
sales activity in connection with year-end sales quotas. Accordingly, sales and
net income for the first quarter of 1997 may reflect little or no growth from
the fourth quarter of 1996. In addition, the sales cycles for many of the
Company's products are often lengthy and unpredictable, and can range up to 36
months. Further, there can be no assurance that the Company will be successful
in closing large transactions on a timely basis or at all. Accordingly, the
timing of these transactions could cause additional variability in the Company's
quarterly operating results. The Company's quarterly results of operations are
also influenced by competitive factors, including pricing and availability of
the Company's and competing time and frequency products. A large portion of the
Company's expenses are fixed and difficult to reduce in a short period of time.
If net sales do not meet the Company's expectations, the Company's fixed
expenses would exacerbate the effect of such net sales shortfall on net income.
Furthermore, announcements by the Company or its competitors regarding new
products and technologies could cause customers to defer purchases of the
Company's products. Order deferrals by the Company's customers, delays in the
Company's introduction of new products and longer than anticipated sales cycles
for the Company's products have in the past adversely affected the Company's
quarterly results of operations. Due to all of the foregoing factors, as well as
other unanticipated factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts or investors. In such event, the price of the Company's Common Stock
may be materially adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
    
 
DEPENDENCE ON WIRELESS TELECOMMUNICATIONS MARKETS.
 
     The Company derives a substantial portion of its net sales from the sale of
cesium standards, rubidium oscillators and related systems for wireless
communications networks, and the future success of the Company depends to a
considerable extent upon the continued growth and increased availability of
cellular and other wireless communications services in the United States and
internationally. There can be no assurance that either subscriber use or the
implementation of wireless communications services will continue to grow, or
that such factors will create demand for the Company's products. The Company
believes that continued growth in the use of wireless communications services
depends on significant reductions in infrastructure capital equipment cost per
subscriber and corresponding reductions in wireless service pricing. While the
Federal Communications Commission ("FCC") has recently adopted regulations
requiring local phone companies to reduce the rates charged to cellular carriers
for connection to their wireline networks, it is anticipated that wireless
service rates will remain higher than rates charged for traditional wireline
service, which may reduce the demand for wireless services and the Company's
products. The growth in the implementation of
 
                                        6
<PAGE>   8
 
wireless communications services is also dependent upon both developed countries
allowing continued deployment of new networks and developing countries deploying
wireless communications networks as opposed to, or in addition to, constructing
wireline infrastructures. See "-- Risks Associated with Government Regulations."
 
     Several of the Company's major customers, including Lucent, are suppliers
to the emerging PCS market. The initial deployment of PCS networks has only
recently begun, and there can be no assurance that the PCS market will grow at
the anticipated rate or at all. The Company believes that many of the Company's
customers for PCS network timing equipment are uncertain as to the rate of new
sales in their markets. As a result of uncertainties in this market, the Company
anticipates that customer orders, if any, will be unpredictable in size and
frequency. Furthermore, even if the PCS market does experience future growth,
there can be no assurance that the Company's products will be widely utilized in
PCS networks. In addition, some of the Company's major customers are developing
wireless networks utilizing CDMA technology. In the event that such technology
does not gain widespread acceptance or the PCS market is dominated by a
competing technology, the Company's customers may have reduced demand for the
Company's products, which would materially adversely affect the Company's
business, financial condition and results of operations. See
"Business -- Markets."
 
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT DEVELOPMENT.
 
     The telecommunications and enterprise computing markets, as well as the
other markets for the Company's products, are characterized by rapidly changing
technology, evolving industry standards and new product introductions and
enhancements. Sales of the Company's time and frequency products depend in part
on the continuing development and deployment of emerging telecommunications
services and on such services requiring precise time and frequency control.
There can be no assurance that new developments in telecommunications technology
or the introduction of new communications protocols will not reduce the demand
for precise timing products in the Company's markets. The Company is dependent
to a significant extent upon its ability to enhance its existing products and to
develop and introduce innovative new products on a timely basis that gain market
acceptance. In addition, the Company is aware of other research and product
development being undertaken by other companies and by academic institutions to
further evolve smaller, lighter and less costly atomic clocks. For example, in
1995, Westinghouse Electric Corp. announced a research and development program
for a miniature atomic clock which it claimed would be smaller and lighter than
the Company's comparable products, at a lower cost. There can be no assurance
that such product, or any other time and frequency product incorporating new
technology, if and when available, will not be commercially successful and
materially adversely affect the Company's results of operations.
 
   
     The Company's products compete with alternative technologies being
introduced in the time and frequency markets. For example, the Company's
rubidium oscillators compete primarily with less stable, lower-cost
alternatives, such as GPS-disciplined quartz oscillators offered by other
suppliers as well as by the Company. In the event that third parties were able
to develop more stable quartz oscillators, competitive with the Company's
rubidium oscillators, the Company's business, financial condition and results of
operations could be materially adversely affected. Hewlett-Packard Company
("Hewlett-Packard") has developed and currently markets a software enhanced
quartz oscillator with performance characteristics between a traditional quartz
oscillator and the Company's rubidium oscillator, at a similar price. In the
event that Hewlett-Packard improves the performance of its product or decreases
its price, the Company's business, financial condition and results of operations
could be materially adversely affected.
    
 
   
     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 and 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 materially adversely
affect the Company's business, operating results and financial condition. There
can be no assurance that the Company will
    
 
                                        7
<PAGE>   9
 
be successful in selecting, developing, manufacturing and marketing new products
or enhancing its existing products on a timely or cost-effective basis. See
"Business -- Product Research and Development."
 
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 than the Company. The Company currently competes principally on the
basis of the performance and quality of its products, including reliability, as
well as on price and timely manufacture and delivery.
 
   
     In the cellular and PCS markets, the Company competes primarily with
Hewlett-Packard and various other quartz oscillator manufacturers. In the
wireline market, the Company competes primarily with Symmetricom, Inc.,
Hewlett-Packard 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. There can be no assurance that
the Company will be able to compete 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. See "Business -- Competition."
    
 
DEPENDENCE ON KEY PERSONNEL; ANTICIPATED RETIREMENT OF CHIEF EXECUTIVE OFFICER.
 
     The Company's success depends upon the continued services of its key
management personnel. The Company's 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.
 
     It is anticipated that Louis B. Horwitz, the Company's President and Chief
Executive Officer, and Chairman of the Company's Board of Directors, will retire
in the near future. While the Company is currently conducting a search for a new
President and Chief Executive Officer, there can be no assurance that the
Company will be able to retain a suitable successor in a timely manner. See
"Management."
 
   
MANAGEMENT OF GROWTH; ABILITY TO TIMELY SATISFY ORDERS.
    
 
   
     The Company has experienced a period of significant growth and has recently
expanded the scope of its operations and the number of employees in many of its
functional areas. The Company's ability to manage any future growth and compete
effectively will require it to enhance its operational, financial and management
systems, and to expand its facilities and manufacturing capacity. For example,
as a result of increases in orders beyond its customers' previously forecasted
amounts, the Company is currently experiencing difficulty manufacturing and
testing certain products quickly
    
 
                                        8
<PAGE>   10
 
   
enough to fill orders and is currently behind on certain of its delivery
schedules. To meet current and anticipated demand, the Company must increase the
rate at which it manufactures these products and there can be no assurance that
the Company will be able to successfully increase its manufacturing rate in a
timely manner. Although the Company is not aware of any order reductions as a
result of these delays, such delays, if they continue or recur, increase the
risk that customers will reduce or cancel orders and seek to meet all or a
portion of their needs from the Company's competitors. Rapid and substantial
manufacturing expansion could strain the Company's quality control, delivery and
customer support systems if the capability of such systems is not improved and
expanded. The Company will be required to increase staffing and other expenses
as well as its expenditures on capital equipment and leasehold improvements in
order to meet increased demands of its customers and to enter new markets. In
particular, the Company must carefully manage production and inventory levels to
meet increasing product demand, fluctuating customer orders and new product
introductions. Inaccuracies in demand forecasts can quickly result in either
insufficient or excessive inventories and disproportionate overhead expenses.
The failure of the Company to manage effectively any future growth could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Manufacturing" and "-- Backlog."
    
 
CONSUMMATION AND INTEGRATION OF FUTURE ACQUISITIONS.
 
     The Company plans to continue growing through strategic acquisitions of
complementary products, technologies and businesses. Successful implementation
of this strategy will be dependent upon the Company's ability to identify and
acquire suitable acquisition candidates and manage and integrate the operations
of such acquisitions. Competition for acquisition candidates is intensifying
within the telecommunications industry and may result in the inflation of
purchase prices which exceed the Company's financial capability or could
otherwise inhibit its acquisition program or adversely affect the Company's
business, financial condition and operating results. In addition, the
consummation of any such acquisitions would be subject to the consent of the
Company's lenders. There can be no assurance that the Company will be able to
identify and acquire suitable additional candidates. Furthermore, even if
additional acquisitions are consummated, there can be no assurance that the
Company will be successful in managing and integrating such acquisitions. In
addition, growth through acquisitions will place additional demands on the
Company's management and resources.
 
RISKS OF DOING BUSINESS IN INTERNATIONAL MARKETS.
 
     In 1996, 1995 and 1994, international revenues accounted for approximately
22%, 19% and 24%, respectively, of the Company's net sales. The Company expects
that international revenues will continue to account for a significant
percentage of the Company's net sales for the foreseeable future.
 
     Factors Affecting International Markets. As a result of conducting business
internationally, the Company is subject to various risks, which include: 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 and economic
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. There also
can be no assurance that foreign markets for the Company's products will not
develop more slowly than currently anticipated. Foreign countries may decide not
to construct wireless or wireline communications systems, place moratoriums on
building base stations or terminate or delay construction of such systems for a
variety of reasons, including environmental issues, economic downturns, the
availability of favorable pricing for other communications services or the
availability and cost of related equipment. Any such action by foreign countries
would reduce the market for the Company's
 
                                        9
<PAGE>   11
 
products, which would materially adversely affect the Company's business,
results of operations and financial condition. See "Business -- Marketing,
Distribution and International Sales."
 
     Risks Associated with Currency Fluctuations. 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 and financial condition.
 
NEED FOR ADDITIONAL CAPITAL.
 
   
     The Company requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures. The Company believes that the net proceeds from this offering,
together with existing cash balances, funds expected to be generated from
operations and available credit facilities will be adequate to fund its
operations for at least the next 12 months. There can be no assurance, however,
that the Company will not require additional debt or equity financing during
such period or thereafter. Further, there can be no assurance that additional
financing, if required, will be available to the Company on acceptable terms, if
at all. If adequate funds are not available, the Company may be required to
delay, scale back or eliminate its research and development or manufacturing
programs or obtain funds through arrangements with partners or others that may
require the Company to relinquish rights to certain of its technologies or
potential products or other assets. Accordingly, the inability to obtain or
difficulty in obtaining such financing could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
    
 
LACK OF SIGNIFICANT PATENT PROTECTION; INFRINGEMENT RISKS.
 
     Although the Company has patent protection on certain aspects of its
technology, it relies primarily on trade secrets, copyrights and contractual
provisions to protect its proprietary rights. There can be no assurance that
these protections will be adequate to protect its proprietary rights, that
others will not independently develop or otherwise acquire equivalent or
superior technology or that the Company can maintain such technology as trade
secrets. There also can be no assurance that any patents the Company possesses
will not be invalidated, circumvented or challenged. 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
the Company's business, operating results and financial condition.
 
     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 or could otherwise have a material adverse effect
on the
 
                                       10
<PAGE>   12
 
Company's business, operating results and financial condition, regardless of the
outcome of the litigation. See "Business -- Intellectual Property Rights."
 
DEPENDENCE ON COMPONENT AVAILABILITY AND KEY SUPPLIERS.
 
   
     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 a timely manner, the Company's business, results of operations and
financial condition could be materially 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, results 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. See "Business -- Manufacturing."
    
 
RISKS ASSOCIATED WITH GOVERNMENT REGULATIONS.
 
     The Company's business is subject to various U.S. federal and state laws,
regulations, agency actions, court decisions as well as international laws and
regulations.
 
   
     Environmental Regulations; Notice of Environmental Claim. The Company is
subject to a variety of local, state, federal and international government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture the Company's products. The failure to comply with current or future
regulations could result in the imposition of substantial fines on the Company,
suspension of production, alteration of its manufacturing processes or cessation
of operations. Corrective action could require the Company to undertake
expensive remediation efforts or to incur substantial other expenses. Any
failure by the Company to control the use, disposal, removal or storage of, or
to adequately restrict the discharge of, or assist in the cleanup of, hazardous
or toxic substances, could subject the Company to significant liabilities,
including joint and several liability under certain statutes. The imposition of
such liabilities could materially adversely affect the Company's business,
results of operations and financial condition. In addition, the installation of
base stations by wireless service providers or the expansion of wireline
networks may be delayed or restricted by various environmental regulations, land
use restrictions and zoning ordinances. Any such delay or restriction could have
a material adverse effect on the Company's business, results of operations and
financial condition.
    
 
   
     In late 1996, the Company received notice from the owner of premises in
Austin, Texas that had previously been occupied by Austron, Inc., the Company's
wireline operation, prior to the Company's acquisition of Austron in 1988. The
property owner claims, among other things, that the soil at the site contains
the same contaminants as were previously remediated by Austron in connection
with its vacating the site in 1983. The Company is in the early stages of
evaluating the situation. The Company believes that it will incur some costs in
connection with such claim and the amount of such costs cannot be determined at
this time. Although there can be no assurance that the property owner's claims
or any related governmental action will not have a material adverse effect on
the Company's business, financial condition and results of operations, the
Company believes that it will not have any such effect. See "Business -- Legal
Proceedings."
    
 
                                       11
<PAGE>   13
 
     Government Regulation of Communications Industry. Wireless transmissions
and emissions, and certain equipment used in connection therewith, are regulated
in the United States and internationally. The enactment by federal, state, local
or foreign governments of new laws or regulations or a change in the
interpretation of existing regulations could adversely affect the market for the
Company's products. There can be no assurance that the current trend toward
deregulation and regulatory developments favorable to the promotion of new and
expanded wireless and wireline services will continue or that other future
regulatory changes will have a positive impact on the Company. The increasing
demand for wireless communications has exerted pressure on regulatory bodies
worldwide to adopt new standards for such products, generally following
extensive investigation and deliberation over competing technologies. The delays
inherent in this governmental approval process have in the past caused, and may
in the future cause, the cancellation, postponement or rescheduling of the
installation of communications systems by the Company's customers. These delays
could have a material adverse effect on the Company's business, results of
operations and financial condition.
 
U.S. GOVERNMENT BUSINESS.
 
   
     The Company's business with the U.S. government, both direct and indirect
through other government contractors, accounted for approximately 15%, 22% and
32% of net sales for 1996, 1995 and 1994, respectively. This business is subject
to various risks, including unpredictable reductions in funds available for the
Company's projects and contract termination at the convenience of the
government. A significant portion of the Company's U.S. government business is
also subject to reduction or termination due to government policy changes, such
as reductions in military defense spending. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Government Contracts."
    
 
VOLATILITY OF STOCK PRICE.
 
     The trading price of the Company's Common Stock has been, and in the future
could be, subject to wide fluctuations in response to variations in quarterly
operating results of the Company and its customers and competitors, the gain or
loss of significant contracts, changes in management, announcements of
technological innovations or new product developments by the Company or its
competitors, changes in analysts' estimates of the Company's financial
performance, changes in telecommunications industry standards, legislative or
regulatory changes, general industry trends, worldwide economic and financial
conditions and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations, which have particularly
affected the market price for many high technology companies and which have
often been unrelated to the operating performance of these companies. These
broad market fluctuations and other factors may adversely affect the market
price of the Company's Common Stock. See "Price Range of Common Stock."
 
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS.
 
   
     The Company's Restated Certificate of Incorporation, as amended (the
"Restated Certificate"), provides for a Board of Directors with staggered terms,
which may discourage or prevent certain types of transactions involving an
actual or potential change in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
then current market prices. In addition, pursuant to the Restated Certificate,
the Board of Directors is authorized to approve the issuance of shares of
currently undesignated Preferred Stock, to determine the price, powers,
preferences and rights and the qualifications, limitations or restrictions
granted to or imposed on any unissued series of that Preferred Stock, and to fix
the number of shares constituting any such series and the designation of such
series, without any vote or future action by the stockholders. The Preferred
Stock could be issued with voting, liquidation, dividend and other rights
superior to the rights of the Common Stock. Certain provisions of Delaware law
applicable to the Company could have the effect of delaying, deferring or
preventing a change in control of the
    
 
                                       12
<PAGE>   14
 
   
Company. It is possible that the staggered board, undesignated Preferred Stock
and the Delaware law may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of the Common Stock.
    
 
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS.
 
   
     This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in this Prospectus,
including, without limitation, the statements under "Prospectus Summary," "Risk
Factors," "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 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 future
operating results; 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 these "Risk Factors," as well as elsewhere in this
Prospectus. 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.
    
 
                                       13
<PAGE>   15
 
                                USE OF PROCEEDS
 
   
     The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby, assuming a public offering price of $16.375 per
share, after deducting underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $17,028,000 ($22,736,000 if
the over-allotment option is exercised in full). The Company will not receive
any proceeds from the sale of Common Stock by the Selling Stockholders. The
Company intends to use the proceeds of the offering for general corporate
purposes, including working capital. In addition, the Company may use a portion
of such proceeds for acquisitions of complementary products, technologies or
businesses, although there are currently no commitments or agreements with
respect to any material acquisition. Any such acquisition would require approval
of the Company's lenders.
    
 
                          PRICE RANGE OF COMMON STOCK
 
     The Company's Common Stock is traded on the Nasdaq National Market ("NNM")
under the symbol "DATM." The following table sets forth for the periods
indicated the range of high ask and low bid prices for the Common Stock.
 
   
<TABLE>
<CAPTION>
                                                                           HIGH       LOW
                                                                           ----       ----
    <S>                                                                    <C>        <C>
    YEAR ENDED DECEMBER 31, 1995
    1st Quarter..........................................................  $12  1/8   $  8 1/2
    2nd Quarter..........................................................   16  1/4     10 1/4
    3rd Quarter..........................................................   19  1/8     10 3/8
    4th Quarter..........................................................   12  7/8      8 1/4
 
    YEAR ENDED DECEMBER 31, 1996
    1st Quarter..........................................................   11  3/8      8 3/8
    2nd Quarter..........................................................   15  3/4      8 7/8
    3rd Quarter..........................................................   12  1/8      7 1/4
    4th Quarter..........................................................   17  5/8     10 3/8
 
    YEAR ENDING DECEMBER 31, 1997
    1st Quarter (through March 25, 1997).................................   24  1/2     15
</TABLE>
    
 
   
     On March 25, 1997, the last reported closing price of the Common Stock on
the NNM was $16.375 per share. As of March 25, 1997, the Company had 405 holders
of record of Common Stock.
    
 
                                DIVIDEND POLICY
 
     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.
 
                                       14
<PAGE>   16
 
                                 CAPITALIZATION
 
   
     The following table sets forth the capitalization of the Company as of
December 31, 1996, and as adjusted to reflect the sale of 1,000,000 shares of
Common Stock offered by the Company hereby and the exercise of a warrant to
purchase 175,000 shares of Common Stock at an exercise price of $11.50 per share
by one of the Selling Stockholders, assuming a public offering price of $16.375
per share, after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company, and the application of the estimated
net proceeds therefrom.
    
 
   
<TABLE>
<CAPTION>
                                                                            DECEMBER 31, 1996
                                                                         -----------------------
                                                                         ACTUAL      AS ADJUSTED
                                                                         -------     -----------
                                                                             (IN THOUSANDS,
                                                                           EXCEPT SHARE DATA)
<S>                                                                      <C>         <C>
Current portion of long-term debt......................................  $    41       $    41
                                                                         =======       =======
Long-term debt, excluding current portion..............................  $17,318       $17,318
                                                                         -------       -------
Stockholders' equity:
     Preferred Stock, 1,000,000 shares authorized, no shares issued or
      outstanding......................................................       --            --
     Common Stock, 10,000,000 shares authorized, 4,091,291 shares
      issued and outstanding(1)(2); 5,266,291 shares issued and
      outstanding as adjusted(1).......................................    1,023         1,317
     Additional paid-in capital........................................   25,845        42,579
     Retained earnings.................................................    7,956         7,956
     Cumulative translation adjustment.................................     (201)         (201)
                                                                         -------       -------
       Total stockholders' equity......................................   34,623        51,651
                                                                         -------       -------
            Total capitalization.......................................  $51,941       $68,969
                                                                         =======       =======
</TABLE>
    
 
---------------
   
(1) Excludes 574,474 shares subject to options outstanding as of December 31,
    1996 under the Company's 1984 Stock Option Plan and 1994 Stock Incentive
    Plan at a weighted average exercise price of $7.51 per share.
    
