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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 1998, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-26952
------------------------
SYNC RESEARCH, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0676350
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
40 PARKER
IRVINE, CA 92618
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 588-2070
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
As of July 31, 1998, 17,393,066 shares of the Registrant's Common Stock were
issued and outstanding.
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<PAGE>
SYNC RESEARCH, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Part I. Financial Information......................................................................... 3
Item 1. a) Condensed consolidated balance sheets at June 30, 1998 (unaudited) and December 31,
1997...................................................................................... 3
b) Condensed consolidated statements of operations (unaudited) for the three and six months
ended June 30, 1998 and 1997.............................................................. 4
c) Condensed consolidated statements of cash flows (unaudited) for the six months ended June
30, 1998 and 1997......................................................................... 5
d) Notes to condensed consolidated financial statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 9
Part II. Other Information............................................................................. 21
Item 1. Legal Proceedings............................................................................. 21
Item 2. Changes in Securities and Use of Proceeds..................................................... 21
Item 3. Defaults upon Senior Securities............................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders........................................... 22
Item 5. Other Information............................................................................. 22
Item 6. Exhibits and Reports on Form 8-K.............................................................. 23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNC RESEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 18,560 $ 21,734
Accounts and other receivables, net....................... 4,059 4,657
Inventories............................................... 6,741 7,371
Prepaid expenses and other current assets................. 929 522
----------- ------------
Total current assets........................................ 30,289 34,284
Furniture, fixtures and equipment, net...................... 4,082 4,167
Other assets................................................ 47 44
----------- ------------
Total assets................................................ $ 34,418 $ 38,495
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 5,303 $ 3,135
Accrued compensation and related costs.................... 873 949
Deferred revenue.......................................... 1,356 1,432
Current maturities of capitalized lease obligations....... 52 50
----------- ------------
Total current liabilities................................... 7,584 5,566
Capitalized lease obligations, less current maturities...... 79 111
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares--50,000
Issued and outstanding shares--17,378 at June 30, 1998
and 17,288 at December 31, 1997......................... 17 17
Additional paid-in capital................................ 71,897 71,786
Deferred compensation..................................... (20) (34)
Accumulated deficit....................................... (45,139) (38,951)
----------- ------------
Total stockholders' equity.................................. 26,755 32,818
----------- ------------
Total liabilities and stockholders' equity.................. $ 34,418 $ 38,495
----------- ------------
----------- ------------
</TABLE>
See accompanying notes.
3
<PAGE>
SYNC RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues.......................................................... $ 7,076 $ 6,291 $ 12,686 $ 11,373
Cost of sales......................................................... 4,387 3,826 8,258 7,295
--------- --------- --------- ---------
Gross profit........................................................ 2,689 2,465 4,428 4,078
Operating expenses:
Research and development............................................ 1,817 1,555 3,558 3,753
Selling and marketing............................................... 3,112 3,392 5,944 7,626
General and administrative.......................................... 676 843 1,318 2,140
Non-recurring charges............................................... 267 -- 267 506
--------- --------- --------- ---------
Total operating expenses............................................ 5,872 5,790 11,087 14,025
--------- --------- --------- ---------
Operating loss........................................................ (3,183) (3,325) (6,659) (9,947)
Interest income, net.................................................. 219 342 473 785
--------- --------- --------- ---------
Loss before income taxes.............................................. (2,964) (2,983) (6,186) (9,162)
Provision for income taxes............................................ -- -- 2 --
--------- --------- --------- ---------
Net loss.............................................................. $ (2,964) $ (2,983) $ (6,188) $ (9,162)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted net loss per share.................................. $ (.17) $ (.17) $ (.36) $ (.54)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing net loss per share........................... 17,378 17,173 17,357 17,079
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes.
4
<PAGE>
SYNC RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................................................. $ (6,188) $ (9,162)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................................... 931 832
Provision for losses on accounts receivable............................................. 339 147
Deferred compensation expense........................................................... 14 59
Changes in operating assets and liabilities, net:
Accounts and other receivables.......................................................... 259 1905
Inventories............................................................................. 630 (132)
Accounts payable and accrued liabilities................................................ 2,168 (711)
Accrued compensation and related costs.................................................. (76) 50
Deferred revenue........................................................................ (76) (108)
Other................................................................................... (410) (118)
--------- ---------
Net cash used in operating activities....................................................... (2,409) (7,238)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment, net....................................... (846) (1,013)
--------- ---------
Net cash used in investing activities....................................................... (846) (1,013)
CASH FLOWS FROM FINANCING ACTIVITIES
Net bank repayments....................................................................... -- (802)
Payments on capitalized lease obligations................................................. (30) (11)
Proceeds from common stock options exercised and employee stock
purchase plan........................................................................... 111 323
--------- ---------
Net cash provided by (used in) financing activities......................................... 81 (490)
--------- ---------
Net decrease in cash and cash equivalents................................................... (3,174) (8,741)
Cash and cash equivalents at beginning of period............................................ 21,734 35,874
--------- ---------
Cash and cash equivalents at end of period.................................................. $ 18,560 $ 27,133
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................................................. $ 37 $ 14
--------- ---------
--------- ---------
Income taxes paid......................................................................... $ 21 $ 1
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
5
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1998, the condensed
consolidated statements of operations for the three and six months ended June
30, 1998 and 1997 and the condensed consolidated statements of cash flows for
the six months ended June 30, 1998 and 1997 have been prepared without audit. In
the opinion of management, the unaudited financial statements include all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the Company's financial position at June 30, 1998, the results of its
operations for the three and six months ended June 30, 1998 and 1997 and its
cash flows for the six months ended June 30, 1998 and 1997. The consolidated
financial statements should be read in conjunction with the audited financial
statements of Sync Research, Inc. and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. The results of
operations for the three and six months ended June 30, 1998 are not necessarily
indicative of the operating results to be expected for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified to conform with the
current period presentation.
2. CASH AND CASH EQUIVALENTS
The Company invests its excess cash in money market funds and short-term
debt instruments of U.S. corporations with strong credit ratings. The Company
has established guidelines with respect to the diversification and maturities
that maintain safety and liquidity. The Company considers all highly liquid
investments with an original maturity of three months or less and money market
funds to be cash equivalents.
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost and consist of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -------------
<S> <C> <C>
Equipment acquired under capital leases.............................. $ 275 $ 275
Furniture and fixtures............................................... 839 795
Computer equipment and software...................................... 7,106 6,326
Leasehold improvements............................................... 1,106 1,084
----------- ------
9,326 8,480
Accumulated depreciation and amortization............................ (5,244) (4,313)
----------- ------
$ 4,082 $ 4,167
----------- ------
----------- ------
</TABLE>
6
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. INVENTORIES
Inventories consist primarily of computer hardware and components and are
stated at the lower of cost (first-in, first-out) or market, as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -------------
<S> <C> <C>
Raw materials........................................................ $ 3,488 $ 3,636
Work in process...................................................... 975 862
Finished goods....................................................... 2,278 2,873
----------- ------
$ 6,741 $ 7,371
----------- ------
----------- ------
</TABLE>
5. PER SHARE INFORMATION
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform with Statement No. 128.
Net loss per common share is computed using the weighted average number of
common shares and common share equivalents outstanding during the periods
presented. Common share equivalents result from the dilutive effect, if any, of
outstanding options and warrants to purchase common stock.
6. CREDIT AGREEMENT
Under the Company's unsecured credit agreement with a bank, the Company may
borrow an amount not to exceed $5,000,000 at the bank's prime rate. The
agreement expires on October 5, 1998. There were no amounts outstanding under
this agreement as of June 30, 1998.
7. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME
(Statement No. 130), which is effective for years beginning after December 15,
1997. Statement No. 130 establishes standards for reporting and displaying
comprehensive income and its components with the same prominence as other
financial statement information. The implementation of this statement did not
have a significant effect on the Company's reported results of operations or
financial position.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (Statement No. 131), which is effective for
years beginning after December 15, 1997. Statement No. 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The Company operates in one
business segment. Accordingly, the adoption of this statement did not have a
significant effect on the Company's financial statements.
7
<PAGE>
SYNC RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. LITIGATION
On November 5, 1997, an action entitled Dalarne Partners, Ltd. v. Sync
Research, Inc., et al., No SACV97-877 AHS(Eex) was filed against the Company and
certain of its directors and officers. The action was filed in the U.S. District
Court for the Central District of California, Southern Division. The action
purports to be a class action lawsuit brought on behalf of purchasers of the
Company's common stock during the period from November 18, 1996 through March
20, 1997. The complaint asserts claims for violation of the Securities Exchange
Act of 1934. The complaint seeks to recover damages in an unspecified amount. No
trial date or other deadline has been established. The Company intends to defend
this lawsuit vigorously.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part
I--Item 1 of this Quarterly Report. In addition, except for the historical
statements contained herein, the following discussion contains forward-looking
statements. The Company wishes to alert readers that the factors set forth in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997,
and in the section of this Item 2 titled "Additional Factors That May Affect
Future Results," as well as other factors that could in the future affect, and
in the past have affected, the Company's results. The Company's actual results
for future periods could differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Readers are
cautioned not to place undue reliance on these forward-looking statements which
reflect management's analysis only as of the date hereof. The Company assumes no
obligation to update these forward-looking statements to reflect actual results
or changes in factors or assumptions affecting such forward-looking statements.
OVERVIEW
Sync commenced operations in 1981 and funded operations through 1988 with
revenue from communications software consulting and custom product development
for equipment vendors and large end-users. The Company shipped its first
commercial WAN product in 1989. In 1991, Sync released its first conversion node
and frame relay access products. The Company has historically emphasized its
relationship with channel partners and other resellers and supporting sales
efforts of these resellers in connection with the Company's direct sales
efforts. The Company currently maintains OEM, marketing and sales arrangements
with communications and networking companies such as IBM and 3Com, as well as
carriers such as Sprint, MCI, Ameritech, Intermedia Communications and PacBell,
and systems integrators such as Electronic Data Systems and Diebold.
In March 1997, the Company implemented expense reduction initiatives with
the goal of enabling the Company to achieve profitability at lower revenue
levels. Additional cost reduction programs were initiated in September 1997 and
again in May 1998. There can be no assurance that Sync's products will achieve
significant market penetration, either through its channel partners and other
resellers or its direct sales force, or that the Company will successfully
introduce new and enhanced products or compete effectively in its market, or
that its efforts to implement expense reductions will enable it to become
profitable at lower revenue levels, if at all.
RESULTS OF OPERATIONS
NET REVENUES
The Company derives its revenues primarily from sales of advanced wide-area
networking products. Product revenues are recognized upon shipment and the
Company generally does not have any significant remaining obligations upon
shipment of its products. Product returns and sales allowances are provided for
at the date of sale. Service revenues from customer maintenance fees for ongoing
customer support and product updates are recognized ratably over the term of the
maintenance period, which is typically 12 months.
Net revenues for the second quarter of 1998 were $7.1 million, compared to
net revenues of $6.3 million for the quarter ended June 30, 1997. Net revenues
for the six months ended June 30, 1998 were $12.7 million, compared to $11.4
million for the comparable period in 1997. The increase in net revenues in the
second quarter of 1998 compared to the second quarter of 1997 was due primarily
to increased sales of frame relay access products, partially offset by a
reduction in sales of transmission products. Sales to IBM and one large end user
customer accounted for 14.6% and 27.2% of the Company's total revenues for the
three months ended June 30, 1998, and 33.8% and 20.9% of the Company's total
revenues for the six months ended June 30, 1998, respectively.
9
<PAGE>
Net revenues by product group for the three months ended June 30, 1998 and
1997 were as follows ($ in thousands):
<TABLE>
<CAPTION>
1998 % 1997 %
--------- --- --------- ---
<S> <C> <C> <C> <C>
Frame relay access products................................. $ 4,690 66% $ 3,188 51%
Circuit management products................................. 1,203 17 1,173 19
Transmission products....................................... 244 4 931 14
Other....................................................... 939 13 999 16
--------- --- --------- ---
$ 7,076 100% $ 6,291 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Net revenues by product group for the six months ended June 30, 1998 and
1997 were as follows ($ in thousands):
<TABLE>
<CAPTION>
1998 % 1997 %
--------- --- --------- ---
<S> <C> <C> <C> <C>
Frame relay access products.............................. $ 7,606 60% $ 4,788 42%
Circuit management products.............................. 1,955 15 2,112 19
Transmission products.................................... 861 7 2,190 19
Other.................................................... 2,264 18 2,283 20
--------- --- --------- ---
$ 12,686 100% $ 11,373 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
The increase in revenues from sales of frame relay access products in 1998
compared to the 1997 periods was due primarily to continued acceptance of the
Company's 3600 frame relay access device product line that was released in the
first quarter of 1997. The decline in revenues from sales of transmission
products as compared to the prior year periods was due primarily to lower sales
in the Pacific Rim as a result of the continued Asian economic crisis.
