<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
X Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to ?240.14a-11(c) or ?240.14a-12
SYNC RESEARCH, INC.
-------------------
(Name of Registrant as Specified In Its Charter)
-------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
---
<PAGE>
SYNC RESEARCH, INC.
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 11, 1999
------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Sync
Research, Inc. (the "Company") will be held on Friday, June 11, 1999, at 2:00
p.m., local time, at the Marriott Suites, 500 Bayview Circle, Newport Beach,
California 92660 for the following purposes:
1. To elect directors to serve for the ensuing year and until
their successors are elected and qualified;
2. To approve an amendment to the Certificate of Incorporation
to effect a one-for-five reverse split of the Company's Common Stock;
3. To ratify the appointment of Ernst & Young LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 1999; and
4. To transact such other business as may properly come before
the meeting or any postponement or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 20, 1999,
are entitled to notice of and to vote at the meeting and any adjournment(s)
thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the enclosed
postage-prepaid envelope.
FOR THE BOARD OF DIRECTORS
William K. Guerry
Secretary
Irvine, California
April 30, 1999
<PAGE>
SYNC RESEARCH, INC.
-----------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Sync Research, Inc. (the "Company"), for use at the annual meeting of
stockholders to be held on Friday, June 11, 1999 (the "Annual Meeting"), at 2:00
p.m., local time, or at any postponement or adjournment(s) thereof, for the
purpose set forth herein and in an accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Marriott Suites, 500
Bayview Circle, Newport Beach, California, 92660. The Company's principal
executive offices are located at 40 Parker, Irvine, California 92618. The
Company's telephone number at that location is (949) 588-2070.
THE COMPANY HAS PROVIDED A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1998, INCLUDING FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES (BUT NOT EXHIBITS) WITH THE ENCLOSED PROXY.
EXHIBITS TO THE ANNUAL REPORT MAY BE OBTAINED ON WRITTEN REQUEST TO WILLIAM K.
GUERRY, VICE PRESIDENT OF FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL
OFFICER, SYNC RESEARCH, INC., 40 PARKER, IRVINE, CA 92618 (TELEPHONE NUMBER
(949) 588-2070) AND PAYMENT OF THE COMPANY'S REASONABLE EXPENSES IN FURNISHING
SUCH EXHIBITS.
SOLICITATION
These proxy solicitation materials were mailed on or before April 30,
1999 to all stockholders entitled to vote at the meeting. The costs of
soliciting these proxies will be borne by the Company. These costs will include
the expenses of preparing and mailing proxy materials for the Annual Meeting and
reimbursement paid to brokerage firms and others for their expenses incurred in
forwarding solicitation material regarding the Annual Meeting to beneficial
owners of the Company's Common Stock. The Company may conduct further
solicitation personally, telephonically or by facsimile through its officers,
directors and regular employees, none of whom will receive additional
compensation for assisting with the solicitation.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use either (i) by delivering to the
Company (Attention: William K. Guerry) a written notice of revocation or a duly
executed proxy bearing a later date or (ii) by attending the meeting of
stockholders and voting in person.
VOTING
Each share of Common Stock entitles its holder to one vote on matters
to be acted upon at the meeting, including the election of directors.
Votes cast in person or by proxy at the Annual Meeting will be
tabulated by the Inspector of Elections with the assistance of the Company's
transfer agent. Any proxy that is returned using the form of proxy enclosed and
which is not marked as to a particular item will be voted (i) for the election
of the directors indicated; (ii) for amendment to the Company's Certificate of
Incorporation; (iii) for ratification of the appointment of the designated
independent public accountants; and (iv) as the proxy holders deem advisable on
other matters that may come before the meeting. A stockholder may indicate on
the enclosed proxy or its substitute that it is abstaining from voting on a
particular matter (an "abstention"). A broker may indicate on the enclosed proxy
or its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter (a "broker non-vote"). Abstentions and
broker non-votes are each tabulated separately. The Inspector of Elections will
determine whether or not a quorum is present at the Annual Meeting. In general,
2
<PAGE>
Delaware law provides that a majority of the shares entitled to vote, present in
person or represented by proxy, constitutes a quorum. Abstentions and broker
non-votes of shares that are entitled to vote are treated as shares that are
present in person or represented by proxy for purposes of determining the
presence of a quorum. Except with respect to the election of directors and
except in certain other specific circumstances, the affirmative vote of the
majority of shares entitled to vote and present in person or represented by
proxy at a duly held meeting at which a quorum is present is required under
Delaware law for approval of proposals presented to stockholders. In determining
whether a proposal has been approved, abstentions of shares that are entitled to
vote are treated as present in person or represented by proxy, but not as voting
for such proposal, and hence have the same effect as votes against such
proposal, while broker non-votes of shares that are entitled to vote are not
treated as present in person or represented by proxy for purposes of voting on
such proposal, and hence have no effect on the vote for such proposal.
