**Exhibit 10.40**

 
| WELLS FARGO    |   | REVOLVING LINE OF CREDIT NOTE |
|----------------|--------|-------------------------------|
| $10,000,000.00 |   | San Jose, California          |
|           |   | June 1, 2005             |

 

FORVALUE RECEIVED, the undersigned SYMMETRICOM, INC. (“Borrower”) promises to payto the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”) at its officeat Santa Clara Technology RCBO, 121 Park Center Plaza, 3rd Floor, San Jose, CA95113, or at such other place as the holder hereof may designate, in lawfulmoney of the United States of America and in immediately available funds, theprincipal sum of $10,000,000.00, or so much thereof as may be advanced and beoutstanding, with interest thereon, to be computed on each advance from thedate of its disbursement as set forth herein.

 

1.             DEFINITIONS:

 

As used herein, thefollowing terms shall have the meanings set forth after each, and any otherterm defined in this Note shall have the meaning set forth at the placedefined:

 

1.1 “Business Day” means any day except a Saturday,Sunday or any other day on which commercial banks in California are authorizedor required by law to close.

 

1.2 “Fixed Rate Term” means a period commencing on aBusiness Day and continuing for **1, 2 or 3months,**as designated by Borrower, during which all or a portion ofthe outstanding principal balance of this Note bears interest determined inrelation to LIBOR; provided however, that no Fixed Rate Term may be selectedfor a principal amount less than **$100,000.00;**and provided further, that no Fixed Rate Term shall extend beyondthe scheduled maturity date hereof. If any Fixed Rate Term would end on a daywhich is not a Business Day, then such Fixed Rate Term shall be extended to thenext succeeding Business Day.

 

1.3 “LIBOR” means the rate per annum (roundedupward, if necessary, to the nearest whole 1/8 of 1%) determined by dividingBase LIBOR by a percentage equal to 100% less any LIBOR Reserve Percentage.

 

(a) “BaseLIBOR” means the rate per annum for United States dollar deposits quoted byBank as the Inter-Bank Market Offered Rate, with the understanding that suchrate is quoted by Bank for the purpose of calculating effective rates ofinterest for loans making reference thereto, on the first day of a Fixed RateTerm for delivery of funds on said date for a period of time approximatelyequal to the number of days in such Fixed Rate Term and in an amountapproximately equal to the principal amount to which such Fixed Rate Termapplies. Borrower understands and agrees that Bank may base its quotation ofthe Inter-Bank Market Offered Rate upon such offers or other market indicatorsof the Inter-Bank Market as Bank in its discretion deems appropriate including,but not limited to, the rate offered for U.S. dollar deposits on the LondonInter-Bank Market.

 

(b) “LIBORReserve Percentage” means the reserve percentage prescribed by the Board ofGovernors of the Federal Reserve System (or any successor) for “EurocurrencyLiabilities” (as defined in Regulation D of the Federal Reserve Board, asamended), adjusted by Bank for expected changes in such reserve percentageduring the applicable Fixed Rate Term.

 

1.4 “Prime Rate” means at any time the rate ofinterest most recently announced within Bank at its principal office as itsPrime Rate, with the understanding that the Prime Rate is one of Bank’s baserates and serves as the basis upon which effective rates of interest arecalculated for those loans making reference thereto, and is evidenced by therecording thereof after its announcement in such internal publication orpublications as Bank may designate.

 

2.                                       **INTEREST:**

 

2.1 Interest. The outstanding principalbalance of this Note shall bear interest (computed on the basis of a **360-**day year, actual days elapsed) either (a) ata fluctuating rate per annum **equal to**thePrime Rate in effect from time to time, or (b) at a fixed rate per annumdetermined by Bank to be **1.75000%**aboveLIBOR in effect on the first day of the applicable Fixed Rate Term. Wheninterest is determined in relation to the Prime Rate, each change in the rateof interest hereunder shall become effective on the date each Prime Rate changeis announced within Bank. With respect to each LIBOR selection option selectedhereunder, Bank is hereby authorized to note the date, principal amount,interest rate and Fixed Rate Term applicable thereto and any payments madethereon on Bank’s books and records (either manually or by electronic entry)and/or on any schedule attached to this Note, which notations shall beprima facie evidence of the accuracy of the information noted.