The percentage of net revenues represented by sales through channel partners
and other resellers declined to 65.4% and 42.8% for the three and six months
ended June 30, 1998, respectively, from 80.7% and 53.6% for the corresponding
periods of 1997, respectively, primarily due to a few large end user sales
during the first half of 1998. The Company expects that average selling prices
may continue to decline and that sales through channel partners and other
resellers will continue to account for a significant portion of net revenues;
however, the mix of sales to channel partners and other resellers may change
from period to period.
International sales represented 6.5% and 6.6% of the Company's total sales
during the three and six months ended June 30, 1998, as compared to 19.1% and
23.2% during the three and six months ended June 30, 1997. The decline was due
primarily to continued sluggishness in the Company's sales to the Pacific Rim as
a result of the current Asian economic crisis. The near-term outlook on the
Company's sales to the Pacific Rim remains uncertain.
GROSS PROFIT
Cost of sales primarily consists of purchased materials used in the assembly
of the Company's products, fees paid to third party subcontractors for
installation and maintenance services, and compensation paid to employees in the
Company's manufacturing and service organizations.
Gross profit increased to $2.7 and $4.4 million for the three and six months
ended June 30, 1998, respectively, from $2.5 and $4.1 million in the
corresponding prior year periods. Gross profit as a percentage of net revenues
decreased to 38.0% and 34.9% for the three and six months ended June 30, 1998,
respectively, as compared to 39.2% and 35.9% for the three and six months ended
June 30, 1997. The decrease in margins for the three months ended June 30, 1998
compared to the prior year quarter was primarily due to a change in mix of
products sold and increased sales to IBM at greater discounts than
10
<PAGE>
encountered with other channel partners or end users. The decrease in margins
for the six months ended June 30, 1998 as compared to the six months ended June
30 1997 was due primarily to greater sales to IBM.
OPERATING EXPENSES
Research and development expenses primarily consist of compensation paid to
personnel, including consultants, engaged in research and development, amounts
paid for outside development services and costs of materials utilized in the
development of hardware products, including prototype units and the depreciation
and amortization of equipment and tools utilized in the development process. It
is the Company's policy to expense all research and development costs as
incurred and to capitalize certain software development costs subsequent to the
establishment of technological feasibility. To date, $430,000 of externally
acquired software has been capitalized. Research and development expenses
increased to $1.8 million for the second quarter of 1998, as compared to $1.6
million for the second quarter of the prior year. The increase in research and
development expenses in the second quarter of 1998 was primarily due to the
development of new products and the continued enhancement of existing products.
For the six months ended June 30, 1998, expenses were $3.6 million compared to
$3.8 million for the six months ended June 30, 1997. This decrease in research
and development expenses is primarily attributable to the Company's 1997 cost
reduction programs.
Selling and marketing expenses consist primarily of base and incentive
compensation paid to sales and marketing personnel, travel and related expenses,
and costs associated with promotional and trade show activities. Selling and
marketing expenses decreased to $3.1 million for the quarter ended June 30,
1998, as compared to $3.4 million in the quarter ended June 30, 1997, and
decreased to $5.9 million for the six months ended June 30, 1998 compared to
$7.6 million in the prior year period. The decrease in selling and marketing
expenses resulted primarily from sales and marketing headcount reductions as
part of the Company's 1997 cost reduction programs, partially offset by higher
incentive based compensation.
General and administrative expenses consist primarily of compensation paid
to administrative personnel, payments to consultants, professional services and
costs related to public company activities. General and administrative
expenditures decreased to $676,000 for the quarter ended June 30, 1998, as
compared to $843,000 for the quarter ended June 30, 1997, and decreased to $1.3
million for the six months ended June 30, 1998 from $2.1 million for the six
months ended June 30, 1997. These expenses decreased due to the Company's 1997
cost reduction programs.
Non-recurring charges consist primarily of expenses related to changes in
the Company's executive management in the second quarter of 1998 and costs
related to the reduction in employees and the elimination or reduction of
certain lease obligations undertaken in March and September 1997.
Net interest income was $219,000 and $473,000 for the three and six months
ended June 30, 1998, respectively, as compared to $342,000 and $785,000 for the
three and six months ended June 30, 1997, respectively. The decrease in net
interest income was primarily due to the Company's lower cash balances resulting
from the utilization of cash to fund the Company's operating activities.
INCOME TAXES
There was no provision for income tax in 1997. The provision for income
taxes in 1998 represents minimum state taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's principal sources of liquidity consisted
of $18.6 million of cash and cash equivalents and a $5 million unsecured bank
line of credit which expires in October 1998. As of June 30, 1998, $5.0 million
was available under the line of credit with no amounts outstanding under this
11
<PAGE>
agreement. During the six months ended June 30, 1998, cash utilized by operating
activities was $2.4 million, compared to $7.2 million for the six months ended
June 30, 1997. The lower cash utilization resulted primarily from decreases in
accounts receivable and inventories of $259,000 and $630,000, respectively, and
an increase in accounts payable and accrued liabilities of $2.2 million. Capital
expenditures during the first six months of 1998, consisting primarily of
computer hardware and software purchases, were $846,000, compared to $1,013,000
for the same period of 1997.
The Company believes that its available cash and cash equivalents will be
sufficient to meet its working capital requirements at least through 1998.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that, except for the historical information contained
therein, the previous discussion under "Results of Operations" and "Liquidity
and Capital Resources" constitutes forward-looking statements that are dependent
on certain risks and uncertainties which may cause actual results to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. The following is a description of certain of the major
risks and uncertainties.
HISTORY OF LOSSES; SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS; UNCERTAIN
PROFITABILITY
The Company has experienced operating losses since inception, with, in
recent years, operating losses of $2.4 million in 1995, $11.7 million in 1996,
$18.0 million in 1997 and $6.2 million for the six months ended June 30, 1998.
As of June 30, 1998, the Company had an accumulated deficit of approximately
$45.1 million. The Company has experienced, and may in the future experience,
significant fluctuations in revenues and operating results from quarter to
quarter and from year to year due to a combination of factors. Factors that have
in the past caused, or may in the future cause, the Company's revenues and
operating results to vary significantly from period to period include: the
timing of significant orders; the timing of customer implementation plans; the
relatively long length of the sales cycles for certain of the Company's
products; the market conditions in the networking industry; the timing of
capital expenditures by Sync's target market customers; competition and pricing
in the industry; the Company's success in developing, introducing and shipping
new products; new product introductions by the Company's competitors;
announcements by IBM relating to products, services or pricing relevant to the
Company; the rate of migration of large IBM customers to frame relay; production
or quality problems; changes in material costs; disruption in sources of supply;
changes in foreign currency exchange rates; and general economic conditions. In
addition, revenues and gross margins may fluctuate due to the mix of
distribution channels employed and the mix of products or services sold. For
example, the Company generally realizes a higher gross margin on direct sales
than on sales through its channel partners and other resellers. Accordingly, as
channel partners and other resellers continue to account for a significant
portion of the Company's net revenues, gross profit as a percentage of net
revenues may decline.
The Company's future revenues are difficult to predict. Revenues and
operating results in any quarter depend on the volume and timing of, and the
ability to fulfill, orders received within the quarter. Sales of the Company's
products typically involve a sales cycle of several months or over a year from
the point of initial customer contact until receipt of the first system order,
and, in addition, the Company has in the past encountered, and may in the future
encounter, subsequent delays between initial orders and network-wide deployment.
There can be no assurance that average sales cycles will not increase in future
periods. Further, due to the Company's focus on its channel partner marketing
strategy, the Company's revenues in any period are highly dependent upon the
sales efforts and success of Sync's channel partners and other resellers, which
are not within the control of the Company. There can be no assurance that the
Company's channel partners and other resellers will give a high priority to the
marketing of the Company's products as compared to competitive products or
alternative networking solutions or that Sync's channel partners and
12
<PAGE>
other resellers will continue to offer the Company's products. Significant
portions of the Company's expenses are relatively fixed in advance, based in
large part on the Company's forecasts of future sales. If sales are below
expectations in any given period, the adverse effect of a shortfall in sales on
the Company's operating results may be magnified by the Company's inability to
adjust spending to compensate for such shortfall. The Company has in the past
and may in the future reduce prices or increase spending to respond to
competition or to pursue new product or market opportunities. Accordingly, there
can be no assurance that the Company will be able to attain or sustain
profitability on a quarterly or an annual basis. In addition, if the Company's
operating results fall below the expectations of public market analysts and
investors, the price of the Company's common stock would likely be materially
and adversely affected.
UNCERTAIN MARKET ACCEPTANCE OF FRAME RELAY FOR MISSION-CRITICAL APPLICATIONS
The market for SNA-over-frame relay products is relatively new and still
evolving. The success of the Company and its channel partners in generating
significant sales of frame relay access products will depend in part on their
ability to educate end users about the benefits of the Company's technology and
convince end users to switch their mission-critical applications to frame relay.
In addition, broad acceptance of frame relay services will also depend upon the
tariffs for such services, which are determined by carriers. If the tariff
structure for dedicated leased lines becomes more favorable relative to tariffs
for a comparable network utilizing frame relay, the market for frame relay
networking products could be adversely affected. There can be no assurance that
the market will adopt frame relay for mission-critical applications to any
significant extent. The failure of such adoption to occur could have a material
adverse effect on the Company's business, operating results and financial
condition.
UNCERTAIN MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS; PRODUCT CONCENTRATION
The Company currently derives substantially all of its revenues from its
frame relay access, circuit management, transmission and other products and
expects that revenues from these products will continue to account for
substantially all of its revenues for the foreseeable future. Broad market
acceptance of, and continuing demand for, these products, is, therefore,
critical to the Company's future success. Factors that may affect the market
acceptance of the Company's products include the extent to which frame relay is
adopted for mission-critical applications, the availability and price of
competing products and technologies, announcements by IBM relating to products,
services or pricing relevant to the Company, the success of the sales efforts of
the Company and its resellers and tariff rates for carrier services. Moreover,
the Company's operating history in the WAN internetworking market and its
resources are limited relative to those of certain of its current and potential
competitors. The Company's future performance will also depend in part on the
successful development, introduction and market acceptance of new and enhanced
products. Failure of the Company's products to achieve market acceptance could
have a material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON CHANNEL PARTNERS AND OTHER RESELLERS
The Company's channel partners and other resellers currently account, and
are expected to continue to account, for a significant part of the Company's net
revenues. Sales through channel partners and other resellers accounted for
42.8%, 67.0%, 85.7%, and 88.1%, of net revenues of the Company in the six months
ended June 30, 1998, and for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company currently maintains OEM, marketing and sales
arrangements with communications and networking companies such as IBM and 3Com,
as well as carriers such as Sprint, Ameritech, MCI, Intermedia Communications
and PacBell and system integrators such as Electronic Data Systems and Diebold.
Sales through IBM accounted for 14.6% and 33.8% of the Company's net revenues
for the three and six months ended June 30, 1998, respectively. The Company's
agreements with its channel partners and other resellers do not restrict the
sale of products that compete with those of the Company. In addition, these
agreements generally provide for discounts based on expected or actual volumes
of
13
<PAGE>
products purchased or resold by the reseller in a given period, do not require
minimum purchases, and prohibit distribution of certain products by the Company
through certain categories of third parties under certain conditions. The
agreements also specify that the channel partners and certain other resellers
will be provided manufacturing rights and access to certain of the Company's
source code upon the occurrence of specified conditions or defaults.
Certain of the Company's channel partners offer alternative solutions,
designed by themselves or third parties, for SNA internetworking or have
pre-existing relationships with current or potential competitors of the Company.
Certain of the Company's channel partners have in the past developed competitive
products and terminated their relationships with the Company, and such
developments could occur in the future. Many of the Company's resellers offer
competitive products manufactured either by third parties or by themselves. For
example, NET and Racal, which accounted for, respectively, 6.6% and 4.4% of the
Company's net revenues in 1996, have developed competitive products and product
strategies and accordingly, did not account for a significant portion of 1997
revenues. Sales to 3Com accounted for 6.5%, 19.2% and 17.9% of net revenues of
the Company in 1997, 1996 and 1995, respectively. The Company believes the
amount of revenues derived from sales to 3Com will likely decline as competitive
products impact the conversion product business.