 
   
(2) Excludes 175,000 shares issuable upon exercise of a warrant with an exercise
    price of $11.50 per share held by The Prudential Insurance Company of
    
    America (the "Prudential Warrant").
 
                                       15
<PAGE>   17
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial data has been derived from
the financial statements of the Company audited by Price Waterhouse LLP,
independent accountants. The consolidated balance sheet at December 31, 1996 and
1995 and the related consolidated statements of operations and of cash flows for
the three years ended December 31, 1996 and notes thereto appear elsewhere in
this Prospectus.
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                            ---------------------------------------------------------
                                              1996       1995(1)      1994        1993        1992
                                            ---------   ---------   ---------   ---------   ---------
                                                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                         <C>         <C>         <C>         <C>         <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
  Net sales ..............................  $  91,854   $  67,257   $  30,897   $  24,593   $  27,340
  Costs and expenses:
     Cost of goods sold...................     56,285      40,010      17,491      14,663      17,704
     Selling .............................     12,182       9,836       5,206       4,461       4,561
     Product development..................      7,667       7,087       2,494       1,877       1,819
     General and administrative(2)........     10,127       8,460       3,934       3,294       4,218
                                            ---------   ---------   ---------   ---------   ---------
     Operating income (loss)..............      5,593       1,864       1,772         298        (962)
                                            ---------   ---------   ---------   ---------   ---------
     Loss on discontinued
       operations.........................                                                      1,750
     Interest expense.....................      2,255       1,667         241         209         294
     Interest income .....................         (7)        (17)        (15)         (7)         (4)
                                            ---------   ---------   ---------   ---------   ---------
  Income (loss) before income taxes.......      3,345         214       1,546          96      (3,002)
  Income tax provision (benefit)..........      1,371         154         610          24        (795)
                                            ---------   ---------   ---------   ---------   ---------
  Net income (loss).......................  $   1,974   $      60   $     936   $      72   $  (2,207)
                                            =========   =========   =========   =========   =========
  Net income (loss) per share.............  $     .46   $     .02   $     .34   $     .03   $    (.89)
                                            =========   =========   =========   =========   =========
  Weighted average number of shares
     outstanding..........................  4,253,019   3,954,307   2,732,812   2,558,356   2,488,829
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                            ---------------------------------------------------------
                                              1996        1995        1994        1993        1992
                                            ---------   ---------   ---------   ---------   ---------
<S>                                         <C>         <C>         <C>         <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
  Working capital.........................  $  26,029   $  12,310   $   8,684   $   7,299   $   6,261
  Total assets............................     68,688      66,137      24,578      23,185      23,877
  Long-term debt..........................     17,318       7,938          50          70         307
  Stockholders' equity....................     34,623      31,313      16,883      15,639      15,325
</TABLE>
 
---------------
(1) In March 1995, the Company acquired Efratom Time and Frequency Products,
    Inc. and 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 and $1.1 million for 1996 and 1995, respectively, of
    amortized goodwill and increased depreciation resulting from the step-up of
    the assets purchased in the March 1995 acquisition of Efratom.
 
                                       16
<PAGE>   18
 
                      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 Prospectus. Except for
the historical information contained herein, the discussion in this Prospectus
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act that involve risks and
uncertainties, such as statements of the Company's strategies, plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus. The Company's actual results
could differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.
    
 
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 and a wide variety of space,
scientific and industrial test and measurement applications.
 
     The Company was formed in 1959 and has grown its operations through
acquisitions and internal product development. In 1983, the Company acquired its
cesium standards operation and, in the process, commenced its evolution from a
company primarily supplying timing equipment for military applications to a
manufacturer of a broad range of time and frequency products for
telecommunications and other applications. In 1986, the Company acquired the
business that is now enterprise computing and in 1988, it acquired its current
wireline business. In March 1995, the Company acquired Efratom Time and
Frequency Products, Inc. and Efratom Elektronik GmbH (collectively "Efratom"),
the inventor and leading manufacturer of rubidium oscillators used in cellular
and PCS networks. As a result of its acquisition of Efratom, the Company now
manufactures each class of time and frequency products in wide-spread commercial
use: cesium standards, rubidium oscillators, quartz oscillators and GPS timing
receivers.
 
     The Company serves the markets for high-precision time and frequency
devices in the telecommunications industry which is rapidly expanding as a
result of the conversion of analog to digital systems. The Company believes it
currently supplies more than 80% of the rubidium atomic clocks used in cellular
and PCS network base stations. The Company also provides extremely stable cesium
standards and GPS receivers that generate and capture timing and frequency
products for use in wireline telecommunications networks. In addition to
providing time and frequency standards for telecommunications applications, the
Company is a growing supplier of timing products used to ensure the integrity of
information transmitted through enterprise computing networks. The Company also
manufactures frequency sources for satellites, including GPS satellites that
utilize the Company's cesium clocks to provide highly accurate timing and
navigation information throughout the world. Finally, the Company 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.
 
     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, accounted for
approximately 36% and 30% of net sales for the fiscal years ended December 31,
1996 and 1995. Further, the Company's five largest customers, including Lucent,
accounted for approximately 53% and 46% of net sales during the same periods.
For a more detailed discussion of the risks associated with the Company's
concentrated customer base, see "Risk Factors -- Risks Associated with the
Company's Dependence on Small Number of Customers."
 
                                       17
<PAGE>   19
 
RESULTS OF OPERATIONS
 
     The following table sets forth, for the periods indicated, certain income
and expense items expressed as a percentage of the Company's net sales. These
percentages are derived from the Company's financial statements included
elsewhere in this Prospectus.
 
   
<TABLE>
<CAPTION>
                                                                 PERCENTAGE OF NET SALES
                                                              -----------------------------
                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                              1996        1995        1994
                                                              -----       -----       -----
    <S>                                                       <C>         <C>         <C>
    Net sales...............................................  100.0%      100.0%      100.0%
                                                              -----       -----       -----
    Costs and expenses
         Cost of goods sold.................................   61.3        59.5        56.6
         Selling............................................   13.3        14.6        16.8
         Product development................................    8.3        10.5         8.1
         General and administrative.........................   11.0        12.6        12.7
         Interest, net......................................    2.5         2.5         0.8
                                                              -----       -----       -----
    Income before income taxes..............................    3.6         0.3         5.0
    Income tax provision....................................    1.5         0.2         2.0
                                                              -----       -----       -----
    Net income..............................................    2.1%        0.1%        3.0%
                                                              =====       =====       =====
</TABLE>
    
 
  Years Ended December 31, 1996 and December 31, 1995
 
     Introductory Note.  Results of operations of the Company in 1995 include
only 41 weeks of operations of Efratom which was acquired in March 1995. Due to
the acquisition, the Company experienced significant increases (in absolute
terms) in net sales, cost of goods sold, selling expense, product development
expense, and general and administrative expense, in the year ended December 31,
1996 from the year ended December 31, 1995.
 
   
     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, satellites and in a variety of other test and measurement
applications. The Company's net sales increased 36.6% from $67.3 million in 1995
to $91.9 million in 1996. This increase was primarily the result of the
acquisition of Efratom and increased sales into each of the Company's principal
markets. In particular, net sales were positively impacted as a result of
increased sales of rubidium oscillators into the cellular and PCS wireless
telecommunications markets. The Company's sales in the wireline network market
also showed significant growth, largely due to increased international sales.
See "Risk Factors -- Risks of Doing Business in International Markets."
    
 
     Direct and indirect sales to the United States government decreased 6.5%
from $14.8 million in 1995 to $13.9 million in 1996, constituting approximately
22% and 15% 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. The Company anticipates
that its risks of contract termination for convenience will decrease as it
continues to concentrate its selling efforts in other sectors of the economy.
See "Risk Factors -- U.S. Government Business."
 
     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 40.5% and 38.7% in 1995 and 1996, respectively. The
decrease in gross margins in 1996 was primarily the 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 its supply
agreement with the Company. The decrease was partially offset by increased
margins on certain of the Company's other product lines. Gross margins can be
adversely affected by a number of factors, including pricing pressure from the
 
                                       18
<PAGE>   20
 
   
Company's customers and the difficulty of reducing fixed expenses in connection
with the rescheduling of customer orders. See "Risk Factors -- Risks Associated
with the Company's Dependence on Small Number of Customers," and "-- Potential
Fluctuations in Quarterly Operating Results."
    
 
     Selling Expense.  Selling expense consists primarily of sales commissions
paid to the Company's third-party representatives and distributors and salaries
and other expenses for its sales and marketing personnel. Selling expense as a
percentage of net sales was 14.6% and 13.3% in 1995 and 1996, respectively. The
decrease in selling expense as a percentage of net sales between 1995 and 1996
resulted from increased sales to Lucent and other OEM customers which involve
substantially lower commission rates. Selling expense increased by 23.9% from
$9.8 million in 1995 to $12.2 million in 1996, primarily as a result of
increased net sales and the creation of the Company's international sales
division in 1996.
 
   
     Product Development.  Product development expense consists primarily of
salary, applied overhead, materials and third-party design services. Product
development expense increased 8.2% from $7.1 million in 1995 to $7.7 million in
1996, and decreased as a percentage of net sales from 10.5% in 1995 to 8.3% in
1996. The dollar increase resulted from the commencement of development programs
in 1996 to improve certain products through new chip designs and software
development. The Company believes that these and other product development
projects will result in increased expenses as a percentage of net sales in 1997.
Failure to develop, or introduce on a timely basis, new products or product
enhancements that achieve market acceptance could materially adversely affect
the Company's business, financial condition and results of operations. See "Risk
Factors -- Rapid Technological Change; New Product Development."
    
 
     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 expense increased by 19.7% from $8.5 million in 1995
to $10.1 million in 1996, and decreased as a percentage of net sales from 12.6%
in 1995 to 11.0% in 1996. Includes $1.5 million and $1.1 million for 1996 and
1995, respectively, of amortized goodwill and increased depreciation resulting
from the step-up of the assets purchased in the March 1995 acquisition of
Efratom. In addition, 1995 general and administrative expense was adversely
affected by employee relocation, termination costs and moving expenses relating
to the Company's 1995 consolidation of its timing and GPS receiver product
lines.
 
     Interest, Net.  Interest expense increased 35.3% from $1.7 million in 1995
to $2.2 million in 1996, primarily as a result of a full year of interest in
1996 versus a partial year of interest in 1995 associated with indebtedness
incurred in connection with the acquisition of Efratom in March 1995.
 
  Years Ended December 31, 1995 and December 31, 1994
 
     Introductory Note.  As a result of its March 1995 acquisition of Efratom,
the Company experienced significant increases (in absolute terms) in net sales,
cost of goods sold, selling expense, product development expense and general and
administrative expense in the year ended December 31, 1995 from the year ended
December 31, 1994.
 
   
     Net Sales.  Net sales increased by 118% from $30.9 million in 1994 to $67.3
million in 1995, primarily as a result of the Company's acquisition of Efratom.
Not including the acquisition-related increase, net sales increased by $200
thousand. Direct and indirect sales to the United States government increased by
47.5% from $10.0 million in 1994 to $14.8 million in 1995, primarily as a result
of the acquisition.
    
 
     Gross Margins.  Gross margins were 43.4% and 40.5% in 1994 and 1995,
respectively. Gross margins were adversely affected in 1995 as a result of
inventory valuation adjustments and, to a lesser extent, by the addition of
wireless telecommunication products in connection with the acquisition of
Efratom.
 
     Selling Expense.  Selling expense as a percentage of net sales was 16.8%
and 14.6% in 1994 and 1995, respectively. The decrease was primarily the result
of the acquisition of Efratom and the related increase in sales to large OEMs,
which sales have lower commission-related expenses.
 
                                       19
<PAGE>   21
 
     Product Development.  Product development expense as a percentage of net
sales was 8.1% and 10.5% in 1994 and 1995, respectively, resulting from
Efratom's higher research and development costs, as a percentage of net sales.
 
     General and Administrative.  General and administrative expense as a
percentage of net sales was 12.7% and 12.6% in 1994 and 1995, respectively. The
decrease was primarily the result of net sales growing faster than general and
administrative expenses.
 
     Interest, Net.  Interest expense increased from $241 thousand in 1994 to
$1.7 million in 1995, as a result of increased indebtedness incurred in
connection with the acquisition of Efratom in 1995.
 
SELECTED QUARTERLY RESULTS OF OPERATIONS
 
     The following tables present unaudited quarterly financial information for
each quarter since the acquisition of Efratom. The information has been prepared
by the Company on a basis consistent with the Company's audited consolidated
financial statements appearing elsewhere in this Prospectus and includes all
necessary adjustments, consisting only of normal recurring adjustments, that
management considers necessary for a fair presentation of the unaudited
quarterly results when read in conjunction with the audited consolidated
financial statements of the Company and the notes thereto appearing elsewhere in
this Prospectus. These operating results are not necessarily indicative of
results that may be expected for any subsequent periods.
 
   
<TABLE>
<CAPTION>
                                                                  QUARTER ENDED
                                   ---------------------------------------------------------------------------
                                   DEC. 31,   SEPT. 30,   JUNE 30,   MAR. 31,   DEC. 31,   SEPT. 30,  JUNE 30,
                                     1996       1996        1996       1996       1995       1995       1995
                                   --------   ---------   --------   --------   --------   ---------  --------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                <C>        <C>         <C>        <C>        <C>        <C>        <C>
Net sales........................  $ 27,497    $ 24,507   $ 20,248   $ 19,602   $ 21,965    $ 18,607  $ 16,853
                                   --------    --------   --------   --------   --------    --------  --------
Costs and expenses
  Cost of goods sold.............    17,103      15,203     12,268     11,711     13,962      11,215     9,283
  Selling........................     3,592       2,944      2,946      2,700      3,008       2,709     2,523
  Product development............     1,857       1,895      1,882      2,033      1,894       1,963     2,288
  General and administrative.....     2,664       2,843      2,319      2,301      3,243       2,010     1,995
  Interest, net..................       600         523        576        549        534         473       517
                                   --------    --------   --------   --------   --------    --------  --------
                                     25,816      23,408     19,991     19,294     22,641      18,370    16,606
                                   --------    --------   --------   --------   --------    --------  --------
Income (loss) before income
  taxes..........................     1,681       1,099        257        308       (676)        237       247
                                   ========    ========   ========   ========   ========    ========  ========
Net income (loss)................  $    992    $    649   $    151   $    182   $   (465)   $    140  $    145
                                   ========    ========   ========   ========   ========    ========  ========
Net income (loss) per share......  $    .23    $    .15   $    .04   $    .04   $   (.12)   $    .03  $    .03
                                   ========    ========   ========   ========   ========    ========  ========
</TABLE>
    
 
   
<TABLE>
<CAPTION>
                                                          AS A PERCENTAGE OF NET SALES
                                   ---------------------------------------------------------------------------
<S>                                <C>        <C>         <C>        <C>        <C>        <C>        <C>
Net sales........................     100.0%      100.0%     100.0%     100.0%     100.0%      100.0%    100.0%
                                      -----       -----      -----      -----      -----       -----     -----
Costs and expenses
  Cost of goods sold.............      62.2        62.0       60.6       59.7       63.6        60.3      55.1
  Selling........................      13.1        12.0       14.5       13.8       13.7        14.6      15.0
  Product development............       6.8         7.7        9.3       10.4        8.6        10.5      13.6
  General and administrative.....       9.7        11.6       11.5       11.7       14.8        10.8      11.8
  Interest, net..................       2.1         2.2        2.8        2.8        2.4         2.5       3.0
                                      -----       -----      -----      -----      -----       -----     -----
                                       93.9        95.5       98.7       98.4      103.1        98.7      98.5
                                      =====       =====      =====      =====      =====       =====     =====
Income (loss) before income
  taxes..........................       6.1         4.5        1.3        1.6       (3.1)        1.3       1.5
                                      =====       =====      =====      =====      =====       =====     =====
Net income (loss)................       3.6%        2.6%       0.7%       0.9%      (2.1)%       0.8%      0.9%
                                      =====       =====      =====      =====      =====       =====     =====
</TABLE>
    
 
     Net Sales.  Net sales grew substantially over the seven-quarter period,
with significant quarter-to-quarter fluctuations. In the third and fourth
quarters of 1996, Lucent, the Company's largest customer,
 
                                       20
<PAGE>   22
 
   
substantially increased its orders due to the expanded deployment of cellular
and PCS systems. Recently, the Company has experienced seasonality resulting in
increased sales in its fourth quarter which the Company believes is due to
increased year-end spending by its OEM customers and a higher level of sales
activity in connection with year-end sales quotas. Accordingly, the Company
expects that its sales and net income for the first quarter of 1997 may reflect
little or no growth from the fourth quarter of 1996.
    
 
     Gross Margins.  Gross margins have declined slightly over the seven-quarter
period. Gross margins have declined as a result of increased sales to Lucent
which have lower margins due to contractual commitments. In addition, gross
margins decreased in the fourth quarter of 1995 as a result of inventory
writedowns in that quarter related to the consolidation of the Company's timing
and GPS receiver product lines.
 
     General and Administrative.  General and administrative expense remained
relatively stable as a percentage of sales over the seven-quarter period, except
for the fourth fiscal quarter of 1995 in which expenses were incurred for the
combination of the timing and GPS receiver product lines. One-time costs
associated with combining these product lines created a loss in this quarter.
 
   
     The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter to quarter. 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. In addition, there can be no
assurance that the Company will maintain its current profitability in the
future. A significant component of such quarterly fluctuations results from
rescheduling of orders by the Company's major customers, in some cases due in
part to the customers' attempts to minimize inventories. Other factors that
could cause the Company's sales and operating results to vary significantly from
period to period include: contractual price reductions on products sold to
certain major customers; the time, availability and sale of new products;
changes in the mix of products having differing gross margins; variations in
manufacturing capacities, efficiencies and costs; the availability and cost of
components; warranty expenses; and variations in product development and other
operating expenses. In addition, the Company has experienced seasonality
resulting in increased sales in its fourth quarter which the Company believes is
due to increased year-end spending by its OEM customers and a higher level of
sales activity in connection with year-end sales quotas. In addition, the sales
cycles for many of the Company's products are often lengthy and unpredictable,
and can take up to 36 months. Further, there can be no assurance that the
Company will be successful in closing large transactions on a timely basis or at
all. Accordingly, the timing of these transactions could cause additional
variability in the Company's quarterly operating results. The Company's
quarterly results of operations are also influenced by competitive factors,
including pricing and availability of the Company's and competing time and
frequency products. A large portion of the Company's expenses are fixed and
difficult to reduce in a short period of time. If net sales do not meet the
Company's expectations, the Company's fixed expenses would exacerbate the effect
of such net sales shortfall. Furthermore, announcements by the Company or its
competitors regarding new products and technologies could cause customers to
defer purchases of the Company's products. Order deferrals by the Company's
customers, delays in the Company's introduction of new products and longer than
anticipated sales cycles for the Company's products have in the past materially
adversely affected the Company's quarterly results of operations. Due to the
foregoing factors, as well as other unanticipated factors, it is likely that in
some future quarter the Company's operating results will be below the
expectations of public market analysts or investors. In such event, the price of
the Company's Common Stock may be materially adversely affected. See "Risk
Factors -- Potential Fluctuations in Quarterly Operating Results."
    
 
                                       21
<PAGE>   23
 
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.
 
     Cash provided by operations was approximately $6.7 million in 1996,
compared to cash used for operations of approximately $140 thousand in 1995 and
cash provided by operations of approximately $372 thousand in 1994. Cash flows
in 1995 were adversely affected by greater working capital needs in connection
with the acquisition of Efratom. The increase in cash provided by operations in
the year ended December 31, 1996 was primarily the result of increased
profitability and a decrease in inventory values.
 
     Capital expenditures were approximately $2.7 million, $2.9 million and $766
thousand in 1996, 1995 and 1994, respectively. The increase from 1994 to 1995
was primarily the result of the Efratom acquisition.
 
   
     At December 31, 1996, the Company had working capital of $26.0 million and
a current ratio of 2.9:1, compared to working capital of $12.3 million and a
current ratio of 1.5:1 at December 31, 1995. The increase in working capital is
primarily due to the long-term financing arrangements completed by the Company
on September 27, 1996, in which the Company converted its debt to $18.0 million
of long-term debt instruments provided by The Prudential Insurance Company of
America ("Prudential"). This credit facility consists of: (i) $6.0 million of
Series A senior secured promissory notes to mature September 27, 2000, bearing
interest at the rate of 9.07% on the unpaid principal, payable quarterly, with
the principal re-paid 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 to mature September 27, 2003, bearing
interest at the rate of 10.25% on the unpaid principal, payable quarterly, with
the principal re-paid in equal installments of $2.0 million on March 27 and
September 27 of each year, commencing March 27, 2001. In addition, the Company
issued to Prudential common stock warrants for the purchase of 175,000 shares of
common stock at an exercise price per share of $11.50.
    
 
     Under the Company's line of credit with Wells Fargo Bank, the Company has a
two-year revolving line of credit not to exceed the principal amount of $12.0
million bearing interest at the Bank's prime rate or at LIBOR plus 2.75%. The
Wells Fargo credit facility and the Prudential credit facility provide the
Company with an aggregate borrowing capacity of $30 million.
 
     Under both agreements, 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 with
all such covenants and restrictions.
 
     The Company believes that its existing cash balances, funds expected to be
generated from operations, borrowings under its credit facilities and the
anticipated proceeds of this offering will provide the Company with sufficient
funds to finance its operations for at least the next 12 months. There can be no
assurance, however, that the Company will not require additional debt or equity
financing during such period or thereafter. Further, there can be no assurance
that additional financing, if required, will be available to the Company on
acceptable terms, if at all. See "Risk Factors -- Need for Additional Capital."
 
                                       22
<PAGE>   24
 
                                    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 28 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 PCS networks. The Company invented the rubidium oscillator in
1971 and believes it currently supplies more than 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 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 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. Finally, the Company
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.
    
 
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 communication services have become an
integral part of the telecommunications market. According to sources cited by
the Personal Communications Industry Association ("PCIA"), the total number of
cellular subscribers in the United States was approximately 44 million at the
end of 1996, an increase of 31% over the year-end 1995 figure. PCIA reports that
the number of cellular subscribers in the United States is projected to reach 80
million by the end of the year 2000. In addition to growth in the United States,
many developing countries, such as those in Latin America and Asia, are building
cellular networks. According to the PCIA, current global subscriber growth is
estimated to be 70% per year. The total number of global cellular and PCS
subscribers is projected to reach 362 million by the year 2001, according to
MTA-EMCI.
    
 
     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
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
 
                                       23
<PAGE>   25
 
("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. The Personal Communications Services market is projected
to experience rapid growth. As reported by PCIA, it is estimated that the number
of PCS subscribers will grow from approximately 349,000 in 1996 to 18.5 million
in the year 2001. To meet this subscriber demand, PCS service providers have
purchased PCS frequency licenses covering markets throughout the United States
for an aggregate purchase price of approximately $20 billion.
 
     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 require 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.
 
  Enterprise Computing
 
     Enterprise computing networks utilize interconnected computers,
workstations, peripheral devices and application software to provide the
transaction processing and control infrastructure for national and international
organizations. Accurate timing of operations throughout a network is essential
to ensure the integrity of the data flowing through the network. When
information is retrieved from multiple locations and forwarded to a central
point for analysis, accurate interpretation of the data may depend on the
ability to properly time sequence both the generation and receipt of the data.
 
                                       24
<PAGE>   26
 
     In order to satisfy these timing requirements, enterprise network operators
utilize timing and frequency devices to ensure network synchronization.
Traditionally, this function has been accomplished using remote public access
time servers as the source of "standard time" and general purpose computers to
acquire and distribute time to the network. This approach, however, relinquishes
control of network timing to remote time servers and local operators. As a
result, inadvertent manipulation of local time servers or their undetected
malfunctioning may result in data distortion or loss with adverse consequences.
To reduce these risks, many enterprise computing networks now utilize GPS
receivers at local computers throughout the network. As each computer in the
network operates under Universal Coordinated Time ("UTC"), as received from the
GPS satellites, the entire network operates on the same timing.
 
  Satellites
 
     The satellite market has experienced recent growth as a result of the
increased use of satellites for commercial purposes. Satellites launched for a
variety of objectives, including communications, navigation, weather forecasting
and astronomy must be able to efficiently transmit data to earth-based
receivers, thus requiring precise frequency control at the satellite. GPS
satellites are designed to transmit extremely precise timing information and use
cesium standards or rubidium oscillators. Other commercial satellite programs
that require less precise timing and frequency equipment utilize quartz
oscillators due to their lower weight and power consumption.
 
  Test and Measurement
 
     The test and measurement market represents a broad range of applications of
cesium standards, rubidium oscillators, quartz oscillators and GPS receivers.
Precise timing equipment is used to ensure the synchronization of multiple data
recorders in large field testing applications. Timing equipment also allows for
the determination of where an event occurred by comparing the precise times at
which the event was recorded at multiple sites. For example, electric utility
companies use precision timing devices to locate underground line breaks, thus
minimizing costly line inspection.
 
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
electronics package and generated as an output signal.
 
                                       25
<PAGE>   27
 
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 loses the external
satellite-based signal.
 
THE DATUM SOLUTION
 
   
     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 time 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. Through more than
28 years of experience with time and frequency products, Datum has developed
substantial expertise in each of the critical components of cesium and rubidium
atomic clocks. 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.
    
 
     The Company has developed the ability to manufacture sophisticated time and
frequency devices in a standard, repeatable manner, allowing for large-scale
production and product reliability. The Company believes it is able to tailor
its products quickly and cost-effectively in response to changing customer needs
across the various markets it serves.
 
     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-alone 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 which
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.
 
STRATEGY
 
     The Company's strategy is to enhance its position as a leading, worldwide
supplier of a broad range of precision time synchronization products and
high-stability frequency standards. The Company's goal is to capitalize on its
core competencies in cesium standards, rubidium oscillators, quartz
 
                                       26
<PAGE>   28
 
oscillators and GPS receivers to provide a wide variety of products with a broad
range of applications. The key elements of this strategy are to:
 
          Target High-Growth Telecommunications Markets. The Company focuses its
     efforts on selected segments of the telecommunications markets which are
     projected to have high growth rates. The Company has identified the
     worldwide growth of cellular systems and the deployment of PCS as
     significant opportunities for sales of timing and frequency products. The
     Company will also continue to serve the increasing needs for timing and
     frequency devices in wireline networks resulting from the migration from
     analog to digital technology and the build-out of new wireline
     infrastructures both domestically and internationally.
 
          Offer Broad Range of Uniquely Tailored Products. The Company intends
     to capitalize on its experience in designing and manufacturing timing and
     frequency devices for installation in various segments of the
     telecommunications system, enterprise computing networks, satellites and in
     a variety of other test and measurement applications. The Company believes
     that its experience in supplying products for a variety of applications
     represents a competitive advantage and enables it to provide uniquely
     tailored products for evolving customer needs in a cost-effective manner.
 
          Maintain Technological Leadership. The Company conducts an active
     research and development program to remain at the forefront of timing and
     frequency technology utilizing atomic clocks and GPS satellite
     transmissions. The Company believes that it is a technological leader in
     the areas of new product development, current product enhancement, volume
     manufacturing and software design.
 
          Expand Relationships with Leading OEMs. The Company intends to
     continue to develop relationships with leading OEMs of telecommunications
     and other equipment utilizing time and frequency products. The Company
     believes that its ability to satisfy a variety of an OEM's timing and
     frequency product requirements will help the Company expand relationships
     with OEMs.
 
          Increase International Sales. The Company intends to pursue expanding
     opportunities in markets outside the United States. The Company currently
     has customers in Latin America, Asia and Europe and will continue to seek
     sales of timing and frequency products globally. The Company has recently
     established an international sales organization and intends to expand its
     German operation as a European base for marketing, customer-driven
     engineering and after-sale service.
 
          Continue Strategic Acquisitions. The Company intends to continue
     pursuing strategic acquisitions and alliances to enhance its market
     position through the acquisition of companies or lines of business that
     complement its existing business.
 
PRODUCTS
 
     Datum designs and manufactures a broad line of time and frequency products
for telecommunications systems, enterprise computing networks, 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.
 
                                       27
<PAGE>   29
 
                         REPRESENTATIVE DATUM PRODUCTS
 
<TABLE>
<S>                                 <C>                                       <C>
PRODUCTS                            APPLICATIONS                              PRICE PER UNIT
-----------------------------------------------------------------------------------------------------
 TELECOMMUNICATIONS
 WIRELESS -- CELLULAR AND PCS
  Quartz and Rubidium Clocks        Timing and frequency control for          $2,000 to $5,000
                                    cellular and PCS basic stations
  GPS Disciplined Clocks            Timing and frequency control for          $3,000 to $6,000
                                    cellular and PCS base stations
 WIRELINE
  Cesium Beam Primary Reference     Master frequency references for           $40,000 to $48,000
     Sources                        telecommunications central offices
  GPS Primary Reference Receivers   Derivation of master frequency            $8,000 to $18,000
                                    reference for network timing from
                                    Universal Coordinated Time (UTC)
  Timing Signal Generators          Generation and distribution of            $20,000 to $35,000
                                    synchronization timing for
                                    telecommunications networks
  End Office Primary References     Combination of Primary Reference          $10,000 to $20,000
                                    Receiver and Timing Signal Generator
-----------------------------------------------------------------------------------------------------
 
 ENTERPRISE COMPUTING
  GPS Time Servers                  Local on-site timing source to ensure     $3,000 to $10,000
                                    uniform timing across
                                    widely-distributed data networks
  Computer Time Modules             Microcomputer plug-in time servers for    $1,000 to $4,000
                                    bus-linked data networks
-----------------------------------------------------------------------------------------------------
 
 SATELLITE
  Cesium Clocks                     Satellite-borne primary frequency         $200,000 to $300,000
                                    sources
  Quartz Clocks                     Space qualified frequency sources         $15,000 to $75,000
-----------------------------------------------------------------------------------------------------
 
 TEST AND MEASUREMENT
 
   Atomic Frequency Sources         Cesium and rubidium-based sources at      $2,000 to $60,000
                                    differing levels of stability and cost
  GPS Time/Frequency Receivers      UTC-derived frequency and clocking        $3,000 to $10,000
                                    reference for broad spectrum of
                                    engineering and commercial
                                    applications
  Time Code Instrumentation         Generators, translators, tape search      $2,000 to $8,000
                                    and video data insertion equipment for
                                    military, industrial and scientific
                                    time logging applications
-----------------------------------------------------------------------------------------------------
</TABLE>
 
                                       28
<PAGE>   30
 
  TELECOMMUNICATIONS PRODUCTS
 
     The Company offers a broad range of time and frequency products for the
telecommunications industry.
 
  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 with minimal signal 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.
 
                                       29
<PAGE>   31
 
     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.
 
  SATELLITE PRODUCTS
 
     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. As a result, the
Company has recently been selected as a cesium clock supplier for a series of
satellites, for launch starting approximately 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
 
                                       30
<PAGE>   32
 
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 wide-spread 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 at 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. A major portion
of this product line is a family of instruments that derive time from either an
internal or external frequency reference. The time is generated in the form of
digital codes tailored to specific applications, usually to time-annotate 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 RESEARCH AND DEVELOPMENT
 
     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.
 
   
     - Developing New Timing and Frequency Technologies. The Company regularly
       investigates new technologies, including the use of other atomic
       elements, and new techniques to manipulate currently used elements, to
       generate precise frequencies in a cost-effective manner. The Company also
       seeks to develop improved wireless and wireline clocking products, new
       approaches to enterprise computing and lower cost, higher performing GPS
       receivers. The Company also seeks to increase its technology base through
       acquisitions and licensing. For example, the Company recently entered
       into a letter of intent to acquire the assets of a small manufacturer of
       hydrogen masers, which provide an extremely stable frequency source over
       short periods of time in controlled environments.
    
 
     - Improving Product Manufacturability. The Company continually seeks to
       reduce its production costs across its range of products through the
       increased use of surface-mount technology, product redesign and other
       measures to take advantage of lower-cost components.
 
                                       31
<PAGE>   33
 
     - Enhancing Software Functionality. The Company maintains an active
       software design program focused on integrating application and customer
       specific software into its time and frequency products. The Company seeks
       to utilize software to more cost-effectively tailor its products for
       evolving customer requirements, such as the demand for remote access
       network management.
 
     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. See "Risk
Factors -- Rapid Technological Change; New Product Development."
 
     Research and development expenses totalled $7.7 million, $7.1 million and
$2.5 million in 1996, 1995 and 1994, respectively.
 
CUSTOMERS
 
     The following is a list of the Company's leading customers by market during
the year ended December 31, 1996.
 
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
 MARKETS                                     CUSTOMERS
---------------------------------------------------------------------------------
<S>                                          <C>
 Telecommunications                          AT&T Wireless Service, Inc.
                                             Hyundai Electronics Industries Co.
                                             Lucent Technologies, Inc
                                             MCI Communications, Inc.
                                             Motorola Corporation
                                             Symmetricom, Inc.
---------------------------------------------------------------------------------
 Enterprise Computing                        Harris Corporation
                                             Hughes Information Systems, Inc.
                                             LM Ericsson Telephone Co.
                                             Sandia National Laboratory
                                             Scientific Devices, Inc.
---------------------------------------------------------------------------------
 Satellites                                  Boeing North American
                                             Motorola Corporation
                                             Naval Research Labs
                                             TRW, Inc.
---------------------------------------------------------------------------------
 Test and Measurement                        Allied Signal, Inc.
                                             Harris Corporation
                                             Lockheed Martin Corporation
                                             Northrop Grumman Corp.
                                             Raytheon Co.
---------------------------------------------------------------------------------
</TABLE>
 
     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, accounted for
approximately 36% and 30% of net sales for the years ended December 31, 1996 and
1995, respectively. Further, the Company's five largest customers accounted for
approximately 53%
 
                                       32
<PAGE>   34
 
and 46% 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. See "Risk Factors -- Risks Associated with the
Company's Dependence on Small Number of Customers."
 
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.
 
   
     International sales of the Company's products were approximately 22%, 19%
and 24% of net sales for the years ended December 31, 1996, 1995 and 1994,
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: 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 and economic
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 and financial condition. See "Risk
Factors -- Risks of Doing Business in International Markets."
 
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 than 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
 
                                       33
<PAGE>   35
 
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
Hewlett-Packard, and various other quartz oscillator manufacturers.
Hewlett-Packard has recently introduced products with performance
characteristics between quartz and rubidium oscillators with prices similar to
the Company's rubidium oscillators. In the wireline market, the Company competes
primarily with Symmetricom, Inc., Hewlett-Packard 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. There can
be no assurance that the Company will be able to compete 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.
See "Risk Factors -- Competition."
 
BACKLOG
 
     The Company's backlog of orders was approximately $38.8 million on December
31, 1996, compared to approximately $33.5 million a year earlier. The Company
considers as backlog all orders that are expected to be shipped to customers
(other than Lucent) within a 12-month period and scheduled shipments to Lucent
within a 90-day 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. See "Risk Factors -- Potential Fluctuations in Quarterly Operating
Results." 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
 
   
     Approximately 15% of the Company's sales in 1996 were made either directly
to United States government agencies or indirectly to U.S. government agencies
through subcontracts as compared to approximately 22% in 1995 and 32% in 1994
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
 
                                       34
<PAGE>   36
 
   
profit under such contracts is greater than under cost reimbursable contracts.
See "Risk Factors -- U.S. Government Business."
    
 
MANUFACTURING
 
     The Company manufactures its products at its plants in Irvine and San Jose,
California, Austin, Texas, Beverly, Massachusetts, and Hofolding, Germany. The
Company's Irvine, Austin and Beverly facilities have received ISO 9001
certification, and the Company is in the process of seeking 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.
 
   
     As a result of increases in orders beyond its customers' previously
forecasted amounts, the Company is currently experiencing difficulty
manufacturing and testing certain products quickly enough to fill orders and is
currently behind on certain of its delivery schedules. To meet current and
anticipated demand, the Company must increase the rate at which it manufactures
these products and there can be no assurance that the Company will be able to
successfully increase its manufacturing rate in a timely manner. Although the
Company is not aware of any order reductions as a result of these delays, such
delays, if they continue or recur, increase the risk that customers will reduce
or cancel orders and seek to meet all or a portion of their needs from the
Company's competitors. Rapid and substantial manufacturing expansion could
strain the Company's quality control, delivery and customer support systems if
the capability of such systems is not improved and expanded. See "Risk
Factors -- Management of Growth; Ability to Timely Satisfy Orders."
    
 
     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 a 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, results 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. See "Risk Factors -- Dependence on Component Availability and Key
Suppliers."
 
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
 
                                       35
<PAGE>   37
 
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 the
business, operating results and financial condition.
 
     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. See "Risk Factors -- Lack of Significant Patent
Protection; Infringement Risks."
 
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 an 21,800 square foot engineering and
manufacturing building, under a lease expiring on February 28, 2001. The Company
also operates a facility located in Hofolding, Germany, consisting of an 8,600
square foot manufacturing facility, under a lease expiring in June 1999. 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, of which 9,000 square feet are leased to an unaffiliated third party,
located on approximately nine acres of land. The Company believes that its
current facilities are adequate for its present level of operations.
    
 
EMPLOYEES
 
   
     The Company had 634 employees at December 31, 1996. None of the Company
employees are represented by a union. The Company believes its relations with
its employees are good.
    
 
LEGAL PROCEEDINGS
 
   
     In late 1996, the Company received notice from the owner of premises in
Austin, Texas that had previously been occupied by Austron, Inc., the Company's
wireline operation, prior to the Company's acquisition of Austron in 1988. The
property owner claims, among other things, that the soil at the site contains
the same contaminants as were previously remediated by Austron in connection
with its vacating the site in 1983. At the completion of the remediation in
1983, the site was certified as being in compliance with the then applicable
environmental regulations. The Company is in the early stages of evaluating the
situation. The Company believes that it will incur some costs in connection with
such claim and the amount of such costs cannot be determined at this time.
Although there can be no assurance that the property owner's claims or any
related governmental action will not have a material adverse effect on the
Company's business, financial condition and results of operations, the Company
does not believe it will have such effect. See "Risk Factors -- Risks Associated
with Government Regulations; Environmental Regulations; Notice of Environmental
Claim."
    
 
     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.
 
                                       36
<PAGE>   38
 
                                   MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
     Executive officers and directors of the Company, and their ages as of
February 15, 1997, are as follows:
 
<TABLE>
<CAPTION>
                  NAME                       AGE                      POSITION
-----------------------------------------    ----    ------------------------------------------
<S>                                          <C>     <C>
Louis B. Horwitz.........................      69    Chief Executive Officer, President and
                                                     Chairman of the Board of Directors
Heinz Badura.............................      59    Vice President and President, Efratom Time
                                                     and Frequency, Inc.
Paul E. Baia.............................      44    Vice President and President, Frequency
                                                     and Time Systems, Inc.
Robert F. Ellis..........................      57    Vice President, Telecommunications Sales
                                                     Division
John (Jack) R. Rice......................      52    Vice President and President, Austron,
                                                     Inc.
David C. Robinson........................      55    Vice President and President,
                                                     Bancomm/Timing Division
Raymond L. Waguespack....................      65    Vice President, International Sales
David A. Young...........................      52    Vice President, Chief Financial Officer,
                                                     Secretary and Treasurer
G. Tilton Gardner(1)(2)..................      61    Director
Donovan B. Hicks(2)......................      59    Director
R. David Hoover..........................      51    Director
Michael M. Mann(1).......................      57    Director
Dan L. McGurk(1)(2)......................      70    Director
Edward A. Money(1).......................      66    Director
Thomas J. O'Rourke(2)....................      73    Director
</TABLE>
 
---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
 
     Louis B. Horwitz has been the President and Chairman of the Board of
Directors of the Company since October 1976 and a director of the Company since
May 1975. Prior to joining the Company, Mr. Horwitz was an independent
management consultant and an Executive Vice President of Xerox Data Systems, a
manufacturer of computers. Mr. Horwitz is currently a director of Newport
Corporation, a manufacturer of electro-optical components. It is anticipated
that Mr. Horwitz will retire as Chief Executive Officer and President in the
near future and continue for a period as Chairman of the Board.
 
     Heinz Badura has been Vice President of the Company and President of the
Company's Efratom subsidiary, Efratom Time and Frequency, Inc., since August
1995. From 1973 to 1995, he held a variety of positions at Efratom, most
recently, Vice President.
 
     Paul E. Baia has been Vice President of the Company and President of its
Frequency and Time Systems, Inc. subsidiary since January 1996. From January
1990 to January 1996, he served as General Manager of Frequency and Time
Systems, Inc.
 
     Robert F. Ellis has been Vice President of the Company since November 1988
and has led its Telecommunications Sales Division since May 1995. From November
1988 to May 1995 he served as President of the Company's subsidiary, Austron,
Inc. From 1975 to November 1988, Mr. Ellis served as Senior Vice President of
Austron, Inc.
 
     John (Jack) R. Rice has been Vice President and General Sales Manager of
the Company since April 1994 and has been President of the Company's Austron,
Inc. subsidiary since May 1995. From
 
                                       37
<PAGE>   39
 
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.
 
   
     David C. Robinson has been Vice President of the Company and President of
the Company's Bancomm Division since March 1994. From February 1986 to March
1994, he served as General Manager of the Bancomm Division. Mr. Robinson became
President of Bancomm Corporation in 1984, where he served as Vice President of
Marketing since May 1978.
    
 
   
     Raymond L. Waguespack has been Vice President of the Company since 1989,
served as Secretary of the Company from October 1993 to July 1994 and served as
President, International Sales Division since April 1996. He has been President
of the Company's Timing Division from October 1993 to 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, that manufactured quartz oscillators.
    
 
     David A. Young has been 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.
 
     G. Tilton Gardner has been a director of the Company since 1976. Mr.
Gardner is currently Executive Vice President of Van Kasper & Company, an
investment banking firm that is acting as a representative of the underwriters
in this offering. From 1965 until 1988, he was associated with Morgan, Olmstead,
Kennedy & Gardner Incorporated, an investment banking firm, serving as Chief
Executive Officer and Chairman of the Board from 1976. In 1988, that company was
combined with Wedbush Securities to form Wedbush Morgan Securities, for which
Mr. Gardner served as Executive Vice President until February 1993.
 
   
     Donovan B. Hicks has been a director of the Company since March 1995. Mr.
Hicks was Group Vice President of the Ball Aerospace and Communications Group of
Ball Corporation from 1981 to 1996. Mr. Hicks was appointed to the Board of
Directors of the Company in connection with the Company's acquisition of Efratom
Time and Frequency Products, Inc. and Efratom Elektronik GmbH from Efratom
Holding, Inc., a wholly owned subsidiary of Ball Corporation, pursuant to the
terms of the Stockholder's Agreement, dated March 17, 1995, between the Company
and Efratom Holding, Inc. Mr. Hicks is currently the Managing Partner of Cygnus
Enterprise Development LLC. Upon closing of this offering, Efratom Holding, Inc.
will no longer be entitled to designate a director.
    
 
   
     R. David Hoover has been a director of the Company since March 1995. Mr.
Hoover is currently Executive Vice President and Chief Financial Officer of Ball
Corporation. From 1988 to 1992, he was Vice President and Treasurer of Ball
Corporation. Mr. Hoover is currently a director of American National Bank, a
national banking association. Mr. Hoover was appointed to the Board of Directors
of the Company in connection with the Company's acquisition of Efratom Time and
Frequency Products, Inc. and Efratom Elektronik GmbH from Efratom Holding, Inc.,
a wholly owned subsidiary of Ball Corporation, pursuant to the terms of the
Stockholder's Agreement, dated March 1995, between the Company and Efratom
Holding, Inc. Upon closing of this offering, Efratom Holding, Inc. will no
longer be entitled to designate a director.
    
 
     Michael M. Mann has been a director of the Company since May 1989. He has
been a director and President of the Blue Marble Development Group, Inc., an
international corporate development and consulting group, since its formation in
1988. Mr. Mann is also currently serving as Chairman of the Board of Management
Technology, Inc., a developer of management systems software, and as a director
of Safeguard Health Enterprises, a corporation engaged in providing dental and
vision plans. Mr. Mann also provides consulting services to state and federal
governmental agencies and multi-
 
                                       38
<PAGE>   40
 
national corporations and has served as a member of the Army Science Board. From
mid-1987 to 1988, Mr. Mann was a senior consultant and director of Aerospace
Industries Centre with Arthur D. Little Inc., an international consulting firm.
 
     Dan L. McGurk has been a director of the Company since May 1977. He has
been a private investor and consultant since 1970. Mr. McGurk is Treasurer and
Chairman of the Board of Southland Title Corporation. Prior to 1970, he was
President of Xerox Data Systems, a manufacturer of computers, and from May 1976
to January 1977 he served as Associate Director of the Office of Management and
Budget, Executive Office of the President of the United States. He is currently
a director of Bowmar Instruments Corporation, a manufacturer of electrical and
electro-mechanical parts, and Newport Corporation, a manufacturer of
electro-optical components.
 
     Edward A. Money has been a director of the Company since May 1980. He has
been President of The Edward A. Money Corporation, a company supplying specialty
automotive parts, since February 1982. He was Vice President-Finance, Treasurer
and Secretary of the Company from February 1977 to February 1982.
 
     Thomas J. O'Rourke has been a director of the Company since May 1979. He is
currently President and Chairman of the Board of O'Rourke Investment Corp., an
investment company. He was a General Partner of Hambrecht and Quist Venture
Partners, a venture capital firm, from January 1985 to April 1988. From 1966 to
1985, he was the President and Chairman of the Board of Tymshare, Inc., a
computer services company.
 
     The Company's executive officers are appointed by the Board of Directors
and serve at the Board's discretion. There are no family relationships among the
directors and executive officers of the Company.
 
BOARD OF DIRECTORS
 
     The Company's Certificate of Incorporation provides for the Board of
Directors to be divided into three classes, with staggered three-year terms. As
a result, only one class of directors is elected at each annual meeting of
stockholders of the Company, with the other classes continuing for the remainder
of their respective three-year terms. The classification of the Board of
Directors may make it more difficult for the Company's existing stockholders to
replace the Board of Directors as well for another party to obtain control of
the Company by replacing the Board of Directors. See "Description of Capital
Stock -- Delaware Law and Certain Charter Provisions" and "Risk
Factors -- Potential Effect of Anti-Takeover Provisions."
 
     The Board of Directors has an Audit Committee and a Compensation Committee.
The principal duties of the Audit Committee are (1) to recommend to the Board of
Directors the selection of the Company's independent accountants, (2) to discuss
and review with the Company's independent accountants the audit plan, auditor's
report and management letter and the Company's accounting policies and (3) to
review the accounting procedures and internal control procedures recommended by
the Company's independent accountants. The principal duties of the Compensation
Committee are (1) to administer and approve the annual compensation rates of all
officers and key employees of the Company, (2) to administer the incentive
compensation, stock award, stock option and other compensation plans of the
Company and (3) to make recommendations to the Board in connection with such
plans.
 
     Each member of the Board of Directors receives $1,000 per month for service
as a director. In addition, each nonemployee member of the Board of Directors
receives $500 for each meeting of the Board of Directors attended by that
director and $250 for each meeting of a committee of the Board attended, other
than committee meetings held in conjunction with meetings of the Board of
Directors. In addition, under the Company's 1994 Stock Incentive Plan, each
incumbent director who is not an employee of the Company is automatically
granted a non-qualified option to purchase 2,000 shares of the Company's Common
Stock on the first business day of each calendar year. Such options (i) have an
 
                                       39
<PAGE>   41
 
exercise price equal to the fair market value of the Common Stock on the date of
grant, (ii) vest in full one year from the date of grant and (iii) have a ten
year term. Mr. Hoover and Mr. Hicks, who were appointed to the Board of
Directors pursuant to the Stockholder's Agreement between the Company and
Efratom Holding, Inc., have agreed to waive their fees and stock options as
directors.
 
EXECUTIVE COMPENSATION
 
     The following table sets forth summary information concerning compensation
paid to the Company's Chief Executive Officer and the four other executive
officers who earned salary and bonus for fiscal year 1996 in excess of $100,000
for services rendered to the Company in all capacities during the three fiscal
years ended December 31, 1996, 1995 and 1994 (the "Named Executive Officers").
 
                           SUMMARY COMPENSATION TABLE
 
   
<TABLE>
<CAPTION>
                                                                             LONG-TERM
                                                                            COMPENSATION
                                                                               AWARDS
                                                            ANNUAL          ------------
                                                         COMPENSATION        SECURITIES
                                                      -------------------    UNDERLYING        ALL OTHER
         NAME AND PRINCIPAL POSITION           YEAR   SALARY($)  BONUS($)    OPTIONS(#)    COMPENSATION($)(2)
---------------------------------------------  -----  --------   --------   ------------   ------------------
<S>                                            <C>    <C>        <C>        <C>            <C>
Louis B. Horwitz(1)..........................   1996   246,038    203,000      40,000             4,043
  President and Chairman                        1995   221,827     75,000         -0-             5,006
  of the Board                                  1994   210,848    110,000      25,000             5,005
Heinz Badura.................................   1996   146,827     45,000       5,000             3,811
  Vice President of Datum Inc.                  1995    89,893     50,000      15,000             2,247
  and President of Efratom Time                 1994        --         --          --                --
  & Frequency, Inc.
Robert F. Ellis..............................   1996   139,583     25,000         -0-             3,490
  Vice President of Datum Inc.                  1995   130,535     20,000       3,750             3,263
                                                1994   117,910    100,000       8,750             2,948
John (Jack) R. Rice..........................   1996   150,999    100,000       5,000             2,792
  Vice President of Datum Inc.                  1995   161,040     30,000         -0-             2,452
  and President of Austron, Inc.                1994    81,979     20,000      15,000             1,477
David A. Young...............................   1996   129,615     50,000       5,000             4,017
  Vice President                                1995   119,615     30,000         -0-             3,490
  and Chief Financial Officer of Datum Inc.     1994    48,654     20,000      15,000               423
</TABLE>
    
 
---------------
 
(1) Salary amounts for Mr. Horwitz include director's fees of $12,000, $12,000
    and $10,667 for the years 1996, 1995 and 1994, respectively.
 
(2) Amounts shown represent Company contributions under the Company's Savings
    and Retirement Plan for the listed executives.
 
                                       40
<PAGE>   42
 
OPTION MATTERS
 
     Option Grants. The following table sets forth certain information
concerning grants of options to each of the Company's Named Executive Officers
during the fiscal year ended December 31, 1996. In addition, in accordance with
the rules and regulations of the Securities and Exchange Commission, the
following table sets forth the hypothetical gains or "option spreads" that would
exist for the options. Such gains are based on assumed rates of annual compound
stock appreciation of 5% and 10% from the date on which the options were granted
over the full term of the options. The rates do not represent the Company's
estimate or projection of future Common Stock prices and no assurance can be
given that the rates of annual compound stock appreciation assumed for the
purposes of the following table will be achieved.
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 
<TABLE>
<CAPTION>
                                                                                              POTENTIAL REALIZABLE
                                                  INDIVIDUAL GRANTS                             VALUE AT ASSUMED
                             ------------------------------------------------------------       ANNUAL RATES OF
                             NUMBER OF        % OF TOTAL                                          STOCK PRICE
                             SECURITIES        OPTIONS                                          APPRECIATION FOR
                             UNDERLYING       GRANTED TO                                          OPTION TERM
                              OPTIONS        EMPLOYEES IN       EXERCISE       EXPIRATION     --------------------
           NAME              GRANTED(#)     FISCAL YEAR(1)     PRICE($/SH)      DATE(2)        5%($)       10%($)
---------------------------  ----------     --------------     -----------     ----------     --------    --------
<S>                          <C>            <C>                <C>             <C>            <C>         <C>
Louis B. Horwitz...........    40,000            30.2%            10.125         3/1/06        254,705     645,466
Heinz Badura...............     5,000             3.8%            10.125         3/1/06         31,839      80,685
Robert F. Ellis............        --              --                 --             --             --          --
John (Jack) R. Rice........     5,000             3.8%            10.125         3/1/06         31,839      80,685
David A. Young.............     5,000             3.8%            10.125         3/1/06         31,839      80,685
</TABLE>
 
---------------
 
(1) Options to purchase an aggregate of 132,500 shares of Common Stock were
    granted to employees, including the Named Executive Officers during the
    fiscal year ended December 31, 1996.
 
(2) Options granted have a term of 10 years, subject to earlier termination in
    certain events related to termination of employment. Options become
    exercisable with respect to 25% of the shares on March 1, 1997, and the
    balance becomes exercisable in three equal annual installments thereafter.
 
     Option Exercises. The following table sets forth certain information
concerning the exercise of options by each of the Company's Named Executive
Officers during the fiscal year ended December 31, 1996, including the aggregate
value of gains on the date of exercise. In addition, the table includes the
number of shares covered by both exercisable and unexercisable stock options as
of December 31, 1996. Also reported are the values for "in the money" options
which represent the positive spread between the exercise prices of any such
existing stock options and the fiscal year end price of the Company's Common
Stock ($16.875 per share).
 
                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                      NUMBER OF SECURITIES
                                                     UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                                                        OPTIONS AT FISCAL           IN-THE-MONEY OPTIONS
                                                           YEAR-END(#)              AT FISCAL YEAR-END($)
                                                   ---------------------------   ---------------------------
                        NAME                       EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
    ---------------------------------------------  -----------   -------------   -----------   -------------
    <S>                                            <C>           <C>             <C>           <C>
    Louis B. Horwitz.............................     32,500         52,500         405,000        420,000
    Heinz Badura.................................      3,750         16,250          21,875         99,375
    Robert F. Ellis..............................     16,563          7,187         214,339         69,724
    John (Jack) R. Rice..........................      7,500         12,500          94,688        128,438
    David A. Young...............................     10,000         10,000         118,750         93,125
</TABLE>
 
SEVERANCE AND CONSULTING AGREEMENTS
 
   
     Effective as of March 7, 1986, the Company entered into an executive
agreement with Louis B. Horwitz (the "Horwitz Executive Agreement"). The Horwitz
Executive Agreement provides for the
    
 
                                       41
<PAGE>   43
 
   
payment of benefits in the event that Mr. Horwitz's employment is terminated
within three years subsequent to a "change in control" of the Company (as
defined in the Horwitz Executive Agreement) under certain circumstances. A
"change in control" includes the ownership by any person of 30% or more of the
combined voting power of the Company's outstanding securities and certain
changes in the composition of the Company's Board of Directors. The benefits
payable under the Horwitz Executive Agreement are (i) an amount equal to three
times the average of the aggregate annual compensation paid by the Company to
Mr. Horwitz during the five calendar years preceding the change in control of
the Company, (ii) the right for a period of three months following the
employment termination to exercise all unexercised stock options, whether or not
they have vested, and (iii) the automatic vesting of all restricted stock
awarded to Mr. Horwitz. The foregoing benefits are to be reduced to the extent
necessary so that no portion thereof shall be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended. The benefits
are payable on the date of termination of Mr. Horwitz's employment. Under the
Horwitz Executive Agreement, if such termination had occurred at the end of the
fiscal year ended December 31, 1996, Mr. Horwitz would have received $761,080.
    
 
   
     On October 9, 1992, the Company entered into a consulting agreement with
Mr. Horwitz (the "Horwitz Consulting Agreement"). The Horwitz Consulting
Agreement provides for consulting services to be provided commencing on the
retirement of Mr. Horwitz as an officer and employee of the Company. The Horwitz
Consulting Agreement commences on Mr. Horwitz' retirement and continues for
twelve months thereafter and may be renewed at the Company's option for
successive additional twelve month periods or any portion thereof. In the event
of a "change of control" of the Company (as defined in the Horwitz Consulting
Agreement) while the Horwitz Consulting Agreement is in force, the term will be
extended for a period of ten years from commencement. Under the Horwitz
Consulting Agreement, Mr. Horwitz is to provide such advice and consultation as
the Company requests, including with respect to strategic planning, management,
financial analysis, product planning and other corporate matters. As
compensation, Mr. Horwitz will be paid $8,333.33 per day, plus travel expenses,
and will be guaranteed a minimum of twelve days of service per year. In the
event of death or disability prior to the end of the term of the Horwitz
Consulting Agreement, or any renewal term, and prior to a change of control of
the Company, Mr. Horwitz, or his estate, shall be entitled to an amount equal to
the fee for twelve days of consulting. In the event of death or disability after
a change of control which results in an extension of the term, Mr. Horwitz, or
his estate, will be entitled to the minimum annual payments for the balance of
the term. The Horwitz Consulting Agreement provides that it will be binding on
successors to the Company's business.
    
 
   
     On September 26, 1996, the Company entered into a consulting agreement with
Robert F. Ellis (the "Ellis Consulting Agreement"), the Company's Vice
President, Telecommunications Sales Division. Under the terms of the Consulting
Agreement, Mr. Ellis is to provide consulting services to the Company, for an
initial 12 month period, commencing on his retirement which is scheduled to
occur in July 1999. The Ellis Consulting Agreement becomes null and void, unless
reaffirmed by both parties, in the event that Mr. Ellis' service with the
Company is severed, for any reason, prior to July 1999. Upon a "change in
control" of the Company (as defined in the Ellis Consulting Agreement) while the
Ellis Consulting Agreement is in force, the term will be extended for a period
of five years commencing on Mr. Ellis's termination of employment. Under the
Ellis Consulting Agreement, Mr. Ellis is to provide such advice and consultation
as requested by the Company, including with respect to business planning,
management, financial analysis and other corporate matters. As compensation, Mr.
Ellis will be paid $2,500 per day plus travel expenses, for a guaranteed a
minimum of twelve days of service per year. In the event of death or disability
prior to the end of the term of the Ellis Consulting Agreement, or any renewal
term, and prior to a change in control of the Company, Mr. Ellis, or his estate,
shall be entitled to an amount equal to the fee for twelve days of consulting.
In the event of death or disability after a change in control which results in
an extension of the term, Mr. Ellis, or his estate, will be entitled to the
minimum annual payments for the balance of the term. The Ellis Consulting
Agreement provides that it will be binding on successor's of the Company's
business.
    
 
                                       42
<PAGE>   44
 
                       PRINCIPAL AND SELLING STOCKHOLDERS
 
   
     The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 11, 1997, (i) by each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than five percent of the Company's Common Stock, (ii) the
Selling Stockholders, (iii) by each of the Company's directors, (iv) by each of
the Named Executive Officers, and (v) by all directors and executive officers as
a group. The table is adjusted to reflect the sale of shares of Common Stock
offered hereby. Except as indicated in the footnotes to this table, the persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable.
    
 
   
<TABLE>
<CAPTION>
                                       SHARES BENEFICIALLY                          SHARES BENEFICIALLY
                                              OWNED                                        OWNED
                                        PRIOR TO OFFERING                             AFTER OFFERING
                                    -------------------------        SHARES         -------------------
       NAME AND ADDRESS(1)           NUMBER           PERCENT     BEING OFFERED     NUMBER      PERCENT
----------------------------------  ---------         -------     -------------     -------     -------
<S>                                 <C>               <C>         <C>               <C>         <C>
Efratom Holding, Inc.(2)..........  1,277,778           31.0%      1,277,778             --         --
  10 Longs Peak Drive
  Broomfield, Colorado 80021
The Prudential Insurance
  Company of America(3)...........    175,000            4.2         175,000             --         --
Louis B. Horwitz(4)(5)............    220,120            5.3              --        220,120        4.2
  9975 Toledo Way
  Irvine, California 92718
Heinz Badura(4)(6)................      8,579              *              --          8,579          *
Robert F. Ellis(4)(7).............     22,545              *              --         22,545          *
G. Tilton Gardner(4)..............     37,000              *              --         37,000          *
Donovan B. Hicks(8)...............        500              *              --            500          *
R. David Hoover(9)................        500              *              --            500          *
Michael M. Mann(4)(10)............     52,000            1.3              --         52,000          *
Dan L. McGurk(4)..................     41,000              *              --         41,000          *
Edward A. Money(4)................     39,000              *              --         39,000          *
Thomas J. O'Rourke(4)(11).........     93,000            2.2              --         93,000        1.8
John (Jack) R. Rice(4)(12)........     13,205                             --         13,205          *
David A. Young(4)(13).............     13,036              *              --         13,036          *
All Officers and Directors as a
  Group (15 persons)(14)..........    593,199           13.6              --        593,199       10.9
</TABLE>
    
 
---------------
 
  *  Less than 1%
 
   
 (1) Beneficial ownership is determined in accordance with the rules of the SEC.
     In computing the number of shares beneficially owned by a person and the
     percentage ownership of that person, shares of Common Stock subject to
     options held by that person that are currently exercisable or exercisable
     within 60 days of February 11, 1997 are deemed outstanding. Such shares,
     however, are not deemed outstanding for the purposes of computing the
     percentage ownership of each other person. To the Company's knowledge,
     except as set forth in the footnotes to this table and subject to
     applicable community property laws, each person named in the table has sole
     voting and investment power with respect to the shares set forth opposite
     such person's name. Information with respect to beneficial ownership is
     based upon the Company's stock records and data supplied to the Company by
     the holders.
    
 
 (2) Efratom Holding, Inc. is a wholly-owned subsidiary of Ball Corporation.
 
   
 (3) Shares subject to a Common Stock Purchase Warrant exercisable upon the
     earlier of September 27, 1997, the consummation of this offering, or
     certain other events.
    
 
                                       43
<PAGE>   45
 
   
 (4) Included in the total number of shares listed are 48,750 shares for Mr.
     Horwitz, 21,000 shares for each of Messrs. McGurk, Money and O'Rourke,
     19,000 shares for Mr. Mann, 19,688 shares for Mr. Ellis, 13,000 shares for
     Mr. Gardner, 12,500 shares for Mr. Rice, 11,250 shares for Mr. Young and
     7,500 shares for Mr. Badura which may be acquired within sixty days of
     February 11, 1997, upon exercise of outstanding options.
    
 
   
 (5) Includes 4,605 shares held for the account of Mr. Horwitz in the Company's
     Savings and Retirement Plan. Does not include 18,000 shares owned by adult
     children of Mr. Horwitz.
    
 
   
 (6) Includes 579 shares held for the account of Mr. Badura in the Company's
     Savings and Retirement Plan.
    
 
   
 (7) Includes 2,857 shares held for the account of Mr. Ellis in the Company's
     Savings and Retirement Plan.
    
 
   
 (8) Does not include 1,277,778 shares held by Efratom Holding, Inc. Mr. Hicks
     was designated as a nominee for election to the Company's Board of
     Directors pursuant to a Stockholder's Agreement between the Company and
     Efratom Holding, Inc., and disclaims beneficial ownership of all such
     shares.
    
 
   
 (9) Does not include 1,277,778 shares held by Efratom Holding, Inc. Mr. Hoover
     is the Chief Financial Officer of Ball Corporation, the corporate parent of
     Efratom Holding, Inc., and disclaims beneficial ownership of all such
     shares.
    
 
   
(10) Includes 33,000 shares that are subject to shared voting and investment
     powers. These shares are owned by Blue Marble Development Group, Inc.
     Defined Benefit Pension Plan and Trust, of which Mr. Mann and his spouse
     are co-trustees.
    
 
   
(11) Includes 33,000 shares as to which Mr. O'Rourke has shared voting and
     investment powers. These shares are owned by O'Rourke Investment Corp., of
     which Mr. O'Rourke is president and chairman.
    
 
   
(12) Includes 705 shares held for the account of Mr. Rice in the Company's
     Savings and Retirement Plan.
    
 
   
(13) Includes 738 shares held for the account of Mr. Young in the Company's
     Savings and Retirement Plan. Also includes 548 shares as to which Mr. Young
     has shared voting or investment powers.
    
 
   
(14) Includes 236,920 shares which may be acquired within sixty days after
     February 11, 1997, upon exercise of outstanding options. Also includes
     14,849 shares held for the account of officers and directors in the
     Company's Savings and Retirement Plan. Excludes 1,277,778 shares held by
     Efratom Holding, Inc. -- see footnotes (8) and (9).
    
 
                                       44
<PAGE>   46
 
                          DESCRIPTION OF CAPITAL STOCK
 
     The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, $.25 par value, and 1,000,000 shares of Preferred Stock, $.25
par value.
 
COMMON STOCK
 
     Holders of Common Stock are entitled to one vote per share in all matters
to be voted on by the stockholders. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities. Holders of Common Stock
have no preemptive rights and no rights to convert their Common Stock into any
other securities, and there are no redemption provisions with respect to such
shares. All of the outstanding shares of Common Stock are, and the shares to be
issued in this offering will be, fully paid and nonassessable.
 
PREFERRED STOCK
 
     No shares of Preferred Stock are outstanding. The Board of Directors has
the authority, without further action by the stockholders, to issue the shares
of Preferred Stock in one or more series and to fix the rights, preferences and
privileges thereof, including voting rights, terms of redemption, redemption
prices, liquidation preferences, conversion rights, number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. Although it presently has no intention to do so,
the Board of Directors, without stockholder approval, could issue Preferred
Stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock. This provision may be deemed to have a
potential anti-takeover effect and the issuance of Preferred Stock in accordance
with such provision may delay or prevent a change of control of the Company. See
"Risk Factors -- Potential Effect of Anti-Takeover Provisions."
 
   
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
    
 
     The Company is subject to the provisions of the Delaware General
Corporation Law including Section 203, an anti-takeover law. In general, Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless either (i) prior to the date at which the person becomes an
interested stockholder, the Board of Directors approves such transaction or
business combination, (ii) the stockholder acquires more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
such transaction, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent). A "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to such
interested stockholder. For purposes of Section 203, an "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
 
     The Company's Restated Certificate contains a provision which limits to the
fullest extent permitted by Delaware law, the liability of a director to the
Company or its stockholders for monetary damages for a breach of such director's
fiduciary duty as a director. Delaware law presently permits such limitation of
a director's liability except where a director (i) breaches his or her duty of
loyalty to the Company or its stockholders, (ii) fails to act in good faith or
engages in intentional misconduct or a knowing violation of law, (iii)
authorizes payment of an unlawful dividend or stock repurchase, or (iv) obtains
an improper personal benefit.
 
                                       45
<PAGE>   47
 
     This provision is intended to afford directors additional protection, and
limit their potential liability, from suits alleging a breach of the duty of
care by a director. The Company believes this provision will assist it in
maintaining and securing the services of directors who are not employees of the
Company. As a result of the inclusion of such a provision, stockholders may be
unable to recover monetary damages against directors for actions taken by them
that constitute negligence or gross negligence or that are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to stockholders for any particular case, stockholders may
not have any effective remedy against the challenged conduct. The Restated
Certificate and Bylaws also provide that directors or officers shall be
indemnified against liabilities arising from their service as directors or
officers to the fullest extent permitted by law, which generally requires that
the individual act in good faith and in a manner he or she reasonably believes
to be in or not opposed to the Company's best interests. The Company has
obtained directors and officers insurance to limit its exposure under these
provisions.
 
     Under the Company's Restated Certificate, the Board of Directors is divided
into three classes of directors with each class serving a staggered three-year
term. The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of the Company and may maintain the incumbency of the Board of Directors, as it
generally makes it more difficult for stockholders to replace a majority of the
directors. See "Risk Factors -- Potential Effect of Anti-Takeover Provisions."
 
STOCK TRANSFER AGENT AND REGISTRAR
 
   
     The stock transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
    
 
                                       46
<PAGE>   48
 
                                  UNDERWRITING
 
     Hambrecht & Quist LLC, Oppenheimer & Co., Inc. and Van Kasper & Company are
acting as representatives (the "Representatives") of each of the underwriters
named below (the "Underwriters"). Subject to the terms and conditions set forth
in an underwriting agreement dated as of the date hereof (the "Underwriting
Agreement"), the Underwriters named below have severally agreed to purchase the
aggregate number of shares of Common Stock set forth opposite their respective
names:
 
   
<TABLE>
<CAPTION>
                                    NAME                               NUMBER OF SHARES
        -------------------------------------------------------------  ----------------
        <S>                                                            <C>
        Hambrecht & Quist LLC........................................
        Oppenheimer & Co., Inc.......................................
        Van Kasper & Company.........................................
 
                                                                              ---------
                  Total..............................................         2,452,778
                                                                              =========
</TABLE>
    
 
   
     The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
    
 
     The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $       per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $       per share to certain other dealers. After
the public offering of the shares, the offering price and other selling terms
may be changed by the Representatives.
 
   
     The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of 367,917 additional shares of Common Stock at the public offering price, less
the underwriting discount, set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise such option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the above table bears to the total number of shares of Common Stock offered
hereby. The Company will be obligated, pursuant to the option, to sell such
shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.
    
 
                                       47
<PAGE>   49
 
     The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
 
     The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
 
   
     The Company and the beneficial owners of 593,199 shares of the Company's
Common Stock, after giving effect to the sales by the Selling Stockholders in
this offering, have agreed that they will not, without the prior written consent
of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them during the 90 day period following the effective date of this offering,
except that the Company may issue shares upon the exercise of options granted
prior to the date hereof and pursuant to its Savings and Retirement Plan and may
grant additional options under its stock option plans.
    
 
   
     In general, the rules of the Securities and Exchange Commission (the
"Commission") will prohibit the Underwriters from making a market in the
Company's Common Stock during the "cooling-off" period immediately preceding the
commencement of sales in this offering. The Commission has, however, adopted
exemptions from these rules that permit passive market making under certain
conditions. These rules permit an Underwriter to continue to make a market
subject to the conditions, among others, that its bid not exceed the highest bid
by a market maker not connected with this offering and that its net purchases on
any one trading day not exceed prescribed limits. Pursuant to these exemptions,
certain Underwriters, selling group members (if any) or their respective
affiliates intend to engage in passive market making in the Common Stock during
the "cooling-off" period.
    
 
   
     Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
common stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on the Nasdaq Stock Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
    
 
   
     G. Tilton Gardner, a member of the Company's Board of Directors, serves as
Executive Vice President of Van Kasper & Company, which is acting as a
representative of the Underwriters in this offering.
    
 
     The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
 
                                 LEGAL MATTERS
 
     The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Stradling, Yocca, Carlson & Rauth, a
professional corporation, Newport Beach, California. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California.
 
                                       48
<PAGE>   50
 
                                    EXPERTS
 
     The financial statements of the Company as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996 included
in this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
 
   
     The financial statements of Ball Efratom (A unit of Ball Corporation) as of
October 30, 1994 and December 31, 1993, and for the ten months ended October 30,
1994 and the twelve months ended December 31, 1993 and December 31, 1992
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on authority of said firm
as experts in auditing and accounting.
    
 
                             ADDITIONAL INFORMATION
 
     The Company has filed with the Commission a Registration Statement
(including any amendments thereto) on Form S-2 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, omits certain of the information contained
in the Registration Statement and the exhibits and schedules thereto on file
with the Commission pursuant to the Securities Act and the rules and regulations
of the Commission thereunder. The Registration Statement, including exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and copies may be obtained at prescribed rates from the Public
Reference Section of the Commission at its principal office in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
 
   
     The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith, files reports, proxy or
information statements, and other information with the Commission. Such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
Regional Offices: 7 World Trade Center, 13th Floor, New York, New York 10048,
and Northwestern Atrium Center, 500 W. Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials also can be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, by mail at prescribed rates. In addition,
the Commission has a Web site on the World Wide Web at http://www.sec.gov,
containing registration statements, reports, proxy and information statements
and other information that registrants, such as the Company, file electronically
with the Commission. The Common Stock is traded on the Nasdaq National Market,
and the Company's reports, proxy or information statements and other information
may be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
    
 
   
     The Company intends to furnish to its stockholders annual reports
containing audited financial statements and quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year of the Company.
    
 
                                       49
<PAGE>   51
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
   
     The Company's Annual Report on Form 10-K for the year ended December 31,
1996, which has been filed by the Company with the Commission, is incorporated
by reference in this Prospectus.
    
 
     Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained in this Prospectus modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as modified
or superseded, to constitute a part of this Prospectus.
 
     The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into the document). Requests for copies should be directed to David
A. Young, Vice President and Chief Financial Officer, Datum Inc., 9975 Toledo
Way, Irvine, California 92718-8119, telephone (714) 380-8880.
 
                                       50
<PAGE>   52
 
                         INDEX TO FINANCIAL STATEMENTS
 
   
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        -----
<S>                                                                                     <C>
DATUM INC.
  Report of Price Waterhouse LLP, Independent Accountants...............................   F-2
  Consolidated Balance Sheet as of December 31, 1996 and 1995...........................   F-3
  Consolidated Statement of Operations for the years ended
     December 31, 1996, 1995 and 1994...................................................   F-4
  Consolidated Statement of Stockholders' Equity for the years ended
     December 31, 1996, 1995 and 1994...................................................   F-5
  Consolidated Statement of Cash Flows for the years ended
     December 31, 1996, 1995 and 1994...................................................   F-6
  Notes to Consolidated Financial Statements............................................   F-7
 




BALL EFRATOM (A unit of Ball Corporation)(1)
  Report of Price Waterhouse LLP, Independent Accountants...............................  F-16
  Combined Balance Sheet as of October 30, 1994 and December 31, 1995...................  F-17
  Combined Statement of Earnings for the ten months ended October 30, 1994 and the
     twelve months ended December 31, 1993 and 1992.....................................  F-18
  Combined Statement of Cash Flows for the ten months ended October 30, 1994 and the
     twelve months ended December 31, 1993 and 1992.....................................  F-19
  Combined Statement of Changes in Invested Equity for the ten months ended October 30,
     1994 and the twelve months ended December 31, 1993 and 1992........................  F-20
  Notes to Combined Financial Statements................................................  F-21
</TABLE>
    
 
---------------
 
   
(1)  The financial statements for Ball Efratom contain information for Efratom
     as a stand-alone entity for periods prior to the Company's March 17, 1995
     acquisition of Efratom and are included in accordance with the Commission's
     accounting rules.
    
 
                                       F-1
<PAGE>   53
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and
Stockholders of Datum Inc.
 
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Datum Inc.
and its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards 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.
 
PRICE WATERHOUSE LLP
 
Costa Mesa, California
February 17, 1997
 
                                       F-2
<PAGE>   54
 
                          DATUM INC. AND SUBSIDIARIES
 
                           CONSOLIDATED BALANCE SHEET
 
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                           -------------------
                                                                            1996        1995
                                                                           -------     -------
<S>                                                                        <C>         <C>
ASSETS
Current assets
  Cash and cash equivalents..............................................  $ 1,389     $   587
  Accounts receivable, less allowance for doubtful accounts of $107 and
     $68.................................................................   16,816      13,638
  Inventories............................................................   19,270      20,161
  Prepaid expenses.......................................................      425         200
  Deferred income taxes..................................................    2,007       1,830
  Income tax refund receivable...........................................                  109
                                                                           -------     -------
          Total current assets...........................................   39,907      36,525
Land, buildings and equipment, net.......................................   15,255      15,654
Excess of purchase price over net assets acquired, net of accumulated
  amortization of $2,056 and $1,162......................................   13,020      13,914
Other assets.............................................................      506          44
                                                                           -------     -------
                                                                           $68,688     $66,137
                                                                           =======     =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable.......................................................  $ 7,542     $ 5,155
  Accrued salaries and wages.............................................    2,693       2,102
  Accrued warranty.......................................................    1,434       1,337
  Other accrued expenses.................................................    1,119       1,896
  Income taxes payable...................................................    1,049         105
  Notes payable to bank..................................................       --      10,442
  Current portion of long-term debt......................................       41       3,178
                                                                           -------     -------
          Total current liabilities......................................   13,878      24,215
                                                                           -------     -------
Long-term debt...........................................................   17,318       7,938
                                                                           -------     -------
Post-retirement benefits.................................................      446         290
                                                                           -------     -------
Other long-term liabilities..............................................    1,428       1,388
                                                                           -------     -------
Deferred income taxes....................................................      995         993
                                                                           -------     -------
Stockholders' equity --
  Preferred stock, par value $.25 per share
     Authorized -- 1,000,000 shares in 1996 and no shares in 1995
     Issued -- none
  Common stock par value $.25 per share
     Authorized -- 10,000,000 shares in 1996 and 8,000,000 shares in 1995
     Issued -- 4,091,291 shares in 1996 and 4,018,968 shares in 1995.....    1,023       1,005
     Additional paid-in capital..........................................   25,845      24,418
     Retained earnings...................................................    7,956       5,982
     Cumulative translation adjustment...................................     (201)        (92)
                                                                           -------     -------
          Total stockholders' equity.....................................   34,623      31,313
Commitments (Notes C and I)
                                                                           -------     -------
                                                                           $68,688     $66,137
                                                                           =======     =======
</TABLE>
 
                 See Notes to Consolidated Financial Statements
 
                                       F-3
<PAGE>   55
 
                          DATUM INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                            -------------------------------------
                                                              1996          1995          1994
                                                            ---------     ---------     ---------
<S>                                                         <C>           <C>           <C>
Net sales.................................................  $  91,854     $  67,257     $  30,897
                                                            ---------     ---------     ---------
Costs and expenses
  Cost of goods sold......................................     56,285        40,010        17,491
  Selling.................................................     12,182         9,836         5,206
  Product development.....................................      7,667         7,087         2,494
  General and administrative..............................     10,127         8,460         3,934
  Interest expense........................................      2,255         1,667           241
  Interest (income).......................................         (7)          (17)          (15)
                                                            ---------     ---------     ---------
                                                               88,509        67,043        29,351
                                                            ---------     ---------     ---------
Income before income taxes................................      3,345           214         1,546
Income tax provision......................................      1,371           154           610
                                                            ---------     ---------     ---------
Net income................................................  $   1,974     $      60     $     936
                                                            =========     =========     =========
Net income per share......................................  $     .46     $     .02     $     .34
                                                            =========     =========     =========
Weighted average number of shares outstanding.............  4,253,019     3,954,307     2,732,812
                                                            =========     =========     =========
</TABLE>
 
                 See Notes to Consolidated Financial Statements
 
                                       F-4
<PAGE>   56
 
                          DATUM INC. AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                   COMMON STOCK      ADDITIONAL              CUMULATIVE
                                                ------------------    PAID-IN     RETAINED   TRANSLATION
                                                  SHARES    AMOUNT    CAPITAL     EARNINGS   ADJUSTMENT
                                                ----------  ------   ----------   --------   -----------
<S>                                             <C>         <C>      <C>          <C>        <C>
Balances at December 31, 1993.................   2,596,659  $ 649     $ 10,004     $4,986          --
  Issuance of common stock under 401(k)
     plan.....................................      32,740      8          165
  Exercise of stock options...................      38,825     10          125
  Net income..................................                                        936
                                                 ---------  ------    --------     ------       -----
Balances at December 31, 1994.................   2,668,224    667       10,294      5,922          --
  Issuance of common stock under 401(k)
     plan.....................................      30,328      8          347
  Exercise of stock options...................      42,638     11          360
  Acquisition of Efratom......................   1,277,778    319       13,417
  Cumulative translation adjustment...........                                                  $ (92)
  Net income..................................                                         60
                                                 ---------  ------    --------     ------       -----
Balances at December 31, 1995.................   4,018,968  1,005       24,418      5,982         (92)
  Issuance of common stock under 401(k)
     plan.....................................      44,610     11          453
  Exercise of stock options...................      27,713      7          189
  Issuance of common stock warrants...........                             785
  Cumulative translation adjustment...........                                                   (109)
  Net income..................................                                      1,974
                                                 ---------  ------    --------     ------       -----
Balances at December 31, 1996.................   4,091,291  $1,023    $ 25,845     $7,956       $(201)
                                                 =========  ======    ========     ======       =====
</TABLE>
 
                 See Notes to Consolidated Financial Statements
 
                                       F-5
<PAGE>   57
 
                          DATUM INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                                -------------------------------
                                                                  1996        1995       1994
                                                                --------    --------    -------
<S>                                                             <C>         <C>         <C>
Cash flows from operating activities:
  Net income..................................................  $  1,974    $     60    $   936
                                                                --------    --------    -------
  Adjustments to reconcile net income to net cash provided by
     (used for) operating activities:
       Depreciation and amortization..........................     3,040       2,393        691
       Amortization of goodwill...............................       894         616         79
       Contribution of shares of common stock to the Company's
          401(k) plan.........................................       464         355        173
  Changes in assets and liabilities, net of acquisition:
     Increase in accounts receivable..........................    (3,178)     (1,486)    (1,280)
     (Increase) decrease in inventories.......................       891      (5,678)      (342)
     Increase in prepaid expenses.............................      (225)       (422)      (305)
     Decrease in income tax refund receivable.................       109         107         56
     (Increase) decrease in deferred income taxes.............      (175)     (1,111)        59
     (Increase) decrease in other assets......................      (491)         12         15
     Increase (decrease) in accounts payable..................     2,387       2,361        (49)
     Increase (decrease) in accrued expenses..................       (89)      2,222        263
     Increase in income taxes payable.........................       944         105         --
     Increase in other long-term liabilities..................        40         188         --
     Increase in post-retirement benefits.....................       156         138         76
                                                                --------    --------    -------
  Total reconciling items.....................................     4,767        (200)      (564)
                                                                --------    --------    -------
  Net cash provided by (used for) operating activities........     6,741        (140)       372
                                                                --------    --------    -------
Cash flows from investing activities:
  Book value of equipment disposals...........................        98          20         18
  Capital expenditures........................................    (2,685)     (2,937)      (766)
  Payment for acquisition, net of cash acquired...............        --     (15,246)        --
  Other.......................................................       (99)       (190)        --
                                                                --------    --------    -------
  Net cash used in investing activities.......................    (2,686)    (18,353)      (748)
                                                                --------    --------    -------
Cash flows from financing activities:
  Proceeds from (reductions of) line of credit................   (10,442)      7,442         75
  Proceeds from long-term debt and notes payable..............    17,736      12,596         --
  Repayment of long-term debt and notes payable...............   (11,528)     (1,550)      (264)
  Exercise of stock options...................................       196         371        135
  Proceeds from issuance of common stock warrants.............       785          --         --
                                                                --------    --------    -------
  Net cash provided by (used for) financing activities........    (3,253)     18,859        (54)
                                                                --------    --------    -------
Net increase (decrease) in cash and cash equivalents..........       802         366       (430)
Cash and cash equivalents at beginning of year................       587         221        651
                                                                --------    --------    -------
Cash and cash equivalents at end of year......................  $  1,389    $    587    $   221
                                                                ========    ========    =======
</TABLE>
 
                 See Notes to Consolidated Financial Statements
 
                                       F-6
<PAGE>   58
 
                          DATUM INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994
 
                (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:  Revenues are recorded when products are shipped.
 
     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 the lower of cost or
market; cost is determined on a first-in, first-out basis.
 
     Inventories comprise the following:
 
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                       -------------------
                                                                        1996        1995
                                                                       -------     -------
    <S>                                                                <C>         <C>
    Purchased parts..................................................  $ 7,074     $ 7,801
    Work-in-process..................................................    9,096       9,002
    Finished products................................................    3,100       3,358
                                                                       -------     -------
                                                                       $19,270     $20,161
                                                                       =======     =======
</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
                                                      1996        1995            LIFE
                                                     -------     -------     ---------------
    <S>                                              <C>         <C>         <C>
    Land...........................................  $ 2,040     $ 2,040
    Buildings......................................    4,494       4,474      20 to 40 years
    Equipment......................................   15,685      15,145       3 to 10 years
    Leasehold improvements.........................      930       1,150       5 to 20 years
                                                     -------     -------
                                                      23,149      22,809
    Less accumulated depreciation and
      amortization.................................    7,894       7,155
                                                     -------     -------
                                                     $15,255     $15,654
                                                     =======     =======
</TABLE>
 
     Expenditures for maintenance and repairs are charged directly to income,
and betterments and major renewals are capitalized.
 
                                       F-7
<PAGE>   59
 
                          DATUM INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Excess of Acquisition Costs 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 is amortized over varying periods ranging
from 15 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:  Effective January 1, 1993, the Company adopted statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
Under the liability method specified under FAS 109, the 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 $2,109, $1,508 and $232 in 1996, 1995 and 1994, respectively. Cash paid
for income taxes totalled $580, $909 and $730 in 1996, 1995 and 1994,
respectively. In connection with the acquisition of Efratom, the Company issued
1,277,778 shares of common stock valued at $13,736.
 
     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 Financial Accounting Standard No. 123 (FAS 123)
in Note F.
 
     Net Income Per Share:  Net income per share is based upon the weighted
average number of common and common equivalent shares outstanding during the
year. Common equivalent shares include those issuable on the exercise of
dilutive stock options and common stock warrants (after reduction for common
shares assumed to have been purchased with the proceeds). Net income per share
is the same on a fully diluted basis for all years presented.
 
     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.
 
     Long-Lived Assets:  In March 1995, Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," was issued. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
or disposed of by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. During 1996, the Company adopted this statement and the effect
of adoption in 1996 was not material.
 
     Foreign Currency Translation:  The Company follows principles of Statement
of Financial Accounting Standards No. 52 "Foreign Currency Translation", (FAS
52) in accounting for foreign operations. The financial statements of the
Company's German subsidiary, whose functional currency is the German mark, have
been translated into U.S. dollars.
 
     Reclassifications:  Certain reclassifications have been made to the
consolidated financial statements for prior years to conform to the 1996
presentation.
 
                                       F-8
<PAGE>   60
 
                          DATUM INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE B -- ACQUISITION
 
     On March 16, 1995 the stockholders of the Company approved the purchase of
all the outstanding capital stock of Efratom Time and Frequency Products, Inc.,
a Colorado corporation, and Ball Efratom Elektronik GmbH, a corporation
organized under the laws of the Republic of Germany (collectively, Efratom). The
purchase price consisted of $15,000 cash and 1,277,778 shares of Datum common
stock. The final purchase price was subject to a post-closing adjustment of
$1,270 based on a comparison of the working capital and fixed assets of Efratom
as of August 7, 1994 and as of March 17, 1995. The post closing adjustment was
included in goodwill and other long-term liabilities. The acquisition, which has
been accounted for as a purchase, closed March 17, 1995.
 
     The unaudited pro forma combined condensed balance sheet of the Company and
Efratom as of December 31, 1994, presuming the acquisition had taken place on
that date, after giving effect to certain pro forma adjustments is as follows:
 
<TABLE>
        <S>                                                                  <C>
        ASSETS
        Current assets.....................................................  $28,545
        Land, buildings and equipment, net.................................   15,446
        Goodwill...........................................................   12,090
                                                                             -------
                                                                             $56,081
                                                                             =======
        LIABILITIES AND STOCKHOLDERS' EQUITY
        Current liabilities................................................  $13,587
        Long-term debt and other liabilities...............................   14,328
        Stockholders' equity...............................................   28,166
                                                                             -------
                                                                             $56,081
                                                                             =======
</TABLE>
 
     The unaudited pro forma combined results of operations of the Company and
Efratom for the years ended December 31, 1995 and 1994, presuming the
acquisition had taken place on January 1, 1994, after giving effect to certain
pro forma adjustments are as follows:
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                                       -------------------
                                                                        1995        1994
                                                                       -------     -------
    <S>                                                                <C>         <C>
    Revenues.........................................................  $76,552     $66,139
                                                                       =======     =======
    Net income.......................................................  $   442     $ 2,141
                                                                       =======     =======
    Net income per share.............................................  $  0.11     $  0.53
                                                                       =======     =======
</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 or financial position of the Company or what the results of operations
or financial position would have been had the acquisition been effective on the
dates indicated. This information should be read in conjunction with these
audited consolidated financial statements.
 
                                       F-9
<PAGE>   61
 
                          DATUM INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE C -- LONG-TERM DEBT
 
     Long-term obligations outstanding are as follows:
 
   
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                       -------------------
                                                                        1996        1995
                                                                       -------     -------
    <S>                                                                <C>         <C>
    $12,000 Revolving Line of Credit, expires November 1, 1998, with
      interest payable at prime or at LIBOR plus 2.75%, (8.25% at
      December 31, 1996), secured by all assets......................  $    21
    $6,000 Series A Secured Notes (net of discount of $250),
      principal due semi-annually beginning March 27, 1999, to
      September 27, 2000, with interest payable quarterly at 9.07%,
      secured by all assets..........................................    5,750
    $12,000 Series B Secured Notes (net of discount of $500),
      principal due semi-annually beginning March 27, 2001, to
      September 27, 2003, with interest payable quarterly at 10.25%,
      secured by all assets..........................................   11,500
    $14,000 Revolving Line of Credit, expires June 6, 1996, with
      interest payable at prime plus .5% (9.0% at December 31, 1995),
      secured by accounts receivable and inventory...................              $10,442
    Term Loan I, principal due in monthly installments of $35
      beginning April 17, 1995, to March 17, 2001, with interest
      payable at prime plus .75% (9.25% at December 31, 1995),
      secured by equipment...........................................                2,187
    Term Loan II, principal due in monthly installments of $8
      beginning April 17, 1995, to March 17, 2000, with interest
      payable in monthly installments at prime plus .5% (9.0% at
      December 31, 1995), secured by real estate.....................                2,425
    Term Loan III, principal due in monthly installments of $125
      beginning April 17, 1995, to March 17, 1999, with interest
      payable at prime plus .75% (9.25% at December 31, 1995),
      unsecured......................................................                4,875
    Term Commitment up to $2,000, principal due in monthly
      installments of $42 beginning February 10, 1996, to January 10,
      1999, with interest payable monthly commencing September 10,
      1995, at a rate of prime plus .75% (9.25% at December 31,
      1995), secured by equipment....................................                1,500
    Capital equipment leases for various machinery and equipment with
      interest at 6.25% to 14.26% maturing at various dates..........       88         129
                                                                       -------     -------
    Total debt.......................................................   17,359      21,558
      Less line of credit............................................       --     (10,442)
      Less current portion...........................................      (41)     (3,178)
                                                                       -------     -------
    Long-term debt, less current portion.............................  $17,318     $ 7,938
                                                                       =======     =======
</TABLE>
    
 
                                      F-10
<PAGE>   62
 
                          DATUM INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Aggregate maturities of long-term debt before debt discount at December 31,
1996 are as follows:
 
<TABLE>
          <S>                                                                <C>
          1997...........................................................    $    41
          1998...........................................................         48
          1999...........................................................      3,020
          2000...........................................................      3,000
          2001...........................................................      4,000
          Thereafter.....................................................      8,000
                                                                             -------
                    Total................................................    $18,109
                                                                             =======
</TABLE>
 
     The Company issued common stock warrants in connection with the Series A
and Series B 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. 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.
 
NOTE D -- INCOME TAXES
 
     The income tax provision comprises the following:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                                 -------------------------
                                                                  1996      1995      1994
                                                                 ------     -----     ----
    <S>                                                          <C>        <C>       <C>
    Provision for income taxes:
      Current:
         Federal.............................................    $1,081     $ 702     $474
         State...............................................       445       168       77
         Foreign.............................................        20       105       --
                                                                 ------     -----     ----
                                                                  1,546       975      551
                                                                 ------     -----     ----
      Deferred:
         Federal.............................................      (155)     (683)      32
         State...............................................       (20)     (138)      27
                                                                 ------     -----     ----
                                                                   (175)     (821)      59
                                                                 ------     -----     ----
                                                                 $1,371     $ 154     $610
                                                                 ======     =====     ====
</TABLE>
 
                                      F-11
<PAGE>   63
 
                          DATUM INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The income tax provision differs from the amount computed by applying the
statutory federal income tax rate to income before taxes as follows:
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                           --------------------------------------------------------
                                                 1996                1995                1994
                                           ----------------    ----------------    ----------------
                                                     PRETAX              PRETAX              PRETAX
                                           AMOUNT    INCOME    AMOUNT    INCOME    AMOUNT    INCOME
                                           ------    ------    ------    ------    ------    ------
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>
Computed expected tax expense...........   $1,171     35.0%     $ 73      34.0%     $541      35.0%
State income tax, net of federal income
  tax effect............................     272       8.1%       11       5.1%       87       5.6%
Amortization of excess of purchase price
  over net assets acquired..............      31       1.0%       31      14.5%       31       2.0%
Foreign earnings taxed at different
  rates.................................      20       0.6%       26      12.2%       --        --
Other...................................    (123)     (3.7)%      13       6.2%      (49)     (3.1)%
                                           ------     ----      ----      ----      ----      ----
                                           $1,371     41.0%     $154      72.0%     $610      39.5%
                                           ======     ====      ====      ====      ====      ====
</TABLE>
 
     The primary components of temporary differences which give rise to the
Company's net deferred tax asset (liability) are as follows:
 
<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                         -----------------
                                                                          1996       1995
                                                                         ------     ------
    <S>                                                                  <C>        <C>
    Deferred tax assets:
      Inventory......................................................    $  470     $  522
      Accruals and reserves..........................................     1,537      1,308
                                                                         ------     ------
                                                                          2,007      1,830
                                                                         ------     ------
    Deferred tax liabilities:
      Property, plant and equipment..................................       946        975
      Other..........................................................        49         18
                                                                         ------     ------
                                                                            995        993
                                                                         ------     ------
                                                                         $1,012     $  837
                                                                         ======     ======
</TABLE>
 
NOTE E -- POST-RETIREMENT BENEFITS
 
     Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions" (FAS 106). Under FAS 106, 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.
 
                                      F-12
<PAGE>   64
 
                          DATUM INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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,
                                                                          ----------------
                                                                           1996      1995
                                                                          ------    ------
    <S>                                                                   <C>       <C>
    Accumulated post-retirement benefit obligation:
      Retirees..........................................................  $  343    $  316
      Fully eligible active plan participants...........................     150       132
      Other active plan participants....................................     667       586
                                                                          ------    ------
      Total accumulated post-retirement benefit obligations.............   1,160     1,034
      Plan assets at fair value.........................................      --        --
                                                                          ------    ------
      Accumulated post-retirement benefit obligation in excess of plan
         assets.........................................................   1,160     1,034
      Unrecognized transition obligation................................    (714)     (744)
                                                                          ------    ------
      Accrued post-retirement benefit obligation........................  $  446    $  290
                                                                          ======    ======
</TABLE>
 
     Net periodic post-retirement benefit cost includes the following
components:
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                  -------------------------
                                                                  1996      1995      1994
                                                                  -----     -----     -----
    <S>                                                           <C>       <C>       <C>
    Service cost..............................................    $  71     $  68     $  22
    Interest cost.............................................       71        68        46
    Amortization of transition obligation.....................       30        30        30
                                                                   ----      ----      ----
    Net periodic postretirement expense.......................    $ 172     $ 166     $  98
                                                                   ====      ====      ====
    Discount rate.............................................      7.0%      7.0%     7.75%
</TABLE>
 
                                      F-13
<PAGE>   65
 
                          DATUM INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE F -- COMMON STOCK RESERVED
 
     In June 1994, the stockholders of the Company approved the 1994 Incentive
Stock Plan providing for the granting of 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 initial number of shares available under the
Plan for issuance is 250,000 and will increase by 50,000 shares on the last day
of each calendar year. The exercise price of the options shall not be less than
100% of the fair market value of the underlying common stock on the date of the
grant. Options granted are exercisable in such amounts and at such intervals as
the Board of Directors determined in granting the options. This plan replaces
the prior stock option plan and Restricted Stock Award Plan that expired in
1994. In March 1995, the stockholders of the Company approved an amendment of
the 1994 Stock Incentive Plan providing for 200,000 additional option shares to
be reserved for issuance thereunder. The following table summarizes activity
under the 1994 Incentive Stock Plan during the years ended December 31, 1996 and
1995 and 1994:
 
<TABLE>
<CAPTION>
                                                                NUMBER              PER SHARE
                                                               OF SHARES           OPTION PRICE
                                                               ---------     ------------------------
    <S>                                                        <C>           <C>
    Issued during 1994.......................................     86,800     $4.25 - $ 5.00
                                                                --------
    Outstanding, December 31, 1994...........................     86,800     $4.25 - $ 5.00
    Issued during 1995.......................................    219,250     $10.31 - $16.38
    Exercised during 1995....................................     (6,313)    $4.38
    Cancelled during 1995....................................    (30,500)    $4.38 - $10.75
                                                                --------
    Outstanding, December 31, 1995...........................    269,237     $4.25 - $16.38
    Issued during 1996.......................................    132,500     $8.50 - $14.88
    Exercised during 1996....................................     (6,388)    $4.38 - $10.75
    Cancelled during 1996....................................    (41,625)    $4.38 - $10.75
                                                                --------
    Outstanding, December 31, 1996...........................    353,724     $4.25 - $16.38
                                                                ========
    Exercisable, December 31, 1996...........................     78,701     $4.25 - $16.38
                                                                ========
</TABLE>
 
     As of December 31, 1996, 1995 and 1994, 233,575, 274,450 and 213,200 option
shares, respectively, were available for grant under the 1994 plan.
 
     The following table summarizes activity under the prior stock option plan
for the years ended December 31, 1996, 1995 and 1994:
 
<TABLE>
<CAPTION>
                                                                 NUMBER              PER SHARE
                                                                OF SHARES          OPTION PRICE
                                                                ---------     -----------------------
    <S>                                                         <C>           <C>
    Outstanding, December 31, 1993............................    250,075     $3.00 - $6.50
    Issued during 1994........................................    121,525     $4.88
    Exercised during 1994.....................................    (38,825)    $3.00 - $5.25
    Cancelled during 1994.....................................    (49,500)    $3.00 - $6.50
                                                                 --------
    Outstanding, December 31, 1994............................    283,275     $3.00 - $5.00
    Exercised during 1995.....................................    (36,325)    $3.00 - $4.88
    Cancelled during 1995.....................................     (4,875)    $4.88
                                                                 --------
    Outstanding, December 31, 1995............................    242,075     $3.00 - $4.88
    Exercised during 1996.....................................    (21,325)    $3.00 - $4.88
                                                                 --------
    Outstanding, December 31, 1996............................    220,750     $3.00 - $4.88
                                                                 ========
    Exercisable, December 31, 1996............................    163,238     $3.00 - $4.88
                                                                 ========
</TABLE>
 
     No further option shares will be granted under the prior plan.
 
                                      F-14
<PAGE>   66
 
                          DATUM INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Had compensation cost been determined on the basis of fair value pursuant
to FAS 123 net income and net income (loss) per share would have been as
follows:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                                  ------------------------
                                                                     1996          1995
                                                                  ----------     ---------
    <S>                                                           <C>            <C>
    Net income (loss)
      As reported...............................................  $1,974,000     $  60,000
                                                                  ===========    ==========
      Pro forma.................................................  $1,824,000     $(186,000)
                                                                  ===========    ==========
    Net income (loss) per share
      As reported...............................................  $      .46     $     .02
                                                                  ===========    ==========
      Pro forma.................................................  $      .43     $    (.05)
                                                                  ===========    ==========
</TABLE>
 
     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following assumptions used for grants during
both periods: risk free interest rates of 5.97% in 1996 and 6.94% in 1995,
expected volatility of 48% in 1996 and 49% in 1995, and an expected option life
of 5 years and no expected dividends in 1996 and 1995.
 
NOTE G -- 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 2% of employee deferral and 50% of the next 1% 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 $497, $408, and $190 for the years ended December 31, 1996, 1995 and
1994, respectively.
 
NOTE H -- U.S. GOVERNMENT AND FOREIGN SALES AND SIGNIFICANT CUSTOMERS
 
     Direct and indirect sales to the United States government aggregated
approximately $13,856, $14,812, and $10,043 in 1996, 1995 and 1994,
respectively. Direct sales to the United States government aggregated
approximately $5,668, $5,167, and $5,265 in 1996, 1995 and 1994, respectively.
Foreign sales in 1996, 1995 and 1994 amounted to $20,151, $13,033, and $7,340.
One customer accounted for 36%, 30% and 10% of net sales in 1996, 1995 and 1994,
respectively.
 
NOTE I -- COMMITMENTS
 
     Total rental expense for operating leases amounted to $1,735, $1,031, and
$380 in 1996, 1995 and 1994, respectively. The future minimum rental commitments
under all noncancelable operating leases, exclusive of property taxes and
certain occupancy costs, are as follows:
 
<TABLE>
            <S>                                                          <C>
            1997.......................................................  $ 1,337
            1998.......................................................    1,239
            1999.......................................................    1,221
            2000.......................................................    1,327
            2001.......................................................    1,241
            Thereafter.................................................    4,152
                                                                         -------
                      Total minimum lease payments.....................  $10,517
                                                                         =======
</TABLE>
 
                                      F-15
<PAGE>   67
 
   
                       REPORT OF INDEPENDENT ACCOUNTANTS
    
 
   
To the Board of Directors of Ball Corporation
    
 
   
In our opinion, the accompanying combined balance sheet and the related combined
statements of earnings, of changes in invested equity and of cash flows present
fairly, in all material respects, the financial position of Ball Efratom (the
Company) at October 30, 1994 and December 31, 1993, and the results of its
operations and its cash flows for the ten months in the period ended October 30,
1994 and for each of the two years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards 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.
    
 
   
Ball Efratom, as disclosed in the financial statements, has extensive
transactions and relationships with Ball Corporation and its affiliates. Because
of these relationships, it is possible that the terms of these transactions are
not the same as those that would result from transactions among wholly unrelated
parties.
    
 
   
PRICE WATERHOUSE LLP
    
 
   
Indianapolis, Indiana
    
   
December 12, 1994
    
 
                                      F-16
<PAGE>   68
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
                             COMBINED BALANCE SHEET
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
<TABLE>
<CAPTION>
                                                                     OCTOBER 30,     DECEMBER 31,
                                                                        1994             1993
                                                                     -----------     ------------
<S>                                                                  <C>             <C>
ASSETS
Current assets:
  Receivables......................................................    $ 5,299         $  4,333
  Inventories......................................................      8,123            8,220
  Prepaid expenses and other current assets........................        116              103
  Deferred income taxes............................................        997              733
                                                                     -----------     ------------
                                                                        14,535           13,389
Property, plant and equipment, net.................................      2,838            3,579
Goodwill...........................................................        344              389
                                                                     -----------     ------------
  Total assets.....................................................    $17,717         $ 17,357
                                                                     =========       ==========
LIABILITIES AND INVESTED EQUITY
Current liabilities:
  Accounts payable and accrued liabilities.........................    $ 1,949         $  2,178
  Accrued payroll and employee benefits............................      1,754            1,510
                                                                     -----------     ------------
                                                                         3,703            3,688
Deferred income taxes..............................................         17               77
Commitments and contingencies
Invested equity....................................................     13,997           13,592
                                                                     -----------     ------------
  Total liabilities and invested equity............................    $17,717         $ 17,357
                                                                     =========       ==========
</TABLE>
    
 
   
    The accompanying notes are an integral part of these combined financial
                                  statements.
    
 
                                      F-17
<PAGE>   69
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
                         COMBINED STATEMENT OF EARNINGS
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
<TABLE>
<CAPTION>
                                                        TEN             TWELVE           TWELVE
                                                    MONTHS ENDED     MONTHS ENDED     MONTHS ENDED
                                                    OCTOBER 30,      DECEMBER 31,     DECEMBER 31,
                                                        1994             1993             1992
                                                    ------------     ------------     ------------
<S>                                                 <C>              <C>              <C>
Revenue...........................................    $ 29,768         $ 32,887         $ 29,922
                                                    ------------     ------------     ------------
Costs and expenses:
  Cost of sales...................................      17,485           19,846           16,525
  Selling, general and administrative.............       6,748            6,891            7,113
  Research and development........................       3,624            3,752            3,569
                                                    ------------     ------------     ------------
                                                        27,857           30,489           27,207
                                                    ------------     ------------     ------------
Earnings before income taxes......................       1,911            2,398            2,715
Provision for income taxes........................         789              931            1,121
                                                    ------------     ------------     ------------
Net earnings......................................    $  1,122         $  1,467         $  1,594
                                                    ===========      ===========      ===========
</TABLE>
    
 
   
    The accompanying notes are an integral part of these combined financial
                                  statements.
    
 
                                      F-18
<PAGE>   70
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
                        COMBINED STATEMENT OF CASH FLOWS
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
<TABLE>
<CAPTION>
                                                        TEN             TWELVE           TWELVE
                                                    MONTHS ENDED     MONTHS ENDED     MONTHS ENDED
                                                    OCTOBER 30,      DECEMBER 31,     DECEMBER 31,
                                                        1994             1993             1992
                                                    ------------     ------------     ------------
<S>                                                 <C>              <C>              <C>
Cash flows from operating activities:
  Net earnings..................................       $1,122          $  1,467         $  1,594
  Adjustments to reconcile net earnings to net
     cash provided by operating activities:
     Depreciation and amortization..............        1,207             1,515            1,324
     Other......................................            4                17               --
     Other changes that provided (used) cash:
       Receivables..............................         (966)              133           (1,024)
       Inventories..............................           97              (777)             900
       Prepaid expenses and other current
          assets................................          (13)               11              (20)
       Accounts payable and accrued
          liabilities...........................         (229)              916             (270)
       Accrued payroll and employee benefits....          244               715           (1,004)
       Deferred income taxes....................         (324)              (80)            (234)
                                                    ------------     ------------     ------------
          Net cash provided by operating
            activities..........................        1,142             3,917            1,266
Cash flows from investing activities:
  Payments for property, plant and equipment....         (425)             (932)          (1,887)
                                                    ------------     ------------     ------------
          Net cash used by investing
            activities..........................         (425)             (932)          (1,887)
Cash flows from financing activities:
  Intercompany transactions, net................         (717)           (2,985)             621
                                                    ------------     ------------     ------------
  Net increase in cash..........................           --                --               --
  Cash at beginning of period...................           --                --               --
                                                    ------------     ------------     ------------
  Cash at end of period.........................       $   --          $     --         $     --
                                                    ===========      ===========      ===========
</TABLE>
    
 
   
    The accompanying notes are an integral part of these combined financial
                                  statements.
    
 
                                      F-19
<PAGE>   71
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
                COMBINED STATEMENT OF CHANGES IN INVESTED EQUITY
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
<TABLE>
<CAPTION>
                                                        TEN             TWELVE           TWELVE
                                                    MONTHS ENDED     MONTHS ENDED     MONTHS ENDED
                                                    OCTOBER 30,      DECEMBER 31,     DECEMBER 31,
                                                        1994             1993             1992
                                                    ------------     ------------     ------------
<S>                                                 <C>              <C>              <C>
Invested equity, beginning of period..............    $ 13,592         $ 15,110         $ 12,895
                                                    ------------     ------------     ------------
Net earnings......................................       1,122            1,467            1,594
                                                    ------------     ------------     ------------
Foreign currency translation adjustment:
  Cumulative translation adjustment, end of
     year.........................................         468              404              645
  Less: Cumulative translation adjustment,
     beginning
     of year......................................        (404)            (645)            (562)
                                                    ------------     ------------     ------------
  Current year translation adjustment.............          64             (241)              83
                                                    ------------     ------------     ------------
Intercompany transactions, net....................        (781)          (2,744)             538
                                                    ------------     ------------     ------------
Invested equity, end of period....................    $ 13,997         $ 13,592         $ 15,110
                                                    ===========      ===========      ===========
</TABLE>
    
 
   
    The accompanying notes are an integral part of these combined financial
                                  statements.
    
 
                                      F-20
<PAGE>   72
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
                     NOTES TO COMBINED FINANCIAL STATEMENTS
    
 
   
                     OCTOBER 30, 1994 AND DECEMBER 31, 1993
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
   
 
    
 
   
 1. NATURE OF OPERATIONS AND RELATIONSHIP WITH BALL CORPORATION
    
 
   
     Ball Efratom (the Company) comprises a domestic division of Ball
Corporation (Ball), operated as a part of Ball's Aerospace and Communication
Group (BACG), and a wholly-owned foreign subsidiary, Ball Efratom Elektronik
GmbH (Efratom GmbH). The Company manufactures and designs time and frequency
products which are used primarily in communications and navigation systems. The
Company has operations in Irvine, California and Hofolding, Germany. The Company
has extensive transactions and relationships with Ball and its affiliates.
Further information about such transactions is included in Notes 2 and 6.
    
 
   
     The Company operates in one business segment -- aerospace and
communications.
    
 
   
     On October 20, 1994, Ball entered into a stock purchase agreement with
Datum, Inc. Pursuant to the terms of the agreement, Ball will receive cash and
shares of Datum, Inc. in exchange for the Company.
    
 
   
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    
 
   
  Principles of combination
    
 
   
     The combined financial statements of the Company include the accounts of
the Ball Efratom division and Efratom GmbH. All material intercompany
transactions and balances have been eliminated in combination.
    
 
   
  Revenue recognition
    
 
   
     Revenue, other than that recorded under certain fixed price long-term
contracts, is recognized upon shipment of goods to customers. Revenue from
certain fixed price long-term contracts is recognized under the "cost to cost"
percentage of completion method of accounting. Provisions for anticipated losses
on contracts are recorded in full as they are identified.
    
 
   
  Cash and invested equity
    
 
   
     Ball performs cash management on a centralized basis for the Company.
Accordingly, during the normal course of business, Ball makes disbursements on
behalf of the Company and collects all cash receipts due the Company. In
addition, Ball allocates certain expenses to the Company and all current income
taxes of the Company are considered to have been paid by Ball. All such related
party transactions are recorded through the invested equity account.
    
 
   
  Inventories
    
 
   
     Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
    
 
   
  Property, plant and equipment
    
 
   
     Property, plant and equipment is stated at cost less accumulated
depreciation. Generally, depreciation is recorded using the straight-line method
over the estimated useful lives of the assets (building improvements, 20 years;
machinery and equipment, 5-10 years; furniture and fixtures, 7-10 years).
Leasehold improvements are amortized on a straight-line basis over the shorter
of the lease term or the estimated useful lives of the improvements.
    
 
                                      F-21
<PAGE>   73
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
    
 
   
                     OCTOBER 30, 1994 AND DECEMBER 31, 1993
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
     Maintenance, repairs and minor improvements are charged to expense as
incurred. When assets are sold or otherwise disposed, the cost and related
accumulated depreciation or amortization are removed from the accounts and any
resulting gain or loss is recognized.
    
 
   
  Goodwill
    
 
   
     Goodwill is recorded at cost less accumulated amortization and is being
amortized on a straight line basis over 20 years. Goodwill amortization expense
totalled $38, $45 and $45 in 1994, 1993 and 1992, respectively.
    
 
   
  Research and development costs
    
 
   
     Research and development costs are expensed as incurred in connection with
the Company's internal programs for the development of products and processes.
    
 
   
  Taxes on income
    
 
   
     The domestic operations of the Company are included in the consolidated
U.S. federal, state and local income tax returns of Ball. The operations of
Efratom GmbH are included in separate foreign income tax returns. However, for
purposes of these financial statements, income tax expense is computed as if the
Company was a separate taxpayer.
    
 
   
     The Company's tax provision was computed pursuant to the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," for all years presented. Under SFAS No. 109, deferred income
taxes reflect the future tax consequences of differences between tax bases of
assets and liabilities and their financial reporting amounts at each balance
sheet date based upon enacted income tax laws and tax rates. Income tax expense
or benefit is provided based on earnings reported in the financial statements.
The provision for income tax expense or benefit differs from the amounts of
income taxes currently payable, or paid, because certain items of income and
expense included in the combined financial statements are recognized in
different time periods by taxing authorities.
    
 
   
  Foreign currency translation
    
 
   
     Foreign currency financial statements of Efratom GmbH are translated using
period end exchange rates for assets and liabilities and using average exchange
rates during the period for results of operations and cash flows. Translation
adjustments are accumulated in invested equity. Foreign exchange gains and
losses incurred on foreign currency transactions are included in income.
    
 
   
  Concentration of credit and major customers
    
 
   
     A substantial portion of the accounts receivable at October 30, 1994 and
December 31, 1993 is due from a group of companies in the telecommunications
industry and from government contractors and subcontractors. Historically, the
Company has not incurred any significant credit related losses.
    
 
   
     At October 30, 1994 and December 31, 1993, accounts receivable due from two
telecommunications customers totalled $2,099 and $1,465, respectively. Sales to
one customer amounted to $13,302, $12,613 and $7,416 for the ten month period
ended October 30, 1994 and the years ended December 31, 1993 and 1992,
respectively. Sales to another customer were $2,340, $3,227 and $3,973,
    
 
                                      F-22
<PAGE>   74
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
    
 
   
                     OCTOBER 30, 1994 AND DECEMBER 31, 1993
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
respectively, during the same periods. In addition, sales to U.S. government
contractors, considered as a group, during these periods amounted to $4,697,
$6,193 and $11,114, respectively.
    
 
   
  Pension benefits
    
 
   
     Eligible employees of the Company participate in the Ball Corporation
Pension Plan for Salaried Employees, which is a defined benefit plan. Pension
expense recorded in the Company's combined financial statements represents an
allocation from Ball based on the Company's actuarially determined normal
service cost and amortization of prior service cost and a proportional share of
all other pension expense components of the plan. The Company's proportional
share is based on the ratio of projected benefit obligation for Company
employees relative to the projected benefit obligation for all Ball employees
covered under the plan. Ball has retained the deferred pension assets and
accrued liabilities of the plan.
    
 
   
  Other postretirement benefits
    
 
   
     Company employees meeting certain eligibility requirements participate in
other postretirement benefit plans of Ball which provide retirement health care
and life insurance benefits. The Company's allocation of plan expenses was
actuarially determined by applying the provisions of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," to the Company's
active work force and other eligible individuals. None of the transition cost
associated with the Company's active workforce and other eligible individuals
was allocated to the Company upon adoption of SFAS No. 106 by Ball. Ball has
retained the postretirement benefit liability associated with the Company's
active workforce and other eligible individuals.
    
 
   
  Other benefits
    
 
   
     Active domestic employees of the Company, meeting certain eligibility
requirements, can elect to participate in group health care plans of Ball. The
Company's combined financial statements include group health insurance claims
paid by Ball on behalf of the Company. Estimated claims incurred but not paid
have been retained by Ball.
    
 
   
     Employees of the Company who participate in Ball's 401(k) salary conversion
plan and meet certain eligibility requirements automatically participate in
Ball's Employee Stock Ownership Plan (ESOP). The expense related to the ESOP
recorded in the Company's combined financial statements represents a
proportional allocation from Ball for the value of shares allocated to
participants' accounts, plus administrative costs, based on the ratio of Ball's
contributions for Company employees relative to contributions for all
participating Ball employees. Ball has retained the liability for the ESOP.
    
 
   
     Workers' compensation expenses are recorded based upon costs incurred for
Company employees. The workers' compensation reserve recorded in the combined
financial statements represents an estimate of the Company's liability for
unpaid costs.
    
 
   
  Incentive compensation
    
 
   
     Certain employees are eligible to participate in the Ball incentive
compensation plan. Expenses of the plan are accrued in the year the related
performance occurs. Certain participating employees are eligible to defer a
portion of their annual incentive compensation. The expense recorded in the
    
 
                                      F-23
<PAGE>   75
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
    
 
   
                     OCTOBER 30, 1994 AND DECEMBER 31, 1993
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
Company's combined financial statements includes interest expense based upon the
deferred compensation account balances for participating Company employees. Ball
has retained the liability for deferred compensation.
    
 
   
  General and administrative expense allocations
    
 
   
     Various centralized Ball Corporate and BACG services and general and
administrative costs, such as accounting, audit, treasury, legal, credit, human
resources, risk management and executive management are allocated to the Company
by Ball and BACG based principally upon a weighted factor which considers the
relative proportions of consolidated group and corporate sales, payroll,
inventory and fixed assets represented by Efratom.
    
 
   
 3. INVENTORIES
    
 
   
     Inventories consist of the following:
    
 
   
<TABLE>
<CAPTION>
                                                             OCTOBER 30,     DECEMBER 31,
                                                                1994             1993
                                                             -----------     ------------
        <S>                                                  <C>             <C>
        Raw materials and subcomponents....................    $ 3,411          $3,953
        Work-in-Progress...................................      2,431           3,358
        Finished goods.....................................      2,784           1,502
                                                             -----------     ------------
                                                                 8,626           8,813
        Less reserves......................................       (503)           (593)
                                                             -----------     ------------
                                                               $ 8,123          $8,220
                                                             =========       ==========
</TABLE>
    
 
   
 4. PROPERTY, PLANT AND EQUIPMENT
    
 
   
     Property, plant and equipment consist of the following:
    
 
   
<TABLE>
<CAPTION>
                                                             OCTOBER 30,     DECEMBER 31,
                                                                1994             1993
                                                             -----------     ------------
        <S>                                                  <C>             <C>
        Machinery and equipment............................    $ 8,670         $  8,127
        Furniture and fixtures.............................        641              653
        Leasehold improvements.............................        815              815
                                                             -----------     ------------
                                                                10,126            9,595
        Less: Accumulated depreciation and amortization....     (7,396)          (6,298)
                                                             -----------     ------------
                                                                 2,730            3,297
        Construction-in-progress...........................        108              282
                                                             -----------     ------------
                                                               $ 2,838         $  3,579
                                                             =========       ==========
</TABLE>
    
 
                                      F-24
<PAGE>   76
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
    
 
   
                     OCTOBER 30, 1994 AND DECEMBER 31, 1993
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
 5. TAXES ON INCOME
    
 
   
     The amounts of income from continuing operations before income taxes by
national jurisdiction follow:
    
 
   
<TABLE>
<CAPTION>
                                                TEN             TWELVE           TWELVE
                                            MONTHS ENDED     MONTHS ENDED     MONTHS ENDED
                                            OCTOBER 30,      DECEMBER 31,     DECEMBER 31,
                                                1994             1993             1992
                                            ------------     ------------     ------------
        <S>                                 <C>              <C>              <C>
        Domestic..........................     $1,738           $1,882           $2,716
        Foreign...........................        173              516               (1)
                                            ------------     ------------     ------------
                                               $1,911           $2,398           $2,715
                                            ===========      ===========      ===========
</TABLE>
    
 
   
     The provision for income taxes by jurisdiction is as follows:
    
 
   
<TABLE>
<CAPTION>
                                                    TEN           TWELVE         TWELVE
                                                MONTHS ENDED   MONTHS ENDED   MONTHS ENDED
                                                OCTOBER 30,    DECEMBER 31,   DECEMBER 31,
                                                    1994           1993           1992
                                                ------------   ------------   ------------
        <S>                                     <C>            <C>            <C>
        Current
          United States.......................     $  833         $  667         $1,064
          State and local.....................        210            191            291
          Foreign.............................         69            153
                                                ------------   ------------   ------------
                  Total current...............      1,112          1,011          1,355
                                                ------------   ------------   ------------
        Deferred
          United States.......................     $ (280)        $  (69)        $ (203)
          State and local.....................        (43)           (11)           (31)
                                                ------------   ------------   ------------
                  Total deferred..............       (323)           (80)          (234)
                                                ------------   ------------   ------------
                  Total provision for income
                    taxes.....................     $  789         $  931         $1,121
                                                ===========    ===========    ===========
</TABLE>
    
 
   
     The reconciliation of the statutory U.S. income tax rate to the effective
income tax rate is as follows:
    
 
   
<TABLE>
<CAPTION>
                                                    TEN           TWELVE         TWELVE
                                                MONTHS ENDED   MONTHS ENDED   MONTHS ENDED
                                                OCTOBER 30,    DECEMBER 31,   DECEMBER 31,
                                                    1994           1993           1992
                                                ------------   ------------   ------------
        <S>                                     <C>            <C>            <C>
        Statutory U.S. federal income tax
          rate................................      34.0%          34.0%          34.0%
        Increase (decrease) in rates due to:
        State and local income taxes, net.....       5.8            5.0            6.3
        Other.................................       1.5            (.2)           1.0
                                                   -----          -----          -----
        Effective income tax rate.............      41.3%          38.8%          41.3%
                                                ===========    ===========    ===========
</TABLE>
    
 
                                      F-25
<PAGE>   77
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
    
 
   
                     OCTOBER 30, 1994 AND DECEMBER 31, 1993
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
     Significant components of deferred tax (assets) liabilities is as follows:
    
 
   
<TABLE>
<CAPTION>
                                                               OCTOBER 30,   DECEMBER 31,
                                                                  1994           1993
                                                               -----------   ------------
        <S>                                                    <C>           <C>
        Gross deferred tax (assets):
          Incentive compensation.............................     $(353)        $  (35)
          Accrued vacation pay...............................      (124)           (91)
          Intercompany profit in inventory...................       (80)           (53)
          Inventory..........................................      (356)          (519)
          Other..............................................       (84)           (35)
                                                               -----------   ------------
                                                                   (997)          (733)
                                                               -----------   ------------
        Gross deferred tax liabilities:
          Depreciation.......................................        17             77
                                                               -----------   ------------
                  Total gross deferred tax liabilities.......        17             77
                                                               -----------   ------------
                  Net deferred tax assets....................     $(980)        $ (656)
                                                               =========     ==========
</TABLE>
    
 
   
     The current tax provisions are considered to have been paid by Ball and
such transactions were recorded through the invested equity account.
    
 
   
 6. RELATED PARTY TRANSACTIONS
    
 
   
     The Company has extensive transactions and relationships with Ball and its
affiliates. Generally, direct transactions and allocations between the Company
and Ball and its affiliates are recorded at cost. The Company participates in
Ball-sponsored programs for which it receives a direct charge from Ball
representing the Company's proportional share of the costs incurred. The
aforementioned transactions may not reflect the costs and revenues which would
be derived from transactions between wholly unrelated entities. Refer to Note 2
of the combined financial statements which describes the bases of allocation and
policies regarding related party transactions.
    
 
   
     The following is a summary of the nature and amount of expenses incurred by
Ball and its affiliates which were charged to the Company for the respective
periods.
    
 
   
<TABLE>
<CAPTION>
                                                    TEN           TWELVE         TWELVE
                                                MONTHS ENDED   MONTHS ENDED   MONTHS ENDED
                                                OCTOBER 30,    DECEMBER 31,   DECEMBER 31,
                                                    1994           1993           1992
                                                ------------   ------------   ------------
        <S>                                     <C>            <C>            <C>
        General and administrative allocations
          from Ball and BACG..................     $1,517         $1,341         $1,637
          Employee benefits other than
             pensions.........................      1,201          1,363          1,334
          Pension plan........................        149            179           (372)
                                                ------------   ------------   ------------
                                                   $2,867         $2,883         $2,599
                                                ===========    ===========    ===========
</TABLE>
    
 
   
     The Company provides management information services for Ball Imaging
Products and Ball Communication and Video Products, which are components of
BACG. Charges for these services totaled $90 and $46 during 1994 and 1993,
respectively.
    
 
   
     All transactions and related intercompany balances with Ball and its
affiliates are recorded through the Company's invested equity account. No
interest expense is allocated to the Company on the invested equity balance.
    
 
                                      F-26
<PAGE>   78
 
   
                   BALL EFRATOM (A UNIT OF BALL CORPORATION)
    
 
   
               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
    
 
   
                     OCTOBER 30, 1994 AND DECEMBER 31, 1993
    
   
                         (DOLLAR AMOUNTS IN THOUSANDS)
    
 
   
 7. COMMITMENTS
    
 
   
     The Company leases certain office space, facilities and equipment under
noncancelable operating leases which expire in various years through 1999. These
leases generally provide for renewal options ranging from one to five years. In
addition, one lease contains an escalation clause for periodic rent increases
based upon economic factors. Rental expense incurred under such leases was $760,
$935 and $818 in 1994, 1993 and 1992, respectively.
    
 
   
     Future minimum lease commitments are as follows:
    
 
   
<TABLE>
<CAPTION>
                                                           OCTOBER 30,
                                                              1994
                                                           -----------
                        <S>                                <C>
                        1995.............................    $   723
                        1996.............................        727
                        1997.............................        255
                        1998.............................        124
                        1999.............................         74
                                                           -----------
                                                             $ 1,903
                                                           =========
</TABLE>
    
 
   
 8. PRODUCT LINE DISCONTINUANCE
    
 
   
     In late 1994, Company management decided to discontinue the quartz
oscillator product line. Neither the manner nor the timing of discontinuing this
product has been determined. The product line represented 7.3%, 5.5% and 2.0%,
respectively, of 1994, 1993 and 1992 combined revenue.
    
 
   
     Recovery of the Company's investment in related inventory and manufacturing
equipment, as well as outstanding, noncancelable purchase commitments, the
aggregate value of which approximated $1.0 million at October 30, 1994, is
dependent upon future product sales and the proceeds which may be realized upon
the eventual disposition of the product line. No provision has been made at
October 30, 1994 for the financial impact of this product line discontinuance.
However, while management does not believe that such impact would be material to
invested equity or cash flows of Efratom, it is possible that the impact upon
results of operations for a given period could be material.
    
 
   
 9. SUBSEQUENT EVENT (UNAUDITED)
    
 
   
     The Company has been involved in customer discussions concerning the repair
cost and product service life of a product for which the Company's warranty
period has expired. As a matter of policy, the Company charges customers for all
service work performed on products no longer under warranty. It has not been the
Company's practice to extend the product warranty beyond the original warranty
period, and the Company has not altered its warranty policy in connection with
these customer discussions. Accordingly, no provision was made at October 30,
1994 for the possible effects of a resolution of this matter.
    
 
   
     Late in January 1995, the Company offered to repair, as necessary for a
limited period, and without charge, certain out of warranty units used in
critical customer applications which presently function normally. This repair
proposal was made to maintain and enhance valuable customer relationships and to
secure significant future sales opportunities. The Company estimates that the
repair costs associated with this proposal are in the range of $500 to $1,500.
However, there can be no assurance that such amounts will not be higher.
    
 
                                      F-27
<PAGE>   79
 
======================================================
 
  NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
 
                               ------------------
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                        PAGE
                                        -----
<S>                                     <C>
Prospectus Summary.....................     3
Risk Factors...........................     5
Use of Proceeds........................    14
Price Range of Common Stock............    14
Dividend Policy........................    14
Capitalization.........................    15
Selected Consolidated Financial Data...    16
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...........................    17
Business...............................    23
Management.............................    37
Principal and Selling Stockholders.....    43
Description of Capital Stock...........    45
Underwriting...........................    47
Legal Matters..........................    48
Experts................................    49
Additional Information.................    49
Incorporation of Certain Documents by
  Reference............................    50
Index to Financial Statements..........   F-1
</TABLE>
    
 
======================================================
======================================================
 
   
                                2,452,778 SHARES
    
 
                                      LOGO
 
                                      LOGO
 
                                  COMMON STOCK
                              --------------------
                                   PROSPECTUS
                              --------------------
   
                               HAMBRECHT & QUIST
    
 
   
                            OPPENHEIMER & CO., INC.
    
 
                              VAN KASPER & COMPANY
                                           , 1997
 
======================================================
<PAGE>   80
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 14.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
     The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee, the NASD filing fee and
the Nasdaq National Market application fee.
 
   
<TABLE>
<CAPTION>
                                                                          TO BE PAID
                                                                            BY THE
                                                                           COMPANY
                                                                        --------------
        <S>                                                             <C>
        SEC registration fee..........................................     $ 16,347
        NASD filing fee...............................................        5,895
        Nasdaq National Market application fee........................       17,500
        Printing expenses.............................................      125,000
        Legal fees and expenses.......................................      125,000
        Accounting fees and expenses..................................      100,000
        Blue sky fees and expenses....................................       10,000
        Transfer agent and registrar fees.............................        5,000
        Miscellaneous.................................................       95,258
                                                                           --------
                  Total...............................................     $500,000
                                                                           ========
</TABLE>
    
 
------------------------------
 
* To be filed by amendment
 
   
     The Company will bear the expenses in connection with the registration and
offering of shares by the Selling Stockholders, other than the underwriting
discounts and commissions and the fees and expenses of any separate counsel,
advisors or accountants retained by one of the Selling Stockholders.
    
 
ITEM 15.  INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     (a) As permitted by the Delaware General Corporation Law, the Restated
Certificate of Incorporation, as amended of the Company (the "Restated
Certificate") limits the liability of directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a directors,
except to the extent otherwise required by the Delaware General Corporation Law.
The Company also carries directors and officers liability insurance.
 
     (b) The Restated Certificate provides that the Company will indemnify each
person who was or is made a party to any proceeding by reason of the fact that
such person is or was a director or officer of the Company against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith to the fullest extent authorized by the Delaware General Corporation
Law. The Company's Bylaws provide for a similar indemnity to directors and
officers of the Company to the fullest extent authorized by the Delaware General
Corporation Law.
 
     (c) The Restated Certificate also gives the Company the ability to enter
into indemnification agreements with each of its directors and officers. The
Company has entered into indemnification agreement with each of its directors
and officers (Exhibit 10.10 hereto), which provide for the indemnification of
directors and officers of the Company against any and all expenses, judgments,
fines, penalties and amounts paid in settlement, to the fullest extent permitted
by law.
 
                                      II-1
<PAGE>   81
 
ITEM 16.  EXHIBITS
 
   
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                   DESCRIPTION
        --------  ----------------------------------------------------------------------------
        <S>       <C>
         1.1      Form of Underwriting Agreement.
         2.1      Stock Purchase Agreement dated as of October 20, 1994 by and among Ball
                  Corporation, Efratom Holding, Inc. and the Registrant (incorporated by
                  reference to Exhibit 10.31 to the Company's Quarterly Report on Form 10-Q
                  for the quarter ended September 30, 1994).
         4.1      Stockholder's Agreement dated as of March 17, 1995 by and between the
                  Registrant and Efratom Holding, Inc. (incorporated by reference to the same
                  numbered exhibit to Registrant's Form 10-K for the year ended December 31,
                  1994).
         5.1      Opinion of Stradling, Yocca, Carlson & Rauth relating to the Common Stock
                  covered by this Registration Statement.
        10.3      1981 Restricted Stock Award Plan, as amended to date (incorporated by
                  reference to the same numbered exhibit to Registrant's Annual Report on Form
                  10-K for the year ended December 31, 1991).
        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, 33-10335 and 33-41709).
        10.6      Executive Agreement dated March 7, 1986 with Louis B. Horwitz, (incorporated
                  by reference to the same numbered exhibit to Registrant's Annual Report on
                  Form 10-K for the year ended December 31, 1991).
        10.10     Form of Indemnification Agreement dated May 27, 1987 as entered into with
                  certain directors and officers of Registrant (incorporated by reference to
                  the same numbered exhibit to Registrant's Annual Report on Form 10-K for the
                  year ended December 31, 1991).
        10.18     Lease commencing January 1, 1992 relating to Registrant's facility at 749
                  Ward Drive, Goleta, California (incorporated by reference to the 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 the 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 the 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).
        10.28     Sublease commencing November 1, 1993, relating to the Registrant's facility
                  at 749 Ward Drive, Goleta, California (incorporated by reference to the same
                  numbered exhibit to the Registrant's Annual Report on Form 10-K for the year
                  ended December 31, 1993).
        10.29     1994 Stock Incentive Plan (incorporated by reference to Registrant's
                  registration statement on Form S-8 Registration #33-79772).
        10.29.1   Amendment to 1994 Stock Incentive Plan, effective March 16, 1995
                  (incorporated by reference to the same numbered exhibit to the Registrant's
                  Annual Report on Form 10-K for the year ended December 31, 1994).
        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).
</TABLE>
    
 
                                      II-2
<PAGE>   82
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                   DESCRIPTION
        --------  ----------------------------------------------------------------------------
        <S>       <C>
        10.31     Lease Agreement dated February 3, 1992 by and between The Irvine Company and
                  Ball Efratom for EFRATOM Time and Frequency Products, Inc.'s facility at 4
                  Cromwell, Suite 201, Irvine, California (incorporated by reference to the
                  same numbered exhibit to the Registrant's Annual Report on Form 10-K for the
                  year ended December 31, 1994).
        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 to the Registrant's Annual Report 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 to the Registrant's Annual Report on Form 10-K for the year
                  ended December 31, 1994).
        10.32.2   Amendment to Leases dated May 11, 1995 by and 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).
        10.32.3   Second Amendment to Lease dated May 11, 1995 by and between The Irvine
                  Company and the Registrant, relating to the Registrant's facility at 4
                  Cromwell, Irvine, California (incorporated by reference to the same numbered
                  exhibit to the Registrant's Form 10-Q for the quarter ended June 30, 1995).
        10.32.4   Second Amendment to Lease dated May 11, 1995 by and between The Irvine
                  Company and the Registrant, relating to the Registrant's facility at 3
                  Parker, Irvine, California (incorporated by reference to the same numbered
                  exhibit to the Registrant's Form 10-Q for the quarter ended June 30, 1995).
        10.34     Industrial Lease Agreement dated May 11, 1995, by and between The Irvine
                  Company and the Registrant, relating to the Registrant's facility at 9975
                  Toledo Way, Irvine, California (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 between Berg & Berg Developers and the Registrant dated
                  January 4, 1996, 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).
        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 Note, 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 Quarter Report on Form 10-Q for the quarter
                  ended September 30, 1996).
        10.39     Series B Note, 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 Quarter Report on Form 10-Q for the quarter
                  ended September 30, 1996).
</TABLE>
 
                                      II-3
<PAGE>   83
 
   
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                   DESCRIPTION
        --------  ----------------------------------------------------------------------------
        <S>       <C>
        10.40     Agreement dated June 12, 1995 between the Company and AT&T Corp. (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).
        10.41     Consulting Agreement dated September 26, 1996, between the Company and
                  Robert F. Ellis.+
        11        Computation of Earnings Per Common Share.+
        23.1      Consent of Stradling, Yocca, Carlson & Rauth (included in Exhibit 5.1)
        23.2      Consent of Price Waterhouse LLP, independent accountants.
        23.3      Consent of Price Waterhouse LLP, independent accountants.
        24.1      Power of Attorney.+
        27.1      Financial Data Schedule.+
</TABLE>
    
 
------------------------------
 
   
+ Previously filed.
    
 
ITEM 17.  UNDERTAKINGS
 
     The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
 
     Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
 
     The Company hereby undertakes that:
 
          (1) For purposes of determining any liability under the Act, the
     information omitted from the form of prospectus filed as part of a
     Registration Statement in reliance upon Rule 430A and contained in the form
     of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
     497(h) under the Act shall be deemed to be part of the Registration
     Statement as of the time it was declared effective.
 
          (2) For the purpose of determining any liability under the Act, each
     post-effective amendment that contains a form of prospectus shall be deemed
     to be a new registration statement relating to the securities offered
     therein, and the offering of such securities at that time shall be deemed
     to be the initial bona fide offering thereof.
 
                                      II-4
<PAGE>   84
 
                                   SIGNATURES
 
   
     Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Irvine, State of California, on the 26th day of
March, 1997.
    
 
                                          Datum Inc.
 
                                          By: /s/ LOUIS B. HORWITZ
                                            ------------------------------------
                                            Louis B. Horwitz
                                            President and Chief Executive
                                              Officer
 
   
     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
    
 
   
<TABLE>
<CAPTION>
                   SIGNATURE                               TITLE                    DATE
-----------------------------------------------    ----------------------    ------------------
<S>                                                <C>                       <C>
 
             /s/ LOUIS B. HORWITZ                     President, Chief       March 26, 1997
-----------------------------------------------    Executive Officer and
               Louis B. Horwitz                     Director (Principal
                                                     Executive Officer)
              /s/ DAVID A. YOUNG                      Chief Financial        March 26, 1997
-----------------------------------------------      Officer (Principal
                David A. Young                         Financial and
                                                    Principal Accounting
                                                          Officer)
 
                       *                                  Director           March 26, 1997
-----------------------------------------------
               G. Tilton Gardner
 
                       *                                  Director           March 26, 1997
-----------------------------------------------
               Donovan B. Hicks
 
                       *                                  Director           March 26, 1997
-----------------------------------------------
                R. David Hoover
 
                       *                                  Director           March 26, 1997
-----------------------------------------------
                Michael M. Mann
 
                       *                                  Director           March 26, 1997
-----------------------------------------------
                 Dan L. McGurk
 
                       *                                  Director           March 26, 1997
-----------------------------------------------
                Edward A. Money
 
                       *                                  Director           March 26, 1997
-----------------------------------------------
              Thomas J. O'Rourke
</TABLE>
    
 
   
*By: /s/ LOUIS B. HORWITZ
    
     -------------------------------
   
            Louis B. Horwitz
    
   
            Attorney-in-Fact
    
 
                                      II-5
<PAGE>   85
 
                          DATUM INC. AND SUBSIDIARIES
 
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                   BALANCE AT                                                        BALANCE AT
                                   BEGINNING                                              *OTHER       END OF
           DESCRIPTION             OF PERIOD    ADDITIONS   DEDUCTIONS   ACQUISITIONS   DEDUCTIONS     PERIOD
---------------------------------  ----------   ---------   ----------   ------------   ----------   ----------
<S>                                <C>          <C>         <C>          <C>            <C>          <C>
Year Ended December 31, 1996
  Allowance for doubtful
     accounts....................    $   68      $   121      $   36                                   $  107
  Reserve for inventories........     1,952        1,309       1,177                                    2,084
  Accumulated amortization of
     acquired intangible
     assets......................     1,162          894                                                2,056
Year Ended December 31, 1995
  Allowance for doubtful
     accounts....................        93           53          86         $ 49          $ 41            68
  Reserve for inventories........       854        1,124       1,024          998                       1,952
  Accumulated amortization of
     acquired intangible
     assets......................       546          616                                                1,162
Year Ended December 31, 1994
  Allowance for doubtful
     accounts....................       131           31          31                         38            93
  Reserve for inventories........       872          332         350                                      854
  Accumulated amortization of
     acquired intangible
     assets......................       467           79                                                  546
</TABLE>
 
---------------
 
* Aacom note payments received.
 
                                       S-1
<PAGE>   86
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
        EXHIBIT                                                                       NUMBERED
         NUMBER                             DESCRIPTION                                 PAGE
        --------  ----------------------------------------------------------------   -----------
        <S>       <C>                                                                <C>
         1.1      Form of Underwriting Agreement..................................
         2.1      Stock Purchase Agreement dated as of October 20, 1994 by and
                  among Ball Corporation, Efratom Holding, Inc. and the Registrant
                  (incorporated by reference to Exhibit 10.31 to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended September
                  30, 1994).......................................................
         4.1      Stockholder's Agreement dated as of March 17, 1995 by and
                  between the Registrant and Efratom Holding, Inc. (incorporated
                  by reference to the same numbered exhibit to Registrant's Form
                  10-K for the year ended December 31, 1994)......................
        5.1       Opinion of Stradling, Yocca, Carlson & Rauth relating to the
                  Common Stock covered by this Registration Statement.............
        10.3      1981 Restricted Stock Award Plan, as amended to date
                  (incorporated by reference to the same numbered exhibit to
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1991)..............................................
        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, 33-10335 and 33-41709)............
        10.6      Executive Agreement dated March 7, 1986 with Louis B. Horwitz,
                  (incorporated by reference to the same numbered exhibit to
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1991)..............................................
        10.10     Form of Indemnification Agreement dated May 27, 1987 as entered
                  into with certain directors and officers of Registrant
                  (incorporated by reference to the same numbered exhibit to
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1991)..............................................
        10.18     Lease commencing January 1, 1992 relating to Registrant's
                  facility at 749 Ward Drive, Goleta, California (incorporated by
                  reference to the 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 the 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 the 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).......................................................
        10.28     Sublease commencing November 1, 1993, relating to the
                  Registrant's facility at 749 Ward Drive, Goleta, California
                  (incorporated by reference to the same numbered exhibit to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1993)..............................................
</TABLE>
    
<PAGE>   87
 
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
        EXHIBIT                                                                       NUMBERED
         NUMBER                             DESCRIPTION                                 PAGE
        --------  ----------------------------------------------------------------   -----------
        <S>       <C>                                                                <C>
        10.29     1994 Stock Incentive Plan (incorporated by reference to
                  Registrant's registration statement on Form S-8 Registration
                  #33-79772)......................................................
        10.29.1   Amendment to 1994 Stock Incentive Plan, effective March 16, 1995
                  (incorporated by reference to the same numbered exhibit to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994)..............................................
        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).............................................
        10.31     Lease Agreement dated February 3, 1992 by and between The Irvine
                  Company and Ball Efratom for EFRATOM Time and Frequency
                  Products, Inc.'s facility at 4 Cromwell, Suite 201, Irvine,
                  California (incorporated by reference to the same numbered
                  exhibit to the Registrant's Annual Report on Form 10-K for the
                  year ended December 31, 1994)...................................
        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 to the Registrant's Annual Report 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 to the Registrant's
                  Annual Report on Form 10-K for the year ended December 31,
                  1994)...........................................................
        10.32.2   Amendment to Leases dated May 11, 1995 by and 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)....................................
        10.32.3   Second Amendment to Lease dated May 11, 1995 by and between The
                  Irvine Company and the Registrant, relating to the Registrant's
                  facility at 4 Cromwell, Irvine, California (incorporated by
                  reference to the same numbered exhibit to the Registrant's Form
                  10-Q for the quarter ended June 30, 1995).......................
        10.32.4   Second Amendment to Lease dated May 11, 1995 by and between The
                  Irvine Company and the Registrant, relating to the Registrant's
                  facility at 3 Parker, Irvine, California (incorporated by
                  reference to the same numbered exhibit to the Registrant's Form
                  10-Q for the quarter ended June 30, 1995).......................
        10.34     Industrial Lease Agreement dated May 11, 1995, by and between
                  The Irvine Company and the Registrant, relating to the
                  Registrant's facility at 9975 Toledo Way, Irvine, California
                  (incorporated by reference to the same numbered exhibit to the
                  Registrant's Form 10-Q for the quarter ended June 30, 1995).....
</TABLE>
<PAGE>   88
 
   
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
        EXHIBIT                                                                       NUMBERED
         NUMBER                             DESCRIPTION                                 PAGE
        --------  ----------------------------------------------------------------   -----------
        <S>       <C>                                                                <C>
        10.35     Lease Agreement between Berg & Berg Developers and the
                  Registrant dated January 4, 1996, 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)..................
        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 Note, 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
                  Quarter Report on Form 10-Q for the quarter ended September 30,
                  1996)...........................................................
        10.39     Series B Note, 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
                  Quarter Report on Form 10-Q for the quarter ended September 30,
                  1996)...........................................................
        10.40     Agreement dated June 12, 1995 between the Company and AT&T Corp.
                  (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).....................................
        10.41     Consulting Agreement dated September 26, 1996, between the
                  Company and Robert F. Ellis+....................................
        11        Computation of Earnings Per Common Share+.......................
        23.1      Consent of Stradling, Yocca, Carlson & Rauth (included in
                  Exhibit 5.1)....................................................
        23.2      Consent of Price Waterhouse LLP, independent accountants........
        23.3      Consent of Price Waterhouse LLP, independent accountants........
        24.1      Power of Attorney+..............................................
        27.1      Financial Data Schedule+........................................
</TABLE>
    
 
---------------
 
* To be filed by amendment.
 
   
+ Previously filed.