RECORD DATE AND SHARE OWNERSHIP
Only stockholders of record at the close of business on April 20, 1999,
are entitled to notice of and to vote at the meeting. At the record date, April
20, 1999, xx,xxx,xxx shares of the Company's Common Stock, with a par value of
$.001 per share, were issued and outstanding.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 2000 Annual Meeting of
Stockholders must be received by the Company no later than Saturday, January
1, 2000 in order that they may be considered for inclusion in the proxy
statement and form of proxy relating to that meeting. If the Company is not
notified of a stockholder proposal on or after March 13, 2000 and before May
22, 2000 in writing of a proposal for the 2000 annual meeting as provided in
the Company's Bylaws, the management of the Company may exclude the matter
from consideration at the annual meeting. In addition, if the Company is not
notified by March 16, 2000 of a stockholder proposal, the proxies held by
management of the Company provide discretionary authority to vote against
such stockholder's proposal, even though such proposal is not discussed in
the proxy statement.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
NOMINEES
The Company's bylaws currently provide for a Board of Directors of
three members. There are currently three members standing for election. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the nominees named below, regardless of whether any other names are placed
in nomination by anyone other than one of the proxy holders. In the event that
any such nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxy holders will vote in their discretion for a substitute
nominee. It is not expected that any nominee will be unavailable. The term of
office of each person elected as a director will continue until the next Annual
Meeting of Stockholders or until his successor has been elected and qualified.
The names of the nominees, their ages as of March 15, 1999, and certain
other information about them are set forth below:
<TABLE>
Caption>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR
--------------- --- -------------------- SINCE
-----
<S> <C> <C> <C>
Gregorio Reyes 58 Chairman of the Board of Directors 1995
Charles A. Haggerty 57 Chairman, President and Chief Executive 1995
Officer of Western Digital Corp.
William J. Schroeder 54 President and Chief Executive Officer of 1998
Diamond Multimedia Systems, Inc.
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation set
3
<PAGE>
forth above during the past five years.
MR. REYES has served as Chairman of the Company's Board of Directors
since January 1995 and from October 1997 to May 1998 in the Office of the Chief
Executive Officer of the Company. From 1990 to August 1994, he served as
Chairman and Chief Executive Officer of Sunward Technologies, Inc., a provider
of rigid disk magnetic recording head products for the data storage industry.
Previously, he was Chairman and Chief Executive Officer of American
Semiconductor Equipment Technologies, a wafer stepper company. Mr. Reyes
currently also serves as a director of Diamond Multimedia Systems, Inc., C-Cube
Microsystems, Inc. and several privately-held companies. Mr. Reyes received a
B.S. in Mechanical Engineering from Rensselaer Polytechnic Institute and a M.S.
in Management from the Stevens Institute of Technology.
MR. HAGGERTY has served as a member of the Company's Board of Directors
since June 1995. He has served as Chairman, President and Chief Executive
Officer of Western Digital Corp. ("Western Digital"), a manufacturer of disk
drives, since July 1992. From June 1992 through June 1993, Mr. Haggerty served
as President and Chief Operating Officer of Western Digital. Mr. Haggerty also
serves as a director of Pentair, Inc. and Navistar International Corporation. He
received a B.A. in Business and Social Science from the University of St.
Thomas.
MR. SCHROEDER has served as a member of the Company's Board of
Directors since April 1998. Mr. Schroeder has served as President and Chief
Executive Officer and Director of Diamond Multimedia Systems, Inc. since May
1994. Mr. Schroeder was employed by Conner Peripherals, Inc. ("Conner") from
1986 to 1994, initially as President and, from 1989, as Vice Chairman of the
Board of Directors. He was also President of Conner's New Products Group from
1989 to 1990, President of Archive Corporation (a Conner subsidiary) from
January 1993 to November 1993, and CEO of Arcada Software, Inc. (a Conner
subsidiary) from November 1993 to May 1994. Mr. Schroeder is also a director of
Xircom, Inc. and CNF Transportation, Inc. He received his M.B.A. from Harvard
Business School and M.S.E.E. and B.E.E. from Marquette University.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of six meetings during the fiscal
year ended December 31, 1998. The Board of Directors has an Audit Committee and
a Compensation Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
During 1998, the Audit Committee of the Board of Directors consisted of
Charles A. Haggerty, William O'Meara (until June 1998) and William J. Schroeder,
all of whom were non-employee directors of the Company. Mr. O'Meara did not
stand for re-election as a member of the Board of Directors at the Company's
1998 Annual Meeting. The Audit Committee had two meetings during 1998, both of
which included meetings with the Company's independent auditors to review
internal accounting policies and adequacy of internal controls. The members of
the Audit Committee also met informally periodically with the Company's
management during 1998.
During 1998, the Compensation Committee of the Board of Directors
consisted of Charles Haggerty, William O'Meara (until June 1998) and William J.
Schroeder, all of whom were non-employee directors. The Compensation Committee
met three times during 1998. The Compensation Committee, in conjunction with the
Board of Directors, establishes salaries, incentives and other forms of
compensation for directors, officers and other employees, administers the
various incentive compensation and benefit plans (including the Company's stock
purchase and stock option plans) and recommends policies relating to such plans.
The Compensation Committee has exclusive authority to award grants of options or
restricted stock to executive officers of the Company, pursuant to the 1991 and
1996 Stock Plans.
During 1998, no incumbent director attended fewer than 75% of the
aggregate number of meetings of the Board of Directors and of the committees of
the Board of Directors on which he serves.