 

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2.2 Selection of Interest Rate Options. Atany time any portion of this Note bears interest determined in relation toLIBOR, it may be continued by Borrower at the end of the Fixed Rate Termapplicable thereto so that all or a portion thereof bears interest determinedin relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designatedby Borrower. At any time any portion of this Note bears interest determined inrelation to the Prime Rate, Borrower may convert all or a portion thereof sothat it bears interest determined in relation to LIBOR for a Fixed Rate Termdesignated by Borrower. At such time as Borrower requests an advance hereunderor wishes to select a LIBOR option for all or a portion of the outstandingprincipal balance hereof, and at the end of each Fixed Rate Term, Borrowershall give Bank notice specifying: (a) the interest rate option selectedby Borrower; (b) the principal amount subject thereto; and (c) foreach LIBOR selection, the length of the applicable Fixed Rate Term. Any suchnotice may be given by telephone (or such other electronic method as Bank maypermit) so long as, with respect to each LIBOR selection, (i) if requestedby Bank, Borrower provides to Bank written confirmation thereof not later than3 Business Days after such notice is given, and (ii) such notice is givento Bank prior to 10:00 a.m. on the first day of the Fixed Rate Term, or ata later time during any Business Day if Bank, at it’s sole option but withoutobligation to do so, accepts Borrower’s notice and quotes a fixed rate toBorrower. If Borrower does not immediately accept a fixed rate when quoted byBank, the quoted rate shall expire and any subsequent LIBOR request fromBorrower shall be subject to a redetermination by Bank of the applicable fixedrate. If no specific designation of interest is made at the time any advance isrequested hereunder or at the end of any Fixed Rate Term, Borrower shall bedeemed to have made a Prime Rate interest selection for such advance or theprincipal amount to which such Fixed Rate Term applied.

 

2.3 Taxes and Regulatory Costs. Borrowershall pay to Bank immediately upon demand, in addition to any other amounts dueor to become due hereunder, any and all (a) withholdings, interestequalization taxes, stamp taxes or other taxes (except income and franchisetaxes) imposed by any domestic or foreign governmental authority and related inany manner to LIBOR, and (b) future, supplemental, emergency or otherchanges in the LIBOR Reserve Percentage, assessment rates imposed by theFederal Deposit Insurance Corporation, or similar requirements or costs imposedby any domestic or foreign governmental authority or resulting from complianceby Bank with any request or directive (whether or not having the force of law)from any central bank or other governmental authority and related in any mannerto LIBOR to the extent they are not included in the calculation of LIBOR. Indetermining which of the foregoing are attributable to any LIBOR optionavailable to Borrower hereunder, any reasonable allocation made by Bank amongits operations shall be conclusive and binding upon Borrower.

 

2.4 Payment of Interest. Interest accrued onthis Note shall be payable on the **1st**dayof each **month,**commencing **July 1, 2005.**

 

2.5 Default Interest. From and after thematurity date of this Note, or such earlier date as all principal owinghereunder becomes due and payable by acceleration or otherwise, the outstandingprincipal balance of this Note shall bear interest until paid in full at anincreased rate per annum (computed on the basis of a **360-**day year, actual days elapsed) equal to 4% above the rateof interest from time to time applicable to this Note.

 

3.                                       **BORROWING AND REPAYMENT:**

 

3.1 Borrowing and Repayment. Borrower mayfrom time to time during the term of this Note borrow, partially or whollyrepay its outstanding borrowings, and reborrow, subject to all of thelimitations, terms and conditions of this Note and of the Credit Agreementbetween Borrower and Bank defined below; provided however, that the totaloutstanding borrowings under this Note shall not at any time exceed theprincipal amount stated above. The unpaid principal balance of this obligationat any time shall be the total amounts advanced hereunder by the holder hereofless the amount of principal payments made hereon by or for any Borrower, whichbalance may be endorsed hereon from time to time by the holder. The outstandingprincipal balance of this Note shall be due and payable in full on **November 1, 2006.**

 

3.2 Advances. Advances hereunder, to thetotal amount of the principal sum available hereunder, may be made by theholder at the oral or written request of (a) **William Slater,**any one acting alone, who are authorized torequest advances and direct the disposition of any advances until writtennotice of the revocation of such authority is received by the holder at theoffice designated above, or (b) any person, with respect to advancesdeposited to the credit of any deposit account of any Borrower, which advances,when so deposited, shall be conclusively presumed to have been made to or forthe benefit of each Borrower regardless of the fact that persons other thanthose authorized to request advances may have authority to draw against suchaccount. The holder shall have no obligation to determine whether any personrequesting an advance is or has been authorized by any Borrower.

 

3.3 Application of Payments. Each paymentmade on this Note shall be credited first, to any interest then due and second,to the outstanding principal balance hereof. All payments credited to principalshall be applied first, to the outstanding principal balance of this Note whichbears interest determined in relation to the Prime Rate, if any, and second, tothe outstanding principal balance of this Note which bears interest determinedin relation to LIBOR, with such payments applied to the oldest Fixed Rate Termfirst.