The Company generally realizes a higher gross margin on direct sales than on
sales through its channel partners and other resellers. Accordingly, as channel
partners and other resellers continue to account for a significant portion of
the Company's net revenues, gross profit as a percentage of net revenues may
decline. Each of the Company's channel partners or other resellers can cease
marketing the Company's products at the reseller's option, under certain
conditions, with limited notice and with little or no penalty. There can be no
assurance that the Company will retain its current channel partners or other
resellers or that it will be able to recruit additional or replacement channel
partners. The loss of one or more of the Company's channel partners or other
resellers could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, there can be no
assurance that the Company's channel partners and other resellers will give
priority to the marketing of the Company's products as compared to competitive
products or alternative networking solutions or that Sync's channel partners and
other resellers will continue to offer the Company's products. Any reduction or
delay in sales of the Company's products by its channel partners could have a
material adverse effect on the Company's business, operating results and
financial condition.
YEAR 2000 COMPLIANCE
Many currently installed computer and telecommunications systems and
software products were not designed to consider the impact of moving into the
21st century. As a result, errors or system failures could result if these
systems and applications are not corrected or replaced prior to the year 2000.
The Company is currently in the process of evaluating the impact of the "Year
2000" issue upon its products, support systems and overall business.
The Company relies on third party suppliers for the management and control
of fabrication, assembly and testing of substantially all of the Company's
products. The Company has, either internally or in collaboration with certain of
its suppliers and customers, evaluated and tested certain of its products and
intends to test all of its current products by the end of 1998. The Company
believes that several of its discontinued conversion and frame relay products
are not Year 2000 compliant and the Company currently does not plan to update
these products. Certain of the Company's transmission and frame relay access
products operate using two digit years to date stamp network events, but not to
internally transmit or process data. The Company's other products either do not
have internal dating or rely on date information from other devices resident in
the networks in which they operate. Thus, any Year 2000 problems within these
third party networking products could cause the Company's products not to work
accurately and/or without disruption, if at all, with other companies'
networking devices and systems. Upon completion of the testing phase, the
Company will assess any changes to its current products that may be required to
14
<PAGE>
achieve Year 2000 compliance. The Company has given certain of its customers
warranties on Year 2000 compliance and may have to offer updates or replacement
products to these customers. The Company has not incurred substantial costs to
date to address the Year 2000 issue and is unable to estimate the additional
cost, if any, that may arise from actions taken by the Company, if any, to
address the Year 2000 issue or from the interaction of the Company's products
with other companies' networking devices and systems. Any failure by the Company
to make its products Year 2000 compliant could result in a decrease in sales of
the Company's products and/or possible claims against the Company by customers
as a result of Year 2000 problems caused by the Company's products and could
have a material adverse effect on the Company.
The Company relies on a number of computer systems and applications to
operate and monitor all major aspects of its business. The Company is in the
process of evaluating its internal information and non-information systems
through inquiries with the manufacturers of such systems and anticipates that
most of these systems will be evaluated by the end of 1999. The Company believes
that several manufacturers of the Company's systems have already updated their
products to comply with the Year 2000 issue or will make updates available by
mid-1999, or relatively low cost alternative solutions may be available.
However, there can be no assurance that any such updates will be completed on a
timely basis, if at all, or at a reasonable cost, or that such updates will work
as anticipated in the year 2000.
The Company has not yet established contingency plans for the Year 2000
issue. The Company intends to continue to evaluate its Year 2000 exposure and
develop any necessary contingency plans by mid-1999.
Many of the Company's customers and prospective customers are expected to
devote a substantial portion of their information systems budgets to the Year
2000 problem over the next several years, and, as a result, spending may be
diverted from wide area networking solutions. In addition, the Company relies on
a large variety of business enterprises such as customers, suppliers, creditors,
financial organizations, and domestic and international governmental entities,
for the accurate exchange of data. Any disruption in the computer systems of any
of these third parties could materially and adversely affect the Company. Due to
the Company's focus on the wide area networking market, which is vulnerable to
technological issues involving the Year 2000, substantially all of the Company's
revenues may be at risk. Despite the Company's efforts to address the Year 2000
impact on its products, internal systems and business operations, the Year 2000
issue may result in a material disruption of its business or have a material
adverse effect on the Company's business, financial condition or results of
operations.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
The Company's success will depend to a substantial degree upon its ability to
develop and introduce in a timely fashion enhancements to its existing products
and new products that meet changing customer requirements and emerging industry
standards. The development of new, technologically advanced products is a
complex and uncertain process requiring high levels of innovation, as well as
the accurate anticipation of technological and market trends. There can be no
assurance that the Company will be able to identify, develop, manufacture,
market or support new products successfully, that such new products will gain
market acceptance or that the Company will be able to respond effectively to
technological changes, emerging industry standards or product announcements by
competitors. In addition, the Company has on occasion experienced delays in the
introduction of product enhancements and new products. There can be no assurance
that in the future the Company will be able to introduce product enhancements or
new products on a timely basis. Further, from time to time, the Company may
announce new products, capabilities or technologies that have the potential to
replace or shorten the life cycle of the Company's existing product offerings.
There can be no assurance that announcements of product enhancements or new
product offerings will not cause customers to defer purchasing existing Company
products or cause resellers to return products to the Company. Failure to
15
<PAGE>
introduce new products or product enhancements effectively and on a timely
basis, customer delays in purchasing products in anticipation of new product
introductions and any inability of the Company to respond effectively to
technological changes, emerging industry standards or product announcements by
competitors could have a material adverse effect on the Company's business,
operating results and financial condition.
PRODUCT ERRORS
Products as complex as those offered by the Company may contain undetected
software or hardware errors when first introduced or as new versions are
released. Such errors have occurred in the past, and there can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new or enhanced products after commencement of
commercial shipments. Moreover, there can be no assurance that once detected,
such errors can be corrected in a timely manner, if at all. Software errors may
take several months to correct, if they can be corrected at all, and hardware
errors may take even longer to rectify. The occurrence of such software or
hardware errors, as well as any delay in correcting them, could result in the
delay or loss of market acceptance of the Company's products, additional
warranty expense, diversion of engineering and other resources from the
Company's product development efforts or the loss of credibility with Sync's
channel partners and other resellers, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
INTENSE COMPETITION
The market for communications products is intensely competitive and subject
to rapid technological change and emerging industry standards. The Company's
current competitors include internetworking companies, such as Cisco and Bay
Networks; frame relay access device (FRAD) providers, such as Hypercom, Motorola
ISG and Cabletron; and circuit management and digital transmission providers
such as Visual Networks, Digital Link, Racal, AT&T Paradyne and Adtran, among
others. Potential competitors include other internetworking and WAN access and
transmission companies, frame relay switch providers, IBM and the Company's
other channel partners. Certain of these companies have recently announced
products and intentions to enter the frame relay access or circuit management
market. Many of the Company's current and potential competitors have longer
operating histories and greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base, than
does the Company. As a result, they may be able to respond more quickly to new
or emerging technologies and changes in customer requirements or may be able to
devote greater resources to the development, promotion, sale and support of
their products than the Company. Many also have long-standing customer
relationships with large enterprises that are part of the Company's target
market, and these relationships may make it more difficult to complete sales of
the Company's products to these enterprises. Further, certain of the Company's
channel partners have in the past developed competitive products and terminated
their relationships with the Company, and such developments could occur in the
future. As a consequence of all these factors, the Company expects increased
competition, particularly in the frame relay market. Increased competition could
result in significant price competition, reduced profit margins or loss of
market share, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully in the future.
DEPENDENCE ON THE IBM CUSTOMER BASE
The Company's frame relay access products are targeted at the large
installed base of IBM customers utilizing SNA networks. Thus, the Company faces
the risks associated with a relatively concentrated customer base, including the
possibility that larger IBM customers may migrate to frame relay at a slower-
than-expected rate, if at all, and the possibility that IBM customers may
purchase IBM-sponsored frame relay products other than Sync products. There can
be no assurance that IBM will continue to support
16
<PAGE>
frame relay, that IBM will not develop or promote SNA-over-frame relay products
competitive with the Company's products, that the relationship between the
Company and IBM will be successful, that IBM will not terminate the relationship
or that IBM will not endorse the products of competitors or networking solutions
not offered by the Company. Any of these events could have a material adverse
effect on the Company's business, operating results and financial condition.
DEPENDENCE ON CONTRACT MANUFACTURERS
The Company's manufacturing operations consist primarily of materials
planning and procurement, light assembly, system integration, testing and
quality assurance. The Company entered into an arrangement with contract
manufacturers in 1995 and 1996 to outsource substantial portions of its
procurement, assembly and system integration operations. There can be no
assurance that these independent contract manufacturers will be able to meet the
Company's future requirements for manufactured products or that such independent
contract manufacturers will not experience quality problems in manufacturing the
Company's products. The inability of the Company's contract manufacturers to
provide the Company with adequate supplies of high quality products could have a
material adverse effect upon the Company's business, operating results and
financial condition. The loss of any of the Company's contract manufacturers
could cause a delay in Sync's ability to fulfill orders while the Company
attempts to identify a replacement manufacturer. Such an event could have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company's manufacturing procedures may in certain instances create a
risk of excess or inadequate inventory if orders do not match forecasts. The
Company increased manufacturing capacity in 1995 and 1996 through the expansion
of its relationships with contract manufacturers and internal manufacturing
resources. Any manufacturing delays, excess manufacturing capacity or
inventories or inability to increase manufacturing capacity, if required, could
have a material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON SUPPLIERS
Certain key components used in the manufacture of the Company's products are
currently purchased only from single or limited sources. At present,
single-sourced components include programmable integrated circuits, gate-arrays,
selected other integrated circuits and cables, custom-molded plastics and
custom-tooled sheet metal, and limited-sourced components include flash
memories, DRAMs, printed circuit boards and selected integrated circuits. The
Company generally relies upon contract manufacturers to buy component parts that
are incorporated into board assemblies. The Company buys directly final assembly
parts, such as plastics and metal covers, cables and other parts used in final
configurations. The Company generally does not have long-term agreements with
any of these single or limited sources of supply. Any loss in a supplier,
increase in required lead times, increase in price of component parts,
interruption in the supply of any of these components, or the inability of the
Company to procure these components from alternate sources at acceptable prices
and within a reasonable time, could have a material adverse effect upon the
Company's business, operating results and financial condition. If orders do not
match forecasts, the Company may have excess or inadequate inventory of certain
materials and components, and suppliers may demand longer lead times, higher
prices or termination of contracts. From time to time the Company has
experienced shortages of certain components and has paid above-market prices to
acquire such components on an accelerated basis or has experienced delays in
fulfilling orders while waiting to obtain the necessary components. Such
shortages may occur in the future and could have a material adverse effect on
the Company's business, operating results and financial condition.
DEPENDENCE ON AND RISKS ASSOCIATED WITH INTERNATIONAL SALES
Sales to customers outside of the United States accounted for approximately
6.5%, 19.1%, 12.7% and 10.7% of the Company's net revenues in the six months
ended June 30, 1998 and in fiscal years 1997, 1996
17
<PAGE>
and 1995, respectively. However, these percentages may understate sales of the
Company's products to international end users because certain of the Company's
U.S.-based channel partners market the Company's products abroad. The Company
currently anticipates that international sales may continue to account for a
significant percentage of the Company's net revenues in future periods. However,
as a result of the recent Asian economic crisis, the Company experienced project
delays and order cancellations during the fourth quarter of 1997 and has
continued to experience sluggishness in it sales to the Pacific Rim during the
first six months of 1998. Sales to the Pacific Rim during the second quarter of
1998 represented 5.4% of the Company's net revenue for such period.
The Company markets its products in foreign countries primarily through its
channel partners and independent distributors. Failure of these resellers to
market the Company's products internationally or the loss of any of these
resellers could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the Company's ability to
increase sales of its products to international end users may be limited if the
carrier services, such as frame relay, or protocols supported by the Company's
products are not widely adopted internationally. A number of additional risks
are inherent in international transactions. The Company's international sales
currently are U.S. dollar-denominated. As a result, an increase in the value of
the U.S. dollar relative to foreign currencies, as has occurred recently in
several Asian markets, could make the Company's products less competitive in
international markets. International sales may also be limited or disrupted by
the imposition of governmental controls, export license requirements,
restrictions on the export of critical technology, currency exchange
fluctuations, political instability, trade restrictions and changes in tariffs.
In addition, sales in Europe and certain other parts of the world typically are
adversely affected in the third quarter of each year as many customers and end
users reduce their business activities during the summer months. These
international factors could have a material adverse effect on future sales of
the Company's products to international end users and, consequently, the
Company's business, operating results and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's future success depends, in part, upon its proprietary
technology. The Company does not hold any patents and currently relies on a
combination of contractual rights, trade secrets and copyright laws to establish
and protect its proprietary rights in its products. There can be no assurance
that the steps taken by the Company to protect its intellectual property will be
adequate to prevent misappropriation of its technology or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. In the event that protective
measures are not successful, the Company's business, operating results and
financial condition could be materially and adversely affected. In addition, the
laws of some foreign countries do not protect the Company's proprietary rights
to the same extent as do the laws of the United States. The Company is also
subject to the risk of adverse claims and litigation alleging infringement of
intellectual property rights of others. There can be no assurance that third
parties will not assert infringement claims in the future with respect to the
Company's current or future products or that any such claims will not require
the Company to enter into license arrangements or result in litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms. Should litigation with respect to any
such claims commence, such litigation could be extremely expensive and
time-consuming and could have a material adverse effect on the Company's
business, operating results and financial condition regardless of the outcome of
such litigation.
TARIFF AND REGULATORY MATTERS
Rates for public telecommunications services, including features and
capacity of such services, are governed by tariffs determined by carriers and
subject to regulatory approval. Future changes in these tariffs could have a
material effect on the Company's business. For example, should tariffs for frame
relay
18
<PAGE>
services increase in the future relative to tariffs for dedicated leased lines,
the cost-effectiveness of the Company's products could be reduced, which could
have a material adverse effect on the Company's business, operating results and
financial condition. In addition, the Company's products must meet industry
standards and receive certification for connection to certain public
telecommunications networks prior to their sale. In the United States, the
Company's products must comply with various regulations defined by the Federal
Communications Commission and Underwriters Laboratories. Internationally, the
Company's products must comply with standards established by telecommunications
authorities in various countries as well as with recommendations of the
Consultative Committee on International Telegraph and Telephony. In addition,
carriers require that equipment connected to their networks comply with their
own standards, which in part reflect their currently installed equipment. Some
public carriers have installed equipment that does not fully comply with current
industry standards, and this noncompliance must be addressed in the design of
the Company's products. Any future inability to obtain on a timely basis or
retain domestic or foreign regulatory approvals or certifications or to comply
with existing or evolving industry standards could have a material adverse
effect on the Company's business, operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, to a significant degree, upon the continued
contributions of its key management, sales, marketing, research and development
and manufacturing personnel. Four of the seven current executive officers joined
the Company since January 1995, and thus the management team is still relatively
new. The Company believes its future success will also depend in large part upon
its ability to attract and retain highly skilled engineering, managerial, sales
and marketing personnel, and development engineers. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. During 1997 and 1998, the
Company implemented significant expense reductions, including reductions in
force, with the goal of enabling the Company to achieve profitability at lower
revenues. The loss of the services of these or any of the Company's other key
personnel or the failure to attract or retain qualified personnel in the future
could have a material adverse effect on the Company's business, operating
results or financial condition.
GENERAL ECONOMIC CONDITIONS
Demand for the Company's products depends in large part on the overall
demand for communications and networking products, which has in the past and may
in the future fluctuate significantly based on numerous factors, including
capital spending levels and general economic conditions. There can be no
assurance that the Company will not experience a decline in demand for its
products due to general economic conditions. Any such decline could have a
material adverse effect on the Company's business, operating results and
financial condition.
VOLATILITY OF STOCK PRICE
Any negative announcements by the Company regarding its products, markets or
financial performance, or announcements of technological innovations or the
introduction of new products by its competitors, as well as market conditions in
the technology sector, may have a significant effect on the market price of the
Company's common stock. Further, the stock market has experienced volatility
which has particularly affected the market prices of equity securities of many
high technology companies and which often has been unrelated to the operating
performance of such companies. These market fluctuations may have an adverse
effect on the price of the Company's common stock.
ANTI-TAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In addition, certain provisions
of the Company's charter documents, including
19
<PAGE>
provisions eliminating cumulative voting, eliminating the ability of
stockholders to call meetings or to take actions by written consent and limiting
the ability of stockholders to raise matters at a meeting of stockholders
without giving advance notice, may have the effect of delaying or preventing a
change in control or management of the Company, which could have an adverse
effect on the market price of the Company's common stock. Certain of the
Company's stock option and purchase plans and agreements provide for assumption
of such plans, or, alternatively, immediate vesting upon a change of control or
similar event. In addition, the Company has entered into severance agreements
with its officers, pursuant to which they are entitled to specified severance
payments if they are actually or constructively terminated within specified time
periods following a change of control of the Company. The Board of Directors has
authority to issue up to 2,000,000 shares of preferred stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
these shares without any further vote or action by the stockholders. The rights
of the holders of the common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring or preventing a change in control of the Company.
Furthermore, such preferred stock may have other rights, including economic
rights senior to the common stock, and as a result, the issuance of such
preferred stock could have a material adverse effect on the market value of the
common stock. The Company has no present plan to issue shares of preferred
stock.
20
<PAGE>
SYNC RESEARCH, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 5, 1997, an action entitled Dalarne Partners, Ltd. v. Sync
Research, Inc., et al., No. SACV97-877 AHS(EEx) was filed against the Company
and certain of its directors and officers. The action was filed in the U.S.
District Court for the Central District of California, Southern Division. The
action purports to be a class action lawsuit brought on behalf of purchasers of
the Company's common stock during the period from November 18, 1996 through
March 20, 1997. The complaint asserts claims for violation of the Securities
Exchange Act of 1934. The complaint seeks to recover damages in an unspecified
amount. No trial date or other deadline has been established. The Company
intends to defend this lawsuit vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) USE OF PROCEEDS
In connection with its initial public offering in 1995, the Company filed a
Registration Statement on Form S-1, SEC File No. 33-96910 (the "REGISTRATION
STATEMENT"), which was declared effective by the Commission on November 8, 1995.
Pursuant to the Registration Statement, the Company registered and sold
2,585,000 shares of its Common Stock, $0.001 par value per share, for its own
account. The offering was completed on November 9, 1995. The aggregate offering
price of the registered shares was $51,700,000. The managing underwriters of the
offering were BancAmerica Robertson, Stephens (formerly Robertson, Stephens &
Company), BT Alex. Brown (formerly Alex. Brown & Sons Incorporated) and Dain
Rauscher Wessels (formerly Wessels, Arnold & Henderson). From November 9, 1995
to June 30, 1998, the Company incurred the following expenses in connection with
the offering:
<TABLE>
<S> <C>
Underwriting discounts and commissions.......................... $3,619,000
Other expenses.................................................. 912,471
---------
Total Expenses.............................................. $4,531,471
---------
---------
</TABLE>
All of such expenses were direct or indirect payments to others.
The net offering proceeds to the Company after deducting the total expenses
above were $47,168,529. From November 9, 1995 to June 30, 1998, the Company used
such net offering proceeds, in direct or indirect payments to others, as
follows:
<TABLE>
<S> <C>
Construction of plant, building and facilities................. $ 850,638
Purchase and installment of machinery and equipment............ 3,651,740
Acquisition of other business(es).............................. 5,338,000
Working capital................................................ 1,488,818
Operating losses............................................... 28,886,200
----------
Total...................................................... $40,215,396(1)
----------
----------
</TABLE>
- ------------------------
(1) Excludes operating losses, capital expenditures and working capital changes
of Tylink Corporation ("Tylink") prior to the Company's acquisition of
Tylink in August 1996.
In addition, the Company used aggregate proceeds of $611,125 to make
departing payments to departing officers. This use of proceeds does not
represent a material change in the use of proceeds described in the prospectus
of the Registration Statement.
21
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 12, 1998, the Company held its annual meeting of stockholders. At
the annual meeting, the Company's stockholders approved the following matters by
the following votes:
1. Election of the following directors of the Company:
<TABLE>
<CAPTION>
BROKER
NOMINEES FOR AGAINST ABSTENTIONS NONVOTES
- ------------------------------------------- ------------ ---------- ----------------- ---------------
<S> <C> <C> <C> <C>
Gregorio Reyes............................. 13,937,460 1,435,569 0 0
John H Rademaker........................... 13,879,167 1,493,862 0 0
Charles A. Haggerty........................ 13,937,160 1,435,869 0 0
William J. Schroeder....................... 13,911,360 1,461,669 0 0
</TABLE>
2. Amendment to the 1991 Stock Plan to increase the number of shares of
Common Stock reserved for issuance thereunder by 750,000 shares to an
aggregate of 5,058,985 shares.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NONVOTES
------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C>
13,401,668 1,922,169 49,192 0
</TABLE>
3. Amendments to the 1995 Directors' Stock Option Plan including (i) an
increase in the number of shares of Common Stock reserved for issuance
thereunder by 100,000 shares to an aggregate 200,000 shares, (ii) an
increase in the number of options to purchase Common Stock a non-employee
director shall receive as an initial grant from 20,000 to 40,000 shares,
and (iii) an increase in the number of options to purchase Common Stock a
non-employee dicrector shall receive upon re-election to the Board of
Directors from 5,000 to 10,000 shares.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NONVOTES
------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
14,493,366 691,976 47,410 140,277
</TABLE>
4. Ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS NONVOTES
------------ --------- ----------- ---------------
<S> <C> <C> <C> <C>
15,237,997 109,621 25,411 0
</TABLE>
ITEM 5. OTHER INFORMATION
The Securities and Exchange Commission has recently amended Rule 14a-4(c)(1)
promulgated under the Securities Exchange Act of 1934, as amended. As amended,
Rule 14a-4(c)(1) provides that a proxy may confer discretionary authority to
vote on a matter for an annual meeting of stockholders if the proponent fails to
notify the Company at least 45 days prior to the one year anniversary of the
mailing of the prior year's proxy statement or the date specified in the
Company's Bylaws for notice of proposals by stockholders for the annual meeting.
The Company's Bylaws provide that for nominations or other business to be
brought before an annual meeting by a stockholder, the stockholder must give
timely notice thereof in writing to the Secretary of the Company at the
principal executive offices of the Company not less than twenty (20) days nor
more than ninety (90) days prior to the one year anniversary of the preceding
year's annual meeting of stockholders. Accordingly, if a proponent does not
notify the Company of a proposal for the 1999 annual meeting on or before March
15, 1999, the management may use its discretionary voting authority to vote on
such proposal and if a proponent does not notify the Secretary of the Company on
or after March 14, 1999 and before May 23, 1999 in writing of a proposal for the
1999
22
<PAGE>
annual meeting as provided in the Company's Bylaws, the management will exclude
the matter from consideration at the 1999 annual meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.3 Bylaws of Registrant
10.2 Amended and Restated 1991 Stock Plan (amended as of June 12, 1998)
and form of Option Agreement.
10.4 Amended and Restated 1995 Directors' Option Plan (amended as of
June 12, 1998) and form of Option Agreement
27.1 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the quarter ended June 30,
1998.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SYNC RESEARCH, INC.
Date: August 14, 1998 By: /s/ WILLIAM K. GUERRY
-----------------------------------------
William K. Guerry
VICE PRESIDENT OF FINANCE AND
ADMINISTRATION
AND CHIEF FINANCIAL OFFICER
(DULY AUTHORIZED SIGNATORY AND PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)
24
<PAGE>
BYLAWS
OF
SYNC RESEARCH, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .CORPORATE OFFICES 1
1.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .REGISTERED OFFICE 1
1.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .OTHER OFFICES 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . MEETINGS OF STOCKHOLDERS 1
2.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .PLACE OF MEETINGS 1
2.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ANNUAL MEETING 1
2.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SPECIAL MEETING 3
2.4. . . . . . . . . . . . . . . . . . . . . . . NOTICE OF STOCKHOLDERS' MEETINGS 3
2.5. . . . . . . . . . . . . . . . . . . . ADVANCE NOTICE OF STOCKHOLDER NOMINEES 4
2.6. . . . . . . . . . . . . . . . . MANNER OF GIVING NOTICE, AFFIDAVIT OF NOTICE 4
2.7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . QUORUM 5
2.8. . . . . . . . . . . . . . . . . . . . . . . . . . .ADJOURNED MEETING; NOTICE 5
2.9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .CONDUCT OF BUSINESS 5
210. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VOTING 5
2.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WAIVER OF NOTICE 5
2.12 . . . . . . . . .RECORD DATE FOR STOCKHOLDER NOTICE, VOTING; GIVING CONSENTS 6
2.13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .PROXIES 6
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .DIRECTORS 7
3.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . POWERS 7
3.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .NUMBER OF DIRECTORS 7
3.3. . . . . . . . . . . . ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTOR 7
3.4. . . . . . . . . . . . . . . . . . . . . . . . . . .RESIGNATION AND VACANCIES 7
3.5. . . . . . . . . . . . . . . . . . . PLACE OF MEETINGS, MEETINGS BY TELEPHONE 8
3.6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REGULAR MEETINGS 8
3.7. . . . . . . . . . . . . . . . . . . . . . . . . . . SPECIAL MEETINGS; NOTICE 8
3.8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . QUORUM 9
3.9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WAIVER OF NOTICE 9
3.10 . . . . . . . . . . . . . .BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING 9
3.11 . . . . . . . . . . . . . . . . . . . . . FEES AND COMPENSATION OF DIRECTORS 9
3.12 . . . . . . . . . . . . . . . . . . . . . . . .APPROVAL OF LOANS TO OFFICERS 10
3.13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . REMOVAL OF DIRECTORS 10
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMMITTEES 10
4.1. . . . . . . . . . . . . . . . . . . . . . . . . . . .COMMITTEES OF DIRECTORS 10
4.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .COMMITTEE MINUTES 11
4.3. . . . . . . . . . . . . . . . . . . . . . .MEETINGS AND ACTION OF COMMITTEES 11
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OFFICERS 11
5.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OFFICERS 11
5.2. . . . . . . . . . . . . . . . . . . . . . . . . . . .APPOINTMENT OF OFFICERS 12
5.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUBORDINATE OFFICERS 12
5.4. . . . . . . . . . . . . . . . . . . . . .REMOVAL AND RESIGNATION OF OFFICERS 12
5.5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . VACANCIES IN OFFICES 12
5.6. . . . . . . . . . . . . . . . . . . . . . . . . . . . .CHAIRMAN OF THE BOARD 12
5.7. . . . . . . . . . . . . . . . . . . . . . . . . . . .CHIEF EXECUTIVE OFFICER 13
5.8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .PRESIDENT 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .VICE PRESIDENTS 13
5.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SECRETARY 13
5.11 . . . . . . . . . . . . . . . . . . . . . . . . . . .CHIEF FINANCIAL OFFICER 14
5.12 . . . . . . . . . . . . . . .REPRESENTATIONS OF SHARES OF OTHER CORPORATIONS 14
5.13 . . . . . . . . . . . . . . . . . . . . . . AUTHORITY AND DUTIES OF OFFICERS 14
ARTICLE VI . . . . INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 15
6.1. . . . . . . . . . . . . . . . . . .INDEMNIFICATION OF DIRECTORS AND OFFICERS 15
6.2. . . . . . . . . . . . . . . . . . . . . . . . . . .INDEMNIFICATION OF OTHERS 15
6.3. . . . . . . . . . . . . . . . . . . . . . . . PAYMENT OF EXPENSES IN ADVANCE 15
6.4. . . . . . . . . . . . . . . . . . . . . . . . . . . .INDEMNITY NOT EXCLUSIVE 15
6.5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .INSURANCE 16
6.6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .CONFLICTS 16
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . .RECORDS AND REPORTS 16
7.1. . . . . . . . . . . . . . . . . . . . .MAINTENANCE AND INSPECTION OF RECORDS 16
7.2. . . . . . . . . . . . . . . . . . . . . . . . . . . .INSPECTION BY DIRECTORS 17
7.3. . . . . . . . . . . . . . . . . . . . . . . ANNUAL STATEMENT TO STOCKHOLDERS 17
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . .GENERAL MATTERS 17
8.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHECKS 17
8.2. . . . . . . . . . . . . . . EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS 17
8.3. . . . . . . . . . . . . . . . . . . . STOCK CERTIFICATES; PARTLY PAID SHARES 17
8.4. . . . . . . . . . . . . . . . . . . . . .SPECIAL DESIGNATION ON CERTIFICATES 18
8.5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .LOST CERTIFICATES 18
8.6. . . . . . . . . . . . . . . . . . . . . . . . . . .CONSTRUCTION; DEFINITIONS 19
8.7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .DIVIDENDS 19
8.8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .FISCAL YEAR 19
8.9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SEAL 19
8.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TRANSFER OF STOCK 19
8.11 . . . . . . . . . . . . . . . . . . . . . . . . . .STOCK TRANSFER AGREEMENTS 19
8.12 . . . . . . . . . . . . . . . . . . . . . . . . . . .REGISTERED STOCKHOLDERS 19
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AMENDMENTS 20
ARTICLE X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .DISSOLUTION 20
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .CUSTODIAN 21
11.1 . . . . . . . . . . . . . . . . .APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES 21
11.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . DUTIES OF CUSTODIANS 21
</TABLE>
<PAGE>
BYLAWS
OF
SYNC RESEARCH, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the
registered agent of the corporation at such location is The Corporation Trust
Company.
1.2 OTHER OFFICES
The Board of Directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence
of any such designation, stockholders' meetings shall be held at the
registered office of the corporation.
2.2 ANNUAL MEETING
(a) The annual meeting of stockholders shall be held each year on a
date and at a time designated by the Board of Directors. At the meeting,
directors shall be elected and any other proper business may be transacted.
(b) Nominations of persons for election to the Board of Directors of
the corporation and the proposal of business to be transacted by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the corporation's notice with respect to such meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
corporation who
1
<PAGE>
was a stockholder of record at the time of giving of the notice provided for
in this Section 2.2, who is entitled to vote at the meeting and who has
complied with the notice procedures set forth in this Section 2.2.
(c) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of
this Section 2.2, the stockholder must have given timely notice thereof in
writing to the secretary of the corporation and such business must be a
proper matter for stockholder action under the General Corporation Law of
Delaware. To be timely, a stockholder's notice shall be delivered to the
secretary at the principal executive offices of the corporation not less than
twenty (20) days nor more than ninety (90) days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is more than
thirty (30) days prior to or more than sixty (60) days after such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier
than the ninetieth (90th) day prior to such annual meeting and not later than
the close of business on the later of the twentieth (20th) day prior to such
annual meeting or the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (i) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected);
(ii) as to any other business that the stockholder proposes to bring before
the meeting, a brief description of such business, the reasons for conducting
such business at the meeting and any material interest in such business of
such stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (iii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(A) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner and (B) the class and
number of shares of the corporation which are owned beneficially and of
record by such stockholder and such beneficial owner.
(d) Only persons nominated in accordance with the procedures set forth
in this Section 2.2 shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set
forth in this Section 2.2. The chairman of the meeting shall determine
whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any
proposed nomination or business has not been properly brought before the
meeting, the chairman shall declare that such proposed business or nomination
shall not be presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service.
2
<PAGE>
(f) Nothing in this Section 2.2 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.3 SPECIAL MEETING
(a) A special meeting of the stockholders may be called at any time by
the Board of Directors, or by the chairman of the board, or by the president.
(b) If a special meeting is called by any person or persons other than
the Board of Directors, the chairman of the board or by the president, the
request shall be in writing, specifying the time of such meeting and the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice.
The officer receiving the request shall cause notice to be promptly given to
the stockholders entitled to vote, in accordance with the provisions of
Sections 2.4 and 2.5 of these Bylaws, that a meeting will be held at the time
requested by the person or persons who called the meeting, not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained n this paragraph of this Section 2.3 shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
notice of meeting given in accordance with the provisions of Section 2.3(b).
Nominations of persons for election to the Board of Directors may be made at
a special meeting of stockholders at which directors are to be selected
pursuant to such notice of meeting (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the corporation who is a stockholder
of record at the time of giving of notice provided for in this Section
2.3(c), who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in this Section 2.3(c). Nominations by
stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice required
by Section 2.2(c) shall be delivered to the secretary at the principal
executive offices of the corporation not earlier than the ninetieth (90th)
day prior to such special meeting and not later than the close of business on
the later of the twentieth (20th) day prior to such special meeting or the
tenth (10th) day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the Board
of Directors to be selected at such meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these Bylaws not
less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting.
3
<PAGE>
The notice shall specify the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled
to vote for the election of directors at the meeting who complies with the
notice procedures set forth in this Section 2.5. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the secretary of the
corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
meeting; provided, however, that in the event that less than sixty (60) days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 10th day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
re-election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(including, without limitation, such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
and (b) as to the stockholder giving the notice (1) the name and address, as
they appear on the corporation's books, of such stockholder and (2) the class
and number of shares of the corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors any person nominated
by the Board of Directors for election as a director shall furnish to the
secretary of the corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in this Section 2.5.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the Bylaws, and if he or she should so determine, he
or she shall so declare to the meeting and the defective nomination shall be
disregarded.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
corporation. An affidavit of the secretary or an assistant secretary or of
the
4
<PAGE>
transfer agent of the corporation that the notice has been given shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction
of business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairman of the meeting or
(ii) the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
is present or represented. At such adjourned meeting at which a quorum is
present or represented, any business may be transacted that might have been
transacted at the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.9 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.10 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.12 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
Except as provided in the last paragraph of this Section 2.10, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
2.11 WAIVER OF NOTICE
5
<PAGE>
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any
written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive any payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to
any other action.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day
on which the meeting is held.
(b) The record date for determining stockholders for any other
purpose (other than determining stockholders entitled to consent to corporate
action in writing without a meeting) shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a record date
for the adjourned meeting.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him by a written proxy,
signed by the stockholder and filed with the secretary of the corporation,
but no such proxy shall be voted or acted upon after three (3) years from its
date, unless the proxy provides for a longer period. A proxy shall be deemed
signed if the stockholder's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The
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revocability of a proxy that states on its face that it is irrevocable shall
be governed by the provisions of Section 212(c) of the General Corporation
Law of Delaware.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of four (4) persons until changed
by a proper amendment of this Section 3.2.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTOR
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not to be stockholders unless so required by
the certificate of incorporation or these Bylaws, wherein other
qualifications for directors may be prescribed. Each director, including a
director elected to fill a vacancy, shall hold office until his successor is
elected and qualified or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the attention
of the secretary of the corporation.
Subject to the rights of the holders of any class or series of Preferred
Stock, and except as otherwise determined by the Board of Directors or
required by law, newly created directorships resulting from any increase in
the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, or the sole remaining director;
directors so chosen shall hold office for a term
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expiring at the next annual meeting of stockholders and until such director's
successor shall have been duly elected and qualified.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or
these Bylaws, or may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation
Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the
provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any
vice president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the
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notice is mailed, it shall be deposited in the United States mail at least
four (4) days before the time of the holding of the meeting. If the notice
is delivered personally or by telephone or by telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight
(48) hours before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director
or to a person at the office of the director who the person giving the notice
has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the
meeting is to be held at the principal executive office of the corporation.
3.8 QUORUM
At all meetings of the Board of Directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the Board of Directors, except as may
be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
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Unless otherwise restricted by the certificate of incorporation or these
Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors,
such loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors; provided,
however, that, so long as stockholders of the corporation are entitled to
cumulative voting, if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his or her
removal would be sufficient to elect him or her if then cumulatively voted at
an election of the entire Board of Directors.
No reduction in the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist
of one or more of the directors of the corporation. The board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he, she or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors or in the Bylaws of
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the corporation, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to
all papers that may require it; but no such committee shall have the power or
authority to (i) amend the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of
Directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the corporation or fix the
number of shares of any series of stock or authorize the increase or decrease
of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or (v) amend the Bylaws of the corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
certificate of incorporation expressly so provide, no such committee shall
have the power or authority to declare a dividend, to authorize the issuance
of stock, or to adopt a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.6
(regular meetings), Section 3.7 (special meetings and notice), Section 3.8
(quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a
meeting), with such changes in the context of those Bylaws as are necessary
to substitute the committee and its members for the Board of Directors and
its members; PROVIDED, however, that the time of regular meetings of
committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may
also be called by resolution of the Board of Directors and that notice of
special meetings of committees shall also be given to all alternate members,
who shall have the right to attend all meetings of the committee. The Board
of Directors may adopt rules for the government of any committee not
inconsistent with the provisions of these Bylaws.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may
also have, at the discretion of the Board of Directors a chairman of the
board, one or more vice presidents, one or more assistant secretaries, one or
more assistant treasurers, and any such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these Bylaws. Any number
of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights,
if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the corporation may require, each of whom shall hold office for
such period, have such authority, and perform such duties as are provided in
these Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by
the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice
to the rights, if any, of the corporation under any contract to which the
officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the Board of Directors.
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5.6. CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and
perform such other powers and duties as may from time to time be assigned to
him by the Board of Directors or as may be prescribed by these Bylaws. If
there is no president, then the chairman of the board shall also be the chief
executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.7 of these Bylaws.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the chairman of the board, the chief executive officer of the
corporation shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers
of the corporation. The chief executive officer shall preside at all
meetings of the stockholders and, in the absence or nonexistence of a
chairman of the board, at all meetings of the Board of Directors. The chief
executive officer shall have the general powers and duties of management
usually vested in the office of chief executive officer of a corporation and
shall have such other powers and duties as may be prescribed by the Board of
Directors or these Bylaws.
5.8 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the chairman of the board or the chief executive officer, the
president shall have general supervision, direction, and control of the
business and other officers of the corporation. The President shall have the
general powers and duties of management usually vested in the office of
president of a corporation and shall have such other powers and duties as may
be prescribed by the Board of Directors or these Bylaws.
5.9 VICE PRESIDENTS
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by
the Board of Directors or, if not ranked, a vice president designated by the
Board of Directors, shall perform all the duties of the president and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the Board of Directors, these Bylaws, the president or the
chairman of the board.
5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of directors,
committees of directors, and stockholders. The minutes shall show the time
and place of each meeting, the names of those present at directors' meetings
or
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committee meetings, the number of shares present or represented at
stockholders, meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares, and
the number and date of cancellation of every certificate surrendered. for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law
or by these Bylaws. The secretary shall keep the seal of the corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by these
Bylaws.
5.11 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as
may be designated by the Board of Directors. The chief financial officer
shall disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president and directors, whenever they request
it, an account of all his or her transactions as chief financial officer and
of the financial condition of the corporation, and shall have other powers
and perform such other duties as may be prescribed by the Board of Directors
or the Bylaws.
5.12 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority granted herein may be exercised either by such person directly or
by any other person authorized to do so by proxy or power of attorney duly
executed by such person having the authority.
5.13 AUTHORITY AND DUTIES OF OFFICERS
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In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from
time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors
and officers against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was
an agent of the corporation. For purposes of this Section 6.1, a "director"
or "officer" of the corporation includes any person (i) who is or was a
director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of
the corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) includes any person (i)
who is or was an employee or agent of the corporation, (ii) who is or was
serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (iii)
who was an employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of
such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or
for which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the
corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemnified party to
repay such amount if it shall ultimately
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be determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under the
provisions of the General Corporation Law of Delaware.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
certificate of incorporation, these Bylaws, a resolution of the stockholders
or an agreement in effect at the time of the accrual of the alleged cause of
the action asserted in the proceeding in which the expenses were incurred or
other amounts were paid, which prohibits or otherwise limits indemnification;
or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record
of its stockholders listing their names and
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addresses and the number and class of shares held by each stockholder, a copy
of these Bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other
books and records and to make copies or extracts therefrom. A proper purpose
shall mean a purpose reasonably related to such person's interest as a
stockholder. In every instance where an attorney or other agent is the
person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing that authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand
under oath shall be directed to the corporation at its registered office in
Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine
whether a director is entitled to the inspection sought. The Court may
summarily order the corporation to permit the director to inspect any and all
books and records, the stock ledger, and the stock list and to make copies or
extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such
other and further relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The Board of Directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders
for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the
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name of and on behalf of the corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board
of Directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not
apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation
by the chairman or vice-chairman of the Board of Directors, or the chief
executive officer or the president or vice president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to
be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully paid shares,
the corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration
actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate that the
corporation shall issue to represent such class or series of stock; PROVIDED,
HOWEVER, that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements there may
be set forth on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests
the powers, the designations, the preferences, and the relative,
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participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter
is surrendered to the corporation and cancelled at the same time. The
corporation may issue a new certificate of stock or uncertificated shares in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the corporation may require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give
the corporation a bond sufficient to indemnify it against any claim that may
be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate or
uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and
a natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in (i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve. Such purposes shall include
but not be limited to equalizing dividends, repairing or maintaining any
property of the corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
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Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate, and record the transaction in
its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of another person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or
repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power,
nor limit their power to adopt, amend or repeal Bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the Board of
Directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the
resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation
entitled to vote thereon votes for the proposed dissolution, then a
certificate stating that the dissolution has been authorized in
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accordance with the provisions of Section 275 of the General Corporation Law
of Delaware and setting forth the names and residences of the directors and
officers shall be executed, acknowledged, and filed and shall become
effective in accordance with Section 103 of the General Corporation Law of
Delaware. Upon such certificate's becoming effective in accordance with
Section 103 of the General Corporation Law of Delaware, the corporation shall
be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a
dissolution, no meeting of directors or stockholders shall be necessary. The
consent shall be filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such consent's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved. If the consent is signed by an
attorney, then the original power of attorney or a photocopy thereof shall be
attached to and filed with the consent. The consent filed with the Secretary
of State shall have attached to it the affidavit of the secretary or some
other officer of the corporation stating that the consent has been signed by
or on behalf of all the stockholders entitled to vote on a dissolution; in
addition, there shall be attached to the consent a certification by the
secretary or some other officer of the corporation setting forth the names
and residences of the directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to
be receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification
of their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for
action by the Board of Directors cannot be obtained and the stockholders are
unable to terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute
its assets.
11.2 DUTIES OF CUSTODIAN
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The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but
the authority of the custodian shall be to continue the business of the
corporation and not to liquidate its affairs and distribute its assets,
except when the Court of Chancery otherwise orders and except in cases
arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law
of Delaware.
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Exhibit 10.2
SYNC RESEARCH, INC.
AMENDED AND RESTATED
1991 STOCK PLAN
Revised: JUNE 12, 1998
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means Sync Research, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Administrator, provided that such leave
is for a period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or
(iv) in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or its successor.
(i) "DIRECTOR" means a member of the Board.
<PAGE>
(j) "EMPLOYEE" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company to a Director shall not be sufficient to
constitute "employment" of the Director by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported, as quoted on such exchange or system for the last market trading
day prior to the time of determination) as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for
the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(o) "NAMED EXECUTIVE" shall mean any individual who, on the last day
of the Company's fiscal year, is the chief executive officer of the Company (or
is acting in such capacity) or among the four highest compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.
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(r) "OPTIONEE" means an Employee or Consultant who receives an Option
or Stock Purchase Right.
(s) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "PLAN" means this 1991 Stock Plan.
(u) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 12 below.
(v) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 14 below.
(w) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 12 below.
(x) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 5,058,985 shares of Common Stock.. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) COMPOSITION OF THE ADMINISTRATOR
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, and by the legal requirements relating to the administration of
incentive stock option plans, if any, of applicable securities laws and the
Code (collectively, the "APPLICABLE LAWS"), grants under the Plan may (but
need not) be made by different administrative bodies with respect to
Directors, Officers who are not directors and Employees who are neither
Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS.
With respect to grants of Options to Employees or Consultants who are also
Officers or Directors of the Company, grants under the Plan shall be made by
(A) the Board, if the Board may make grants under the Plan in compliance with
Rule 16b-3 and Section 162(m) of the Code as it applies so as to qualify
grants of Options to Named Executives as performance-based compensation, or
(B) a Committee designated by the Board to make grants under the Plan, which
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Committee shall be constituted in such a manner as to permit grants under the
Plan to comply with Rule 16b-3, to qualify grants of Options to Named
Executives as performance-based compensation under Section 162(m) of the Code
and otherwise so as to satisfy the Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With
respect to grants of Options to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A)
the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws.
(iv) GENERAL. Once a Committee has been appointed pursuant
to subsection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee
and appoint additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor, fill vacancies
(however caused) and remove all members of a Committee and thereafter
directly administer the Plan, all to the extent permitted by the Applicable
Laws and, in the case of a Committee appointed under subsection (ii), to the
extent permitted by Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary plan, and to the extent required under Section
162(m) of the Code to qualify grants of Options to Named Executives as
performance-based compensation.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any stock exchange upon
which the Common Stock is listed, the Administrator shall have the authority,
in its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder;
<PAGE>
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 10(f) instead of Common Stock;
and
(viii) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options or Stock
Purchase Rights.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option
or Stock Purchase Right may, if he is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship
at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 20 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated
under Section 16 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated
in the Option Agreement; provided, however, that the term shall be no more
than ten (10) years from the date of grant thereof. However, in the case of
an Incentive Stock Option granted to an Optionee who, at the time the Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the
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Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. LIMITATION OF GRANTS TO EMPLOYEES. Subject to adjustment as
provided in this Plan, the maximum number of Shares which may be subject to
Options or Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 525,000.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant;
(B) granted to any person other than a Named Executive,
the per Share exercise price shall be no less than 85% of the Fair Market
Value per Share on the date of grant.
(iii) Notwithstanding anything to the contrary in subsections
9(a)(i) or 9(a)(ii) above, in the case of an Option granted on or after the
effective date of registration of any class of equity security of the Company
pursuant to Section 12 of the Exchange Act and prior to six months after the
termination of such registration, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee
for more
<PAGE>
than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised, (5) authorization from the Company to retain
from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to
the exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company
of the sale or loan proceeds required to pay the exercise price, (7) by
delivering an irrevocable subscription agreement for the Shares which
irrevocably obligates the option holder to take and pay for the Shares not
more than twelve months after the date of delivery of the subscription
agreement, (8) any combination of the foregoing methods of payment, (9) or
such other consideration and method of payment for the issuance of Shares to
the extent permitted under Applicable Laws. In making its determination as
to the type of consideration to accept, the Board shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms
of the Option by the person entitled to exercise the Option and full payment
for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section
9(b) of the Plan. Until the issuance (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes
of the Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with
the Company (as the case may
<PAGE>
be), such Optionee may, but only within such period of time (not less than
thirty (30) days) as determined by the Board, with such determination in the
case of an Incentive Stock Option being made at the time of grant of the
Option and not exceeding three (3) months after the date of such termination
(but in no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), exercise his Option to the extent that
Optionee was entitled to exercise it at the date of such termination. To the
extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent
so entitled within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 10(b) above, in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee
may, but only within twelve (12) months from the date of such termination
(but in no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), exercise the Option to the extent
otherwise entitled to exercise it at the date of such termination. To the
extent that Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee,
the Option may be exercised, at any time within twelve (12) months following
the date of death (but in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), by the Optionee's
estate or by a person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent the Optionee was entitled to
exercise the Option at the date of death. To the extent that Optionee was
not entitled to exercise the Option at the date of termination, or if
Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
(e) RULE 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS. An Option or Stock Purchase Right
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee, only by the
Optionee.
12. STOCK PURCHASE RIGHTS.
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(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under
the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time
within which such person must accept such offer, which shall in no event
exceed thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted
by execution of a Restricted Stock purchase agreement in the form determined
by the Administrator. Shares purchased pursuant to the grant of a Stock
Purchase Right shall be referred to herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's employment with the Company for any reason (including
death or Disability). The purchase price for Shares repurchased pursuant to
the Restricted Stock purchase agreement shall be the original price paid by
the purchaser and may be paid by cash or cancellation of purchase money
indebtedness of the purchaser to the Company. The repurchase option shall
lapse at such rate as the Committee may determine.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole
discretion. In addition, the provisions of Restricted Stock purchase
agreements need not be the same with respect to each purchaser.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 13 of the Plan.
13. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding
obligations as provided in this paragraph. When an Optionee incurs tax
liability in connection with an Option or Stock Purchase Right, which tax
liability is subject to tax withholding under applicable tax laws, and the
Optionee is obligated to pay the Company an amount required to be withheld
under applicable tax laws, the Optionee may satisfy the withholding tax
obligation by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option, or the Shares to be issued in connection
with the Stock Purchase Right, if any, that number of Shares having a Fair
Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined (the "Tax Date").
<PAGE>
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall
be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the
election is made; and
(c) all elections shall be subject to the consent or disapproval
of the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election
is filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Optionee shall be unconditionally obligated to tender back
to the Company the proper number of Shares on the Tax Date.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as
to which no Options or Stock Purchase Rights have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an Option
or Stock Purchase Right, the maximum number of shares of Common Stock for
which Options may be granted to any employee under Section 8 of this plan and
the price per share of Common Stock covered by each such outstanding Option
or Stock Purchase Right, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) CORPORATE TRANSACTIONS. In the event of the proposed
dissolution or liquidation of the Company, the Option or Stock Purchase Right
will terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Administrator. The Administrator may, in
the exercise of its sole discretion in such instances, declare that any
Option or Stock Purchase Right shall terminate as of a date fixed by the
Administrator and give
<PAGE>
each Optionee the right to exercise his or her Option or Stock Purchase Right
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a proposed sale
of all or substantially all of the assets of the Company, or the merger of
the Company with or into another corporation, the Option or Stock Purchase
Right shall be assumed or an equivalent Option or Stock Purchase Right shall
be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Administrator determines, in lieu of
such assumption or substitution, that the Optionee shall have the right to
exercise the Option or Stock Purchase Right as to some or all of the Optioned
Stock, including Shares as to which the Option or Stock Purchase Right would
not otherwise be exercisble. If the Administrator makes an Option or Stock
Purchase Right exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Administrator shall notify the Optionee
that the Option or Stock Purchase Right shall be exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock
Purchase Right will terminate upon the expiration of such period.
15. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option
or Stock Purchase Right, or such other date as is determined by the Board.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.
16. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that no amendment, alteration, suspension or discontinuation shall
be made which would impair the rights of any optionee under any grant
theretofore made, without his or her consent, and further that, the following
revisions or amendments shall require approval of the stockholders of the
Company in the manner described in Section 20 of the Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 14 of the Plan:
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would require
stockholder approval to qualify options granted hereunder as
performance-based compensation under Section 162(m) of the Code.
In addition, to the extent necessary and desirable to comply with Rule
16b-3 under the Exchange Act or with Sections 162(m) and 422 of the Code (or
any other applicable law or regulation, including the requirements of the
NASD or an established stock exchange), the
<PAGE>
Company shall obtain stockholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
and the Board, which agreement must be in writing and signed by the Optionee
and the Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required by any of the aforementioned relevant provisions of law.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced
by written agreements in such form as the Board shall approve from time to
time.
20. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the degree and manner required under applicable state and federal
law and the rules of any stock exchange upon which the Common Stock is listed
and, in particular, shall be solicited substantially in accordance with
Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder.
21. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide
to each Optionee and to each individual who acquired Shares pursuant to the
Plan, during the period such
<PAGE>
Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and, in the case of an individual who acquired Shares pursuant
to the Plan, during the period such individual owns such Shares, copies of
all annual reports and other information which are provided to all
stockholders of the Company.
<PAGE>
SYNC RESEARCH, INC.
1991 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
______________________________
______________________________
______________________________
You have been granted an option to purchase Common Stock of
Sync Research, Inc. (the "Company") as follows:
Grant Number ____________________
Date of Grant ____________________
Exercise Price Per Share $___________________
Total Number of Shares Granted ____________________
Total Price of Shares Granted ____________________
Type of Option: _____ Incentive Stock Option
_____ Nonstatutory Stock Option
Term/Expiration Date: ____________________
Vesting Commencement Date: ____________________
Exercise Schedule:
Subject to the terms of the attached Stock Option Agreement,
the Option shall become exercisable cumulatively, to the extent of 25% of the
Shares subject to the Option on the first anniversary of the Vesting
Commencement Date, and 1/48th of the Shares at the end of each month
thereafter.
Termination Period:
The option may be exercised for a period of 60 days after
termination of employment or consulting relationship except as set out in
Sections 7 and 8 of the Stock Option Agreement (but in no event later than
the Expiration Date).
<PAGE>
By your signature and the signature of the Company's
representative below, you and the Company agree that this option is granted
under and governed by the terms and conditions of the 1991 Stock Plan and the
Stock Option Agreement, all of which are attached and made a part of this
document.
Optionee: SYNC RESEARCH, INC.
________________________________ By: ________________________________
Signature
________________________________ Title: _____________________________
Print Name
<PAGE>
SYNC RESEARCH, INC.
1991 STOCK PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Sync Research, Inc., a Delaware corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase a total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price")
subject to the terms, definitions and provisions of the Sync Research, Inc.
1991 Stock Plan (the "Plan") adopted by the Company, which is incorporated
herein by reference. In the event of a conflict between the terms of the
Plan and the terms of this agreement (the "Agreement"), the terms of the Plan
shall govern. Unless otherwise defined herein, the terms used herein shall
have the same meanings defined in the Plan.
To the extent designated an Incentive Stock Option, this Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code, and, to the extent not so designated, this Option is intended to be
a Nonstatutory Stock Option.
2. EXERCISE OF OPTION. This Option shall be exercisable during its
term in accordance with the Exercise Schedule set out in the Notice of Grant
and with the provisions of Sections 9 and 10 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option may not be exercised for a fraction of a
share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitations contained in subsection
2(i)(c) and (d).
(c) In no event may this Option be exercised after the date
of expiration of the term of this Option as set forth in the Notice of Grant.
(d) If designated an Incentive Stock Option in the Notice of
Grant, in the event that the Shares subject to this Option (and all other
Incentive Stock Options granted to Optionee by the Company or any Parent or
Subsidiary) that vest in any calendar year have an aggregate fair market
value (determined for each Share as of the Date of Grant of the Option
covering such Share) in excess of $100,000, the Shares in excess of $100,000
shall be treated as subject to a Nonstatutory Stock Option, in accordance
with Section 5 of the Plan.
<PAGE>
(ii) METHOD OF EXERCISE.
(a) This Option shall be exercisable by delivering to the
Company written notice of exercise (in the form attached as Exhibit A) which
shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with
respect to such Shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed
by the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the Exercise Price. This Option shall be deemed to be exercised upon
receipt by the Company of such written notice accompanied by the Exercise
Price.
(b) As a condition to the exercise of this Option, Optionee
agrees to make adequate provision for federal, state or other tax withholding
obligations, if any, which arise upon the exercise of the Option or
disposition of Shares, whether by withholding, direct payment to the Company,
or otherwise.
(c) No Shares will be issued pursuant to the exercise of an
Option unless such issuance and such exercise shall comply with all relevant
provisions of law and the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on
which the Option is exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, make the requisite
investment representations, a copy of which is available for Optionee's
review from the Company upon request.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any
of the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other Shares of Common Stock of the Company that
(A) either have been owned by the Optionee for more than six (6) months on
the date of surrender or were not acquired, directly or indirectly, from the
Company, and (B) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which the Option is being
exercised; or
2
<PAGE>
(iv) authorization from the Company to retain from the total number
of Shares as to which the Option is exercised that number of Shares having a
Fair Market Value on the date of exercise equal to the exercise price for the
total number of Shares as to which the Option is exercised; or
(v) if there is a public market for the Shares and they are
registered under the Securities Act, delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised (i)
until such time as the Plan has been approved by the stockholders of the
Company, or (ii) if the issuance of such Shares upon such exercise or the
method of payment of consideration for such shares would constitute a
violation of any applicable federal or state securities or other law or
regulation, including any rule under Part 207 of Title 12 of the Code of
Federal Regulations ("Regulation G") as promulgated by the Federal Reserve
Board. As a condition to the exercise of this Option, the Company may
require Optionee to make any representation and warranty to the Company as
may be required by any applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's consulting relationship or Continuous Status as an Employee with
the Company (as the case may be), Optionee may, to the extent otherwise so
entitled at the date of such termination (the "Termination Date"), exercise
this Option during the Termination Period set out in the Notice of Grant. To
the extent that Optionee was not entitled to exercise this Option at the date
of such termination, or if Optionee does not exercise this Option within the
time specified herein, the Option shall terminate.
7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section
6 above, in the event of termination of Optionee's consulting relationship or
Continuous Status as an Employee as a result of total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but
only within six (6) months from the date of such termination (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 10 below), exercise the Option to the extent otherwise so entitled at
the date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
8. DEATH OF OPTIONEE. In the event of the death of Optionee, the
Option may be exercised at any time within six (6) months following the date
of death (but in no event later than the date of expiration of the term of
this Option as set forth in Section 10 below), by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee could exercise the Option at
the date of death. To the extent that Optionee was not entitled to exercise
the Option at the date of death, or if Optionee does not
3
<PAGE>
exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him
or her. The designation of a beneficiary does not constitute a transfer.
The terms of this Option shall be binding upon the executors, administrators,
heirs, and successors of the Optionee.
10. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set
out in Section 7 of the Plan regarding Options designated as Incentive Stock
Options and Options granted to more than ten percent (10%) shareholders shall
apply to this Option.
11. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercising a nonstatutory Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of
the Shares over the exercise price. However, the timing of this income
recognition may be deferred for up to six months if Optionee is subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). If the Optionee is an employee, the Company will be required to
withhold from Optionee's compensation, or collect from Optionee and pay to
the applicable taxing authorities an amount equal to a percentage of this
compensation income. Additionally, the Optionee may at some point be required
to satisfy tax withholding obligations with respect to the disqualifying
disposition of an Incentive Stock Option. The Optionee shall satisfy his or
her tax withholding obligation arising upon the exercise of this Option by
one or some combination of the following methods: (i) by cash payment, or
(ii) out of Optionee's current compensation, or (iii) if permitted by the
Administrator, in its discretion, by surrendering to the Company Shares which
(a) in the case of Shares previously acquired from the Company, have been
owned by the Optionee for more than six months on the date of surrender, and
(b) have a fair market value on the date of surrender equal to or less than
Optionee's marginal tax rate times the ordinary income recognized, (iv) by
electing to have the Company withhold from the Shares to be issued upon
exercise of the Option that number of Shares having a fair market value equal
to the amount required to be withheld. For this purpose, the fair market
value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined (the "Tax Date").
If the Optionee is subject to Section 16 of the Exchange Act (an
"Insider"), any surrender of previously owned Shares to satisfy tax
withholding obligations arising upon exercise of this Option must comply with
the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
("Rule 16b-3") and shall be subject to such additional conditions or
restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
4
<PAGE>
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
(iii) all elections shall be subject to the consent or disapproval
of the Administrator;
(iv) if the Optionee is an Insider, the election must comply with
the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
12. TAX CONSEQUENCES. Optionee acknowledges that he or she has read
the brief summary set forth below of certain federal tax consequences of
exercise of this Option and disposition of the Shares under the law in effect
as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) EXERCISE OF ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the
Option, although the excess, if any, of the fair market value of the Shares
on the date of exercise over the Exercise Price will be treated as an item of
the alternative minimum taxable income for federal tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
(ii) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does
not qualify as an ISO, Optionee may incur regular federal income tax
liability upon the exercise of the Option. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the fair market value of the Shares on the
date of exercise over the Exercise Price. If Optionee is an employee of the
Company, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at
the time of exercise.
(iii) DISPOSITION OF SHARES. If this Option is an Incentive Stock
Option and if Shares transferred pursuant to the Option are held for more
than one year after exercise and more than two years after the grant date,
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an
ISO are disposed of before the end of either of such two holding periods,
then any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the
5
<PAGE>
extent of the excess, if any, of the lesser of (i) the fair market value of
the Shares on the date of exercise, or (ii) the sales price over the Exercise
Price. If this Option is a Nonstatutory Stock Option, then gain realized on
the disposition of Shares will be treated as long-term or short-term capital
gain depending on whether or not the disposition occurs more than one year
after the exercise date.
(iv) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after transfer of such Shares to Optionee upon exercise of
the Incentive Stock Option, the Optionee shall notify the Company in writing
within thirty (30) days after the date of such disposition. Optionee agrees
that Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee from the early disposition by
payment in cash or out of the current earnings paid to the Optionee.
13. NO ADDITIONAL EMPLOYMENT RIGHTS. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY
CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS INCORPORATED HEREIN BY
REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION
OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY
WAY WITH HIS OR HER RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS OR HER
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
and fully understands all provisions of the Option. Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option.
14. SIGNATURE. This Agreement shall be deemed executed by the Company
and Optionee upon execution by such parties of the Notice of Grant attached
to this Agreement.
6
<PAGE>
Exhibit 10.4
SYNC RESEARCH, INC.
AMENDED AND RESTATED 1995 DIRECTORS' STOCK OPTION PLAN
(AMENDED JUNE 12, 1998)
1. ADOPTION AND PURPOSE.
The Board of Directors of Sync Research, Inc. (the "Company") hereby adopts
the Sync Research, Inc. Amended and Restated 1995 Directors' Stock Option Plan
(the "Plan"). The purposes of the Plan are to compensate non-employee members of
the Board, to provide a means for such members to increase their holdings of
Company stock, and to attract and retain the best available personnel for
service as members of the Board.
2. DEFINITIONS.
The following definitions shall apply to this Plan:
(a) "ANNUAL GRANT DATE" shall mean, for each calendar year, beginning in
1996, the date of each Annual Meeting of the Company's shareholders.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMPANY" shall have the meaning set forth in Section 1.
(e) "EFFECTIVE DATE" shall mean the later of the date the Board approves
this Plan or the effective date of the Registration Statement on Form S-1 for
the initial public offering of the Company's Common Stock.
(f) "ELIGIBLE DIRECTOR" shall mean any person who is a member of the Board
and who is not a full or part-time employee of the Company or of any subsidiary
or affiliate of the Company. The receipt of a director's fee from the Company
shall not be sufficient in and of itself to cause a person to be an employee of
the Company.
(g) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "GRANT DATE" shall mean the Initial Grant Date or the Annual Grant
Date, as appropriate.
(i) "INITIAL GRANT DATE" shall mean the later of the date on which an
Eligible Director is first elected to the Board or the Effective Date.
(j) "OPTION" shall mean an option to purchase Shares granted under this
Plan. All Options shall be "nonstatutory options" (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
<PAGE>
(k) "OPTION AGREEMENT" shall mean the written agreement described in
Section 6.
(l) "PLAN" shall have the meaning set forth in Section 1.
(m) "SHARES" shall mean shares of Common Stock of the Company.
3. ADMINISTRATION.
(a) GENERAL. This Plan shall be administered by the Board in accordance
with the express provisions of this Plan.
(b) POWERS OF BOARD. Subject to the limitations set forth in this Plan,
the Board shall have full and complete authority to adopt such rules and
regulations and to make all such other determinations not inconsistent with the
Plan as may be necessary for the administration of the Plan.
4. SHARES SUBJECT TO PLAN.
(a) AGGREGATE NUMBER. Subject to adjustment in accordance with Section
6(g), an aggregate of 200,000 Shares is reserved for issuance under this Plan.
Shares sold under this Plan may be unissued Shares or reacquired Shares. If any
Options shall for any reason terminate or expire without having been exercised
in full, Shares not purchased thereunder shall be available again for grant
under this Plan.
(b) RIGHTS AS SHAREHOLDER. An Eligible Director shall have no rights as
a shareholder with respect to Shares acquired by exercise of an Option until
the issuance (as evidenced by an appropriate entry on the books of the
Company or a duly authorized transfer agent) of a stock certificate
evidencing the Shares. Subject to Section 6(g), no adjustment shall be made
for dividends or other events for which the record date is prior to the date
the certificate is issued.
5. NONDISCRETIONARY GRANTS.
All grants of Options hereunder shall be automatic and non-discretionary
and shall be made strictly in accordance with the following provisions:
(a) INITIAL GRANT. Each person who becomes an Eligible Director on or
after the Effective Date shall automatically receive on the Initial Grant Date
for such Eligible Director an Option to purchase 40,000 Shares.
(b) REGULAR ANNUAL GRANTS. On each Annual Grant Date, each Eligible
Director who has been such for at least six (6) months and remains such as of
such date shall receive the grant of an Option to purchase 10,000 Shares.
<PAGE>
(c) ADJUSTMENT. The number of Shares for which options are granted in
accordance with this Section 5 and the number of Shares subject to any Option
shall be subject to adjustment in accordance with Section 6(g).
(d) NO DISCRETION; EXCESS SHARES. No person shall have any discretion to
select which Eligible Directors shall be granted Options or to determine the
number of Shares to be subject to such Options. In the event that a grant would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased upon exercise of Options to exceed the number set
forth in Section 4(a), then each Option so granted shall be for that number of
Shares determined by dividing the remaining Shares available for grant by the
number of Eligible Directors receiving Options at such time.
(e) Notwithstanding the foregoing, each Eligible Director who received an
Option on an Initial Grant Date on or after January 30, 1998 and prior to June
12, 1998 in the amount of 20,000 shares, shall be automatically granted, on the
date of the Company's first Annual Meeting of Stockholders after January 30,
1998 at which the amendments to this Plan are approved by the Company's
stockholders, an Option in the amount of 20,000 shares at the applicable
exercise price on the grant date pursuant to Section 6(c); PROVIDED that such
Eligible Director remains a member of the Company's Board of Directors
immediately following such meeting.
6. TERMS OF OPTION AGREEMENTS.
Upon the grant of each Option, the Company and the Eligible Director shall
enter into an Option Agreement which shall specify the Grant Date and the
exercise price, and shall include or incorporate by reference the substance of
all of the following provisions and such other provisions consistent with this
Plan as the Board may determine:
(a) TERM. The term of the Option shall expire 10 years from its Grant
Date, subject to earlier termination in accordance with Sections 6(f) or 6(h).
(b) OPTION EXERCISE. Each Option held by an Eligible Director that is
received on either an Initial Grant Date or an Annual Grant Date shall initially
be non-exercisable but shall become exercisable as to 1/4 of the Shares subject
to such Option on the date which is one year after such Initial Grant Date or
Annual Grant Date, as the case may be, and at the rate of 1/48th of the Shares
subject to such Option for each month thereafter, provided, in each case, that
the holder thereof remains an Eligible Director as of such date. The
exercisability of an Option shall also be subject to the effectiveness of any
registration statement or qualification required by applicable law with respect
to the issuance of the Shares reserved under the Plan.
(c) PURCHASE PRICE. The purchase price of the Shares subject to each
Option shall be their fair market value determined based on the closing sales
price for Shares or the closing bid if no sales were reported, as quoted on the
Nasdaq National Market, on the Grant Date of such Option, or on the last
preceding business day if such Grant Date is not a business day.
<PAGE>
(d) PAYMENT OF PURCHASE PRICE. The purchase price of Shares acquired
pursuant to an option shall be paid in full at the time the Option is exercised
in cash, by check or by delivery of Shares having a fair market value on the
date of exercise (determined in the same manner as the purchase price is
determined) equal to the aggregate purchase price (and, if such Shares were
acquired from the Company, shall have been held for at least six months) or by
some combination of the foregoing.
(e) TRANSFERABILITY. No Option shall be transferable otherwise than by
will or the laws of descent and distribution or pursuant to a qualified domestic
relations order (as defined by the Code or the rules thereunder).
(f) TERMINATION OF MEMBERSHIP ON THE BOARD. If an Eligible Director's
membership on the Board terminates for any reason, an Option held at the date of
termination which is then exercisable under the terms of Section 6(b) may be
exercised in whole or in part at any time within thirty (30) days after the date
of such termination (but in no event after the term of the Option expires). Any
Option not so exercised shall thereafter terminate.
(g) CAPITALIZATION CHANGES. If any change is made in the Shares subject to
the Plan or subject to any Option granted under the Plan, through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise, the
Board shall make appropriate adjustments as to the maximum number of Shares
subject to the Plan, the number of Shares covered by any Option grant, the
maximum number of Shares for which Options may be granted to any Eligible
Director, and the number of Shares and price per Share covered by outstanding
Options.
(h) CHANGE OF OWNERSHIP. In the event of (i) a dissolution or liquidation
of the Company, (ii) a sale of all or substantially all of the Company's assets,
(iii) a merger or consolidation in which the Company is not the surviving
corporation, or (iv) any other capital reorganization in which more than fifty
percent (50%) of the shares of the Company entitled to vote are exchanged, the
Eligible Director shall have a reasonable time following the adoption of the
plan for liquidation, dissolution, sale, merger, consolidation or reorganization
to exercise the Option, including any part of the Option that would not
otherwise be exercisable under Section 6(b), prior to the effectiveness of such
liquidation, dissolution, sale, merger, consolidation or reorganization, at the
end of which time the Option shall terminate, unless the Eligible Director has
the right to exercise the Option, including any part of the Option that would
not otherwise be exercisable under Section 6(b), or to receive a substitute
option with comparable terms, as to an equivalent number of shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, sale, merger, consolidation or reorganization.
7. USE OF PROCEEDS.
Proceeds from the sale of Shares pursuant to this Plan shall be used by the
Company for general corporate purposes.
<PAGE>
8. AMENDMENT OF PLAN.
The Board may amend the Plan at any time, provided that any amendment which
increases the number of shares as to which Options may be granted, modifies the
requirements as to eligibility for participation, materially increases the
benefits accruing under the Plan or otherwise must be approved by shareholders
to comply with Rule 16b-3 of the Exchange Act, shall be subject to obtaining new
shareholder approval as provided in Section 11. No amendment shall affect the
rights of the holder of any Option, except with that holder's consent.
Notwithstanding anything to the contrary in this Plan, the provisions set forth
in Section 5 (and any other Sections of the Plan that affect the formula award
terms required to be specified by Rule 16b-3) shall not be amended more than
once every six (6) months, other than to comply with changes in the Code, the
Employee Retirement Income Security Act of 1974, or the rules thereunder.
9. TERMINATION OR SUSPENSION OF PLAN.
The Board at any time may suspend or terminate this Plan. This Plan, unless
sooner terminated, shall terminate on the tenth anniversary of its adoption by
the Board. No Option may be granted under this Plan while this Plan is suspended
or after it is terminated. Suspension or termination of this Plan shall not
affect the rights of the holder of any Option, except with that holder's
consent.
10. CONDITIONS UPON ISSUANCE OF SHARES.
(a) COMPLIANCE. Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, state securities
laws, and the requirements of any stock exchange upon which the Shares may then
be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) CONDITION TO EXERCISE. As a condition to the exercise of an Option,
the Company may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares, if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
(c) NO LIABILITY. Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
11. SHAREHOLDER APPROVAL.
<PAGE>
This Plan is subject to approval by the shareholders of the Company within
12 months after the date the Board approves this Plan either by the written
consent of the holders of a majority of the outstanding shares of capital stock
or by the affirmative vote of a majority of the votes cast at a duly held
shareholders' meeting at which a quorum of the voting power of the Company is
represented in person or by proxy. Options may be granted, but not exercised,
before such shareholder approval. If the shareholders fail to approve this Plan
within the required time period, any Options granted under this Plan shall be
void, and no additional Options shall be granted.
12. ADDITIONAL RESTRICTIONS OF RULE 16b-3.
The terms and conditions of Options granted hereunder shall comply with the
applicable provisions of Rule 16b-3. This Plan and the Options granted hereunder
shall be deemed to contain such additional conditions and restrictions as may be
required for this Plan to qualify as a "formula plan" under Rule 16b-3, as then
applicable to the Company, and to qualify for the maximum exemptions from
Section 16 of the Exchange Act with respect to Plan transactions.
<PAGE>
SYNC RESEARCH, INC.
1995 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
Optionee
Address
You have been granted an option to purchase Common Stock of Sync Research,
Inc. (the "Company") as follows:
Date of Grant Date of Grant
Vesting Commencement Date Vest Commencement Date
Exercise Price per Share $ Exercise Price Per Shar
Total Number of Shares Granted Total Number Shares Gra
Total Exercise Price $ TotalExercisePrice
Expiration Date ExpirationDate
Vesting Schedule This Option may be exercised, in whole
or in part, in accordance with the
following schedule: 1/4th of the shares
subject to this option vest one year
after the Date of Grant and 1/48th of
such shares vest on the monthly
anniversary thereafter.
Termination Period This Option may be
exercised for 30 days after termination
of Optionee's status as an Eligible
Director, but in no event later than the
Term/Expiration Date as provided above.
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1995 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.
OPTIONEE: SYNC RESEARCH, INC.
By:
- ----------------------------------- -----------------------------------
Signature
Title:
- ----------------------------------- --------------------------------
Print Name
2
<PAGE>
SYNC RESEARCH, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
1. GRANT OF OPTION. The Board of Directors of the Company hereby grants
to the Optionee named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the "Optionee"), an option (the "Option") to purchase a number
of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "Exercise
Price"'), subject to the terms and conditions of the 1995 Directors' Stock
Option Plan (the "Plan"), which is incorporated herein by reference.
(Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Plan.) In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Nonstatutory Stock Option
Agreement, the terms and conditions of the Plan shall prevail.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement. In the event of Optionee's death, disability or other termination of
Optionee's employment or consulting relationship, the exercisability of the
Option is governed by the applicable provisions of the Plan and this
Nonstatutory Stock Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
<PAGE>
(b) check;
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 6 of the Plan. The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Nonstatutory Stock Option
Agreement.
6. TAX CONSEQUENCES. Set forth below is a brief summary of certain
federal and California tax consequences relating to this Option under the law in
effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION. Since this Option does not qualify as an
incentive stock option under Section 422 of the Code, the Optionee may incur
regular federal and California income tax liability upon exercise. The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price.
(b) DISPOSITION OF SHARES. If the Optionee holds the Option Shares
for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal and California income tax
purposes.
2
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Nonstatutory Stock Option Agreement and fully understands all
provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and
Nonstatutory Stock Option Agreement.
SYNC RESEARCH, INC.
By:
--------------------------------- -----------------------------------
Optionee
Title:
----------------------------
3
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Nonstatutory Stock Option
Agreement. In consideration of the Company's granting his or her spouse the
right to purchase Shares as set forth in the Plan and this Nonstatutory Stock
Option Agreement, the undersigned hereby agrees to be irrevocably bound by
the terms and conditions of the Plan and this Nonstatutory Stock Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or
exercise of rights under the Plan or this Nonstatutory Stock Option Agreement.
------------------------------------
Spouse of Optionee
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,560
<SECURITIES> 0
<RECEIVABLES> 4,583
<ALLOWANCES> (524)
<INVENTORY> 6,741
<CURRENT-ASSETS> 30,289
<PP&E> 9,326
<DEPRECIATION> (5,244)
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<CURRENT-LIABILITIES> 7,584
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 26,738
<TOTAL-LIABILITY-AND-EQUITY> 34,418
<SALES> 12,686
<TOTAL-REVENUES> 12,686
<CGS> 8,258
<TOTAL-COSTS> 8,258
<OTHER-EXPENSES> 11,087
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<INCOME-PRETAX> (6,186)
<INCOME-TAX> 2
<INCOME-CONTINUING> (6,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,188)
<EPS-PRIMARY> (.36)
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</TABLE>