COMPENSATION OF DIRECTORS
4
<PAGE>
Mr. Reyes, the Chairman of the Board of Directors, earned $72,000
($6,000 per month) during 1998 pursuant to a consulting agreement with the
Company. Non-employee directors are paid a fee of $5,000 per quarter plus
$1,000 for each full meeting of the Board of Directors attended by such
director. In 1998, Mr. Haggerty and Mr. Schroeder earned $25,000 each
pursuant to their arrangements. In addition, directors are reimbursed for
out-of-pocket travel expenses associated with their attendance at Board
meetings. Non-employee directors of the Company will automatically be granted
options to purchase shares of the Company's Common Stock pursuant to the
terms of the Company's 1995 Directors' Stock Option Plan (the "Directors'
Plan"). Under the Directors' Plan, each non-employee director who is elected
to the Board will receive an option to purchase 40,000 shares of Common Stock
on the date on which he or she first becomes a non-employee director. In
addition, on the date of each annual stockholders meeting, each non-employee
director, will be granted an additional option to purchase 10,000 shares of
Common Stock if, on such date, he or she has served on the Board for at least
six months and remains a director as of the date of such meeting. Messrs.
Haggerty and Schroeder each received options to purchase 10,000 shares and
40,000 shares, respectively, pursuant to the Directors' Plan in 1998. Subject
to their election to the Board of Directors by the stockholders at the Annual
Meeting, Messrs. Haggerty and Schroeder will be automatically granted an
option to purchase 10,000 shares of Common Stock each on the date of the
Annual Meeting. There are no family relationships among the directors or
executive officers of the Company.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS
The three nominees receiving the highest number of affirmative votes of
shares of the Company's Common Stock present at the Annual Meeting in person or
by proxy and entitled to vote shall be elected as directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES LISTED ABOVE TO SERVE AS DIRECTORS FOR THE ENSUING YEAR
AND UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
PROPOSAL NO. 2: AMENDMENT TO CERTIFICATE OF INCORPORATION EFFECTING A
REVERSE COMMON STOCK SPLIT
INTRODUCTION
The Board has approved an amendment to the Company's Certificate of
Incorporation to effect a reverse stock split, pursuant to which each five
shares of Common Stock of the Company will become one share of Common Stock (the
"Reverse Split"). The stockholders are being asked to approve this proposed
amendment. The Reverse Split will take effect, if at all, after it is approved
by the stockholders of the Company and after filing the amendment with the
Secretary of State of the State of Delaware (the "Effective Date"). Even if the
Reverse Split is approved by the stockholders it is within the discretion of the
Board of Directors not to carry out the Reverse Split.
PURPOSE OF REVERSE SPLIT
The Company has been informed by the Nasdaq Stock Market ("Nasdaq")
that the Company's stock price was not in compliance with the minimum per
share price requirement for stock traded on Nasdaq. The Company will become
in compliance if its stock trades at or above the minimum trading price of
$1.00 for at least ten consecutive trading days. If the Company does not meet
this requirement, it will be delisted from trading on Nasdaq. The Company has
requested a hearing to stay the delisting while it seeks shareholder approval
for the reverse stock split.
If the Company's securities are delisted from Nasdaq, trading, if any,
of the Company's securities would thereafter have to be conducted in the
non-Nasdaq over-the-counter market. In such event, an investor could find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of, the Company's securities. In addition, if the Common Stock were to
become delisted from trading on Nasdaq and the trading price of the Common Stock
were to remain below $5.00 per share, trading in the Company's Common Stock
would also be subject to the requirements of certain rules promulgated under the
Securities Exchange Act of 1934, as amended, which require additional disclosure
by broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity
5
<PAGE>
security that has a market price of less than $5.00 per share, subject to
certain exceptions). The additional burdens imposed upon broker-dealers by
such requirements could discourage broker-dealers from effecting transactions
in the Common Stock, which could severely limit the market liquidity of the
Common Stock and the ability of investors to trade the Company's Common
Stock. There is no guarantee that the Reverse Split will result in compliance
with the Nasdaq minimum trading price requirement. The Company's securities
may be delisted even after the Reverse Split.
As a result of the Reverse Split, the _________ shares of Common Stock
outstanding on April 20, 1999 will become approximately ___________ shares of
Common Stock and any other shares issued prior to the Effective Date will be
similarly adjusted. In addition, on the Effective Date each option and warrant
to purchase Common Stock outstanding on the Effective Date will be adjusted so
that the number of shares of Common Stock issuable upon their exercise shall be
divided by five (and corresponding adjustments will be made to the number of
shares vested under each outstanding option) and the exercise price of each
option and warrant shall be multiplied by five. No fractional shares will be
issued upon the Reverse Split. In lieu thereof, the Company will pay each holder
of a fractional interest an amount in cash equal to the value of such fractional
interest on the Effective Date. The Reverse Split will have the effect of
increasing the number of odd-lot holders of the Company's Common Stock.
Transaction costs involving odd-lot amounts of Common Stock are generally higher
on a per-share basis than transactions involving even-lot amounts of Common
Stock. Thus, the Reverse Split may have the effect of increasing the transaction
costs of certain of the Company' stockholders.
The Reverse Split will have the effect of creating additional
authorized and unreserved shares of the Company's Common Stock. The Company
has no current plans to issue such shares. As of April 20, 1999, the Company
had 50,000,000 authorized shares of Common Stock of which ____________ were
issued and outstanding. As of April 9, 1999, an aggregate of 7,785,964 shares
had been reserved for issuance under the Company's 1991 Stock Plan, 1996
Non-Executive Stock Option Plan, 1995 Directors' Stock Option Plan , 1995
Employee Stock Purchase Plan and Assumed TyLink 1994 Stock Plan, or for
exercise of options issued under such plans. Of these shares, 3,147,181
shares are subject to outstanding options and stock purchase rights and
2,339,355 shares remain available for issuance as of April 9, 1999. As of
April 9, 1999, 26,933,097 shares of the Company's Authorized Common Stock
remained unissued and unreserved.
APPROVAL REQUIRED
The affirmative vote of a majority of the outstanding shares of
Common Stock of the Company is required to approve the amendment of the
Company's Certificate of Incorporation to effect a one-for-five reverse split
of the Company's Common Stock.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED AMENDMENT
TO THE CERTIFICATE OF INCORPORATION EFFECTING A ONE FOR FIVE REVERSE COMMON
STOCK SPLIT.
PROPOSAL NO. 3: APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Ernst & Young LLP,
independent public accountants, to audit the financial statements of the Company
for the fiscal year ending December 31, 1999, and recommends that stockholders
vote for ratification of this appointment. In the event the stockholders do not
ratify such appointment, the Board of Directors will reconsider its selection.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present at the Annual Meeting in person or by proxy and
entitled to vote is required for approval of the
6
<PAGE>
ratification of the appointment of Ernst & Young LLP as the Company's
independent public accountants.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
YEAR ENDING DECEMBER 31, 1999.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock as of March 15, 1999, as to (i) each person who is
known by the Company to beneficially own more than five percent of the
outstanding shares of the Company's Common Stock, (ii) each of the Company's
directors, (iii) all persons who served as the Company's Chief Executive
Officer during fiscal year 1998 and each of the four most highly compensated
executive officers who earned salary and bonus in excess of $100,000 in 1998
(the "Named Executive Officers") and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------
5% STOCKHOLDERS, DIRECTORS, NAMED EXECUTIVE OFFICERS,
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER PERCENT
- ----------------------------------------------- ---------------------
<S> <C> <C>
Dimensional Fund Advisors
1299 Ocean Ave. 11th Floor
Santa Monica, CA 90404......................................................... 1,204,200 6.9%
3Com Corporation............................................................... 1,027,083 5.8%
5400 Bayfront Plaza
Santa Clara, CA 95052
Louis Zimmerman(2)............................................................. 946,813 5.4%
40 Parker
Irvine, CA 92618
Gregorio Reyes(3).............................................................. 622,499 3.5%
Charles A. Haggerty(4)......................................................... 56,040 *
William J. Schroeder(5)........................................................ 12,500 *
James D. McNally(6)............................................................ 257,606 1.6%
Richard Martin(7).............................................................. 244,764 1.4%
Richard M. White(8)............................................................ 40,173 *
Richard N. Thunen(9)........................................................... 26,577 *
Todd Krautkremer............................................................... -
*
John H. Rademaker.............................................................. -
All directors and executive officers as a group
(11) persons)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12).............................. 1,401,631 7.7%
</TABLE>
7
<PAGE>
- -----------
* Less than 1 percent.
1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days after March 15, 1999 are deemed outstanding.
Such shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.
2) Includes 40,000 shares held in trust for the benefit of Mr. Zimmerman's
children. Mr. Zimmerman disclaims beneficial ownership of such shares.
3) Consists of 281,459 shares held in the name of Gregorio Reyes & Vanessa F.
Reyes, Trustees of the Gregorio Reyes and Vanessa F. Reyes Trust, u/a dtd
April 22, 1983, 25,000 shares held by Reyes Partnership 4, 160,000 shares
held directly by Mr. Reyes and 156,040 shares issuable upon the exercise
of options to purchase common stock within 60 days of March 15, 1999.
4) Includes 6,040 shares issuable upon the exercise of options to purchase
Common Stock within 60 days of March 15, 1999.
5) Includes 5,000 shares issuable upon exercise of options to purchase Common
Stock within 60 days after March 15, 1999.
6) Includes 132,812 shares issuable upon exercise of options to purchase
Common Stock within 60 days after March 15, 1999.
7) Consists of 244,764 shares issuable upon exercise of options to purchase
Common Stock within 60 days after March 15, 1999.
8) Consists of 40,173 shares issuable upon exercise of options to purchase
Common Stock within 60 days after March 15, 1999.
9) Includes 22,916 shares issuable upon exercise of options to purchase Common
Stock within 60 days after March 15, 1999.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE
FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING
REPORT OF THE COMPENSATION COMMITTEE AND THE PERFORMANCE GRAPH ON PAGE 13 SHALL
NOT BE INCORPORATED BY REFERENCE INTO
8
<PAGE>
ANY SUCH FILINGS.
REPORT OF COMPENSATION COMMITTEE
During 1998, the Compensation Committee of the Board consisted of
Charles A. Haggerty, William O'Meara (until June 1998) and William Schroeder,
each of whom are non-employee directors. The Compensation Committee, in
conjunction with the Board of Directors, establishes salaries, incentives and
other forms of compensation for directors, officers and other employees,
administers the various incentive compensation and benefit plans (including the
Company's stock purchase and stock option plans) and recommends policies
relating to such plans. The Compensation Committee also has the exclusive
responsibility for granting options and stock purchase rights under the 1991
Stock Plan to executive officers and eligible directors. The Compensation
Committee will annually evaluate the performance and determine compensation and
long-term equity incentives of the Chief Executive Officer (the "CEO"), and will
review and approve the CEO's compensation recommendation for other executive
officers of the Company.
The Company's executive compensation program consists of three main
components: (1) base salary, (2) potential for a quarterly and/or annual bonuses
based on overall Company performance as well as individual performance and (3)
stock and/or option grants which provide the executive officers with the
opportunity to build a meaningful stake in the Company, and which stock and/or
options are granted with the objective of aligning executive officers'
long-range interests with those of the stockholders and encouraging the
achievement of superior results over time. The second and third elements of the
compensation program constitute the "at risk" components.
The Company believes that, in order to attract and retain talented
individuals, it is important to set the base salaries of its executives at
levels that are competitive with those of companies in similar industries, of
comparable size and in the Company's same geographic area. As an aid in setting
executive compensation for 1999, the Company analyzed the American Electronics
Association 1998 Executive Compensation Survey with particular emphasis on
companies in the telecommunications industry with sales levels similar to those
of the Company. The Company views these companies as an appropriate peer index
for executive compensation because it expects to continue to draw its executives
from this industry and because these companies represent the Company's principal
competitors for qualified executive-level employees.
ANNUAL OR QUARTERLY CASH BONUSES
The Company historically has not had a formal cash bonus program for
executive officers, although cash bonuses have been paid from time to time in
the past to selected executive officers in recognition of superior individual
performance. For fiscal 1998, Mr. White received a bonus based upon the
Company's achievement of certain sales and operational milestones during the
year. None of the other executive officers of the Company earned bonuses during
fiscal 1998. The Company currently anticipates that Mr. McNally may earn bonuses
in 1999 equal to a certain percentage of his respective salary if the Company
meets certain revenue objectives.
Because stock options and stock grants provide an incentive for
executives to maximize stockholder value over time, stock options and stock
grants are a key means of aligning the interests of management and stockholders.
Value accrues to executives only as the value of the Company's stock
appreciates. The Company's typical vesting schedule for all employee options
(including options granted to executive officers) is as follows: 25% of the
total number of shares subject to the option vest one year after the date of
grant and 1/48th of the total number of shares subject to the option vest at the
end of each month thereafter. These vesting schedules are intended to encourage
a long-term commitment to the Company by its executive officers. The number of
shares owned by, or subject to options held by, each executive officer is
periodically reviewed and additional awards are considered based upon past
performance of the executive and the relative holdings of other executives in
the Company and at other companies in the telecommunications industry. In 1998,
the Company granted stock options under the 1996 Non-Executive Stock Option Plan
(the 1996 Stock Plan) to two new executive officers, Messrs. Thunen (10,000
shares) and Antaya (25,000) prior to their appointments as executive officers
and stock options under the 1991 Stock Plan to four executive officers, Messrs.
Krautkremer (20,000 shares), Guerry (10,000 shares), Martin (425,000 shares) and
Ms. Ratta (25,000
9
<PAGE>
shares). Options granted in 1998 include options that were repriced in October
1998. See discussion below under "Option Repricing."
The Compensation Committee will meet during the year and will consult
as needed with the Company's CEO to establish the compensation program for the
next year and to evaluate the effectiveness of the Company's compensation
program in meeting its objectives. Additionally, the Compensation Committee may
hold special meetings to approve the compensation of a newly hired executive or
an executive whose scope of responsibility has significantly changed.
Compensation for executive officers will be based on compensation surveys and
assessments as to the demonstrated and sustained performance of the individual
executives.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee evaluates the performance of the Company's
Chief Executive Officer, sets his base compensation and determines bonuses and
awards stock or option grants, if any. The Compensation Committee determines the
CEO's base salary after evaluating a number of factors, including comparative
salaries of chief executive officers of companies of comparable size in the
telecommunications industry, the Chief Executive Officer's individual
performance and the Company's performance.
Richard W. Martin was named President and Chief Executive Officer
effective June 1998. In connection with his appointment, the board granted Mr.
Martin a non-statutory stock option under the 1991 stock plan for 325,000
shares. In connection with repricing of options in October 1998, the Board
determined not to reprice Mr. Martins options. Alternatively, the Board granted
Mr. Martin an option to purchase 100,000 shares at $1.125 per share.
Gregorio Reyes has served as the Company's Chairman of the Board since
January 1995 and in the Office of the Chief Executive Officer of the Company
from October 1997 through May 1998. In connection with his appointment to the
Office of the Chief Executive Officer, Mr. Reyes was granted a non-statutory
stock option under the 1991 Stock Plan for 300,000 shares. In August 1998, Mr.
Reyes and the Board agreed to reduce such option to 150,000 shares, all of which
were vested. Mr. Reyes works on a part-time consulting basis in his capacity of
Chairman of the Board and does not receive any additional compensation over the
consulting arrangement he has with the Company. See discussion above under
"Compensation of Directors."
John H. Rademaker served as CEO of the Company from its inception in
1981 to May 1997 and in the Office of the Chief Executive Office from October
1997 through May 1998, and as founder of the Company, owned a significant number
of shares of Common Stock of the Company.
OPTION REPRICING
In October 1998, the Board of Directors (including the Compensation
Committee) determined that it was in the best interest of the Company to offer
to reprice the then-outstanding stock options of the Company with exercise
prices in excess of the then-current fair market value of the Company's Common
Stock. The objectives of the 1991 Stock Plan and the Company's other stock
option plans are to promote the interests of the Company by providing employees
and consultants an incentive to acquire a proprietary interest in the Company
and to continue to render services to the Company. Given the substantial decline
in fair market value of the Company's Common Stock in the approximately twelve
months prior to October 1998, and the fact that many of the Company's employees
had commenced work at the Company during that period, a large number of the
Company's employees held stock option grants, before the repricing, with
exercise prices substantially in excess of the fair market value of the
Company's Common Stock in October 1998. It was the view of the Committee that
stock options with exercise prices substantially above the current market price
of the Company's Common Stock were viewed negatively by most optionees of the
Company, and provided little, if any, equity incentive to the optionees. The
Committee thus concluded that such option grants seriously undermined the
specific objectives of the 1991 Stock Plan and the Company's other stock option
plans and should be repriced.
In this context, the Committee decided that effective October 8, 1998
(the "Grant Date") all optionees,
10
<PAGE>
except for Richard W. Martin and the directors, holding stock options with
exercise prices in excess of the fair market value of the Company's Common Stock
should receive one-for-one repricing of their then-existing unexercised stock
options with a new exercise price set at $1.125 per share, the closing sales
price and fair market value of the Company's Common Stock on the Grant Date. The
new options were subject to the same vesting rate as the canceled options, but
the optionees who elected to participate in the repricing agreed to suspend
exercisability of these options for a period of six months after the Grant
Date. Included in the repricing actions were certain of the options held by six
of the Company's executive officers: Jim McNally, Senior Vice President of
Sales, Richard Thunen, Vice President of Engineering, William K. Guerry, Vice
President of Finance, Todd Krautkremer, Vice President of Marketing, Richard
White, Vice President of Customer Service and Karen Ratta, Vice President of
Manufacturing. In determining to reprice options, the Committee also considered
the fairness of such a determination in relation to other stockholders. For this
reason, the directors' options were not repriced. It is the opinion of the Board
of Directors that this program helped improve optionee morale and provided new
incentives for the Company's employees and management and that the continued
retention and motivation of the Company's employees and management is in the
best interests of the Company's stockholders.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. However,
compensation which qualifies as "performance-based" is excluded from the $1
million limit if, among other requirements, the compensation is payable upon
attainment of pre-established, objective performance goals under a plan approved
by the stockholders.
The compensation to be paid to the Company's executive officers for the
1998 fiscal year did not exceed the $1 million limit per officer, nor is it
expected that the compensation to be paid to the company's executive officers
for fiscal 1999 will exceed that limit. The Company's 1991 Stock Plan is
structured so that any compensation income realized by an executive officer as a
result of the exercise of an outstanding option or the sale of option shares
under the 1991 Stock Plan or the 1996 Stock Plan will qualify as
"performance-based" compensation which will not be subject to the $1 million
limitation. Because it is very unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1 million limit, the Compensation Committee has decided at this time not to
take any other action to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Compensation Committee will
continue to monitor the compensation levels potentially payable under the
Company's cash compensation programs, but intends to retain the flexibility
necessary to provide total cash compensation in line with competitive practice,
the Company's compensation philosophy and the Company's best interests.
COMPENSATION COMMITTEE
Charles A. Haggerty
William O'Meara
William J. Schroeder
11
<PAGE>
PERFORMANCE GRAPH
The following graph summarizes cumulative total stockholder return
(assuming reinvestment of dividends) for the period beginning on the date the
Company's stock was first registered under Section 12 of the Securities Exchange
Act of 1934 (November 9, 1995) and ending at December 31, 1998.
The graph assumes that $100 was invested on November 9, 1995 in: (i)
the Common Stock of Sync Research, Inc., (ii) the Nasdaq Market Index and (iii)
the MG Network and Communications Devices Index (provided by Media General
Financial Services, Inc.). In 1997, the cumulative return comparison included
the MG Communications Index which is no longer available. The Company believes
the MG Network and Communications Devices Index is representative of the
Company's industry. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
[GRAPH]
<TABLE>
<CAPTION>
11/9/95 12/31/95 12/31/96 12/31/97 12/31/98
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sync Research, Inc. Common Stock............. $100.00 $102.84 $31.25 $8.10 $2.70
Nasdaq Market Index........................... $100.00 $101.13 $125.67 $153.73 216.82
MG Network and Communications
Devices Index................................ $100.00 $100.74 $131.60 $127.97 $257.07
</TABLE>
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation paid during fiscal year
1998, 1997 and 1996 to the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- -----------------------------
SECURITIES
NAME AND PRINCIPAL RESTRICTED UNDERLYING
- ------------------ STOCK OPTIONS/SARs ALL OTHER
POSITION YEAR SALARY($) BONUS($) AWARDS (#) COMPENSATION
- -------- ---- --------- -------- ------ --- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gregorio Reyes 1998 - - - - $72,000(1)
Office of the Chief Executive 1997 - - - 305,000 $72,000(1)
Officer 1996 - - - 5,000 $72,000(1)
John H. Rademaker 1998 $138,021 - - - $216,667(2)
Office of the Chief Executive 1997 $175,000 - - 100,000 $1,766(3)
Officer 1996 $175,000 - - - $829(3)
Richard W. Martin 1998 $116,665 - - 425,000(6) $2,866(3)
President and Chief Executive
Officer
James D. McNally 1998 $203,263 - - - $5,650(3)(5)
Senior Vice President of Sales 1997 $160,000 $8,762(4) - 145,000 $4,799(3)(5)
1996 $150,000 $20,553(4) - $2,500(3)(5)
Richard N. Thunen 1998 $122,000 $19,191 - 30,000(7) $3,249(3)(5)
Vice President of Engineering 1997 $140,000 $4,171 - $2,059(3)(5)
1996 $103,950 - -
Todd J. Krautkremer 1998 $162,092 - - 70,000(7) $2,461(3)(5)
Vice President of Marketing 1997 $140,000 - - 50,000(7) $2,459(3)(5)
1996 $131,250 - - 50,000(7) $66,015(3)(8)
Richard White 1998 $110,000 $39,444(9) - - $2,629(3)(5)
Vice President of Customer 1997 $102,208 $15,902(9) - 85,000(7) $2,431(3)(5)
Service 1996 $93,000 $22,083(9) - 26,576(7) -
</TABLE>
- ------------------------
(1) Consists of payments pursuant to a consulting agreement with the
Company under which Mr. Reyes is paid a fee of $6,000 per month. Mr.
Reyes served in the office of Chief Executive Officer from
13
<PAGE>
October 1997 to May 1997. See also, discussion above under
"Compensation of Directors."
(2) Consists of severance payments of $216,667 paid to Mr. Rademaker
pursuant to the terms of the Settlement Agreement and Mutual Release
between the Company and Mr. Rademaker dated September 28, 1998.
Mr. Rademaker resigned from the Office of the Chief Executive Officer
effective as of May 1998.
(3) Includes life insurance premiums pursuant to a program generally
available to all employees paid in 1998 in the amount of $2,866 for
Mr. Martin, $3,150 for Mr. McNally, $1,324 for Mr. Thunen, $330 for
Mr. Krautkremer and $979 for Mr. White; paid in 1997 in the amount of
$1,766 for Mr. Rademaker, $1,037 for Mr. Thunen, $2,430 for
Mr. McNally, $303 for Mr. Krautkremer and $898 for Mr. White; paid in
1996 in the amount of $829 for Mr. Rademaker, $550 for Mr. Thunen,
$2,250 for Mr. McNally and $216 for Mr. Krautkremer.
(4) Consists of sales commissions.
(5) Includes defined contribution retirement plan contributions made by the
Company in 1998 in the amount of $2,500 for Mr. McNally, $1,925 for Mr.
Thunen, $2,131 for Mr. Krautkremer and $1,650 for Mr. White; in 1997
in the amount of $1,022 for Mr. Thunen, $2,369 for Mr. McNally, $2,156
for Mr. Krautkremer, and $1,533 for Mr. White; in 1996 in the amount
of $250 for Mr. McNally and $250 for Mr. Thunen.
(6) On June 5, 1998, Mr. Martin was granted options to purchase 325,000
shares of Common Stock at $3.625 per share and on November 6, 1998, Mr.
Martin was granted options for 100,000 shares of Common Stock at $1.125
per share.
(7) On April 10, 1996, Mr. Krautkremer was granted options to purchase
50,000 shares of Common Stock at $22.25 per share. On August 27,
1996, Mr. White was granted options to purchase 25,000 shares of
Common Stock at $13.25 per share and on January 14, 1997, Mr. White
was granted options to purchase 15,000 shares of common stock at
$14.87 per share. On January 29, 1997, Mr. Thunen was granted
options to purchase 10,000 of Common Stock at $14.25 per share. In
an option repricing, which was effective April 14, 1997, these
options were canceled and exchanged for new options with an exercise
price of $3.9375 per share, the closing sale price of the Company's
Common Stock on April 14, 1997. As consideration for the exchange,
Messrs. Krautkremer, Thunen and White agreed to suspend the vesting
on these new options during the six month period after April 14,
1997. On June 5, 1998, Mr. Thunen was granted options to purchase
10,000 shares of Common Stock and Mr. Krautkremer was granted
options to purchase 20,000 shares of Common Stock, all shares priced
at $3.625 per share. On October 8, 1998, the options for Messrs.
Krautkremer, White and Thunen were canceled and exchanged for new
options with an exercise price of $1.125, the closing sale price of
the Company's Common Stock on October 8, 1998. As consideration for
the exchange, Messrs. Krautkremer, White and Thunen agreed to not
exercise any options during the six month period after October 8,
1998.
(8) Includes temporary living allowances and other relocation expenses in
the amount of $65,799.
(9) Consists of incentive performance based bonuses.
14
<PAGE>
The following tables set forth information for the Named Executive
Officers with respect to grants of options to purchase Common Stock of the
Company made in the fiscal year ended December 31, 1998, and the value of all
options held by such Named Executive Officers on December 31, 1998.
OPTION/SAR GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(3)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME GRANTED #(1) FISCAL YEAR %(2) ($/SH) DATE 5%($) 10%($)
- ---- ------------ ---------------- ------ ---- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Martin........... 325,000(4) 10.2% $3.630 6/08/08 $740,916 $1,877,628
100,000(4) 3.1% $1.125 10/8/08 $70,751 $179,296
James D. McNally............ 145,000(5) 4.6% $1.125 (5) $88,232 $216,561
Richard N. Thunen........... 30,000(5) 0.9% $1.125 (5) $18,916 $46,789
Todd J. Krautkremer......... 70,000(5) 2.2% $1.125 (5) $42,519 $104,394
Richard White............... 75,280(5) 2.4% $1.125 (5) $42,885 $103,950
</TABLE>
- -----------
(1) All options were granted pursuant to the Company's 1991 and 1996
Stock Plans and, except as noted below, become exercisable at the rate
of one fourth of the shares subject to the option on the first
annual anniversary of the vesting commencement date and 1/48th of
the shares at the end of each month thereafter. No stock
appreciation rights were granted in the last fiscal year.
(2) Options to purchase a total of 3,179,075 shares of Common Stock were
granted to employees in 1998, including options to purchase 2,237,507
shares of Common Stock pursuant to the Company's 1996 Stock Plan,
834,030 shares under the Company's 1991 Stock Plan and 57,538 shares
under the Company's Assumed TyLink 1994 Stock Plan. As of March 15,
1999, stock options to purchase a total of 1,880,219 shares had been
authorized for issuance under the 1996 Stock Plan, 1,587,287 of which
were issued and outstanding at a weighted average exercise price of
$1.52 per share. All grants under the 1996 Stock Plan have a per share
exercise price equal to the fair market value of the Company's common
stock on the date of grant. Except for initial grants upon hiring, none
of the executive officers or directors of the Company is eligible to
participate in the 1996 Stock Plan.
(3) These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the future performance of the Common Stock
and overall market conditions. There is no assurance that the amounts
reflected will be realized.
(4) These options are exercisable at the rate of 1/18 of the shares at the
end of each month after June 1, 1998. Vesting will be accelerated to
the extent of the following: (a) one-third of the shares will
immediately vest upon hiring a replacement Chief Executive Officer or
upon Mr. Martin's termination other than for cause, (b) one-third of
the shares will immediately vest upon achieving an operating
15
<PAGE>
profit of at least 5% of net revenues for two consecutive quarters,
and (c) all unvested shares will become immediately vested by a
Change of Control. The option may be exercised prior to vesting,
provided, however, that the Company shall have the right to
repurchase any exercised but unvested shares at the original
exercise price upon Mr. Martin's termination of service from the
Company.
(5) On April 18, 1997 and on December 9, 1997 Mr. McNally was granted
70,000 and 75,000 shares of Common Stock at $3.375 and $3.9375 per
share, respectively. On April 14, 1997, June 5, 1997 and December 9.
1997 Mr. Thunen was granted 10,000, 10,000 and 10,000 shares of
Common Stock at $3.9375, $3.625 and $3.9375 per share, respectively.
On April 14, 1997 and June 5, 1998, Mr. Krautkremer was granted
50,000 and 20,000 shares of Common stock at $3.9375 and $3.625 per
share, respectively. On September 23, 1994, March 13, 1995, May 17,
1995, December 11, 1995, April 14, 1996, April 14, 1997 and April
18, 1997 Mr. White was granted 1,576, 394, 1,576, 158, 1,576,
25,000, 15,000, 30,000 shares of Common Stock at $3.17 for the first
five grants, $3.9375 for the next two grants and $3.375 for the last
grant, respectively. On October 8, 1998 all of these grants were
canceled and exchanged for new options with an exercise price of
$1.125, the closing sale price of the Company's Common Stock on
October 8, 1998. As consideration for the exchange, these officers
agreed to not exercise any of the options for a period of six
months. The expiration dates of the new options is ten years from
the original grant date of the canceled options. The range of
expiration dates is from March 13, 2005 to November 6, 2008.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998
AND OPTION/SAR VALUES AT END OF FISCAL YEAR 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE 12/31/98(1): 12/31/98(2)($):
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- ---- -------- ------------ ------------------------- --------------------------
<S> <C> <C> <C> <C>
Gregorio Reyes................. - - 155,104/4,896 -/-
Richard W. Martin.............. - - 116