 

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4.                                       **PREPAYMENT:**

 

4.1 Prime Rate. Borrower may prepay principalon any portion of this Note which bears interest determined in relation to thePrime Rate at any time, in any amount and without penalty.

 

4.2 LIBOR. Borrower may prepay principal onany portion of this Note which bears interest determined in relation to LIBORat any time and in the minimum amount of **$100,000.00;**provided however, that if the outstanding principal balance of suchportion of this Note is less than said amount, the minimum prepayment amountshall be the entire outstanding principal balance thereof. In consideration ofBank providing this prepayment option to Borrower, or if any such portion ofthis Note shall become due and payable at any time prior to the last day of theFixed Rate Term applicable thereto by acceleration or otherwise, Borrower shallpay to Bank immediately upon demand a fee which is the sum of the discountedmonthly differences for each month from the month of prepayment through themonth in which such Fixed Rate Term matures, calculated as follows for eachsuch month:

 

(a) Determinethe amount of interest which would have accrued each month on the amountprepaid at the interest rate applicable to such amount had it remainedoutstanding until the last day of the Fixed Rate Term applicable thereto.

 

(b) Subtractfrom the amount determined in (a) above the amount of interest which wouldhave accrued for the same month on the amount prepaid for the remaining term ofsuch Fixed Rate Term at LIBOR in effect on the date of prepayment for new loansmade for such term and in a principal amount equal to the amount prepaid.

 

(c) Ifthe result obtained in (b) for any month is greater than zero, discountthat difference by LIBOR used in (b) above.

 

Each Borrower acknowledges that prepayment of suchamount may result in Bank incurring additional costs; expenses and/or liabilities,and that it is difficult to ascertain the full extent of such costs, expensesand/or liabilities. Each Borrower, therefore, agrees to pay the above-describedprepayment fee and agrees that said amount represents a reasonable estimate ofthe prepayment costs, expenses and/or liabilities of Bank. If Borrower fails topay any prepayment fee when due, the amount of such prepayment fee shallthereafter bear interest until paid at a rate per annum **2.000%**above the Prime Rate in effect fromtime to time (computed on the basis of a **360-**dayyear, actual days elapsed). Each change in the rate of interest on any suchpast due prepayment fee shall become effective on the date each Prime Ratechange is announced within Bank.

 

5.                                       **EVENTS OF DEFAULT:**

 

This Note is made pursuantto and is subject to the terms and conditions of that certain Credit Agreementbetween Borrower and Bank dated as of **May 1,2004,**as amended from time to time (the “Credit Agreement”). Anydefault in the payment or performance of any obligation under this Note, or anydefined event of default under the Credit Agreement, shall constitute an “Eventof Default” under this Note.

 

6.                                       **MISCELLANEOUS:**

 

6.1 Remedies. Upon the occurrence of anyEvent of Default, the holder of this Note, at the holder’s option, may declareall sums of principal and interest outstanding hereunder to be immediately dueand payable without presentment, demand, notice of nonperformance, notice ofprotest, protest or notice of dishonor, all of which are expressly waived by eachBorrower, and the obligation, if any, of the holder to extend any furthercredit hereunder shall immediately cease and terminate. Each Borrower shall payto the holder immediately upon demand the full amount of all payments,advances, charges, costs and expenses, including reasonable attorneys’ fees (toinclude outside counsel fees and all allocated costs of the holder’s in-housecounsel), expended or incurred by the holder in connection with the enforcementof the holder’s rights and/or the collection of any amounts which become due tothe holder under this Note, and the prosecution or defense of any action in anyway related to this Note, including without limitation, any action fordeclaratory relief, whether incurred at the trial or appellate level, in anarbitration proceeding or otherwise, and including any of the foregoingincurred in connection with any bankruptcy proceeding (including withoutlimitation, any adversary proceeding, contested matter or motion brought byBank or any other person) relating to any Borrower or any other person orentity.

 

6.2 Obligations Joint and Several. Shouldmore than one person or entity sign this Note as a Borrower, the obligations ofeach such Borrower shall be joint and several.

 

6.3 Governing Law. This Note shall begoverned by and construed in accordance with the laws of the State ofCalifornia.

 

IN WITNESS WHEREOF, the undersigned has executedthis Note as of the date first written above.

 
| SYMMETRICOM, INC. |
|-------------------|
|              |   |
| By:               | /s/ William Slater |   |
|              | William Slater, Chief Financial Officer |

 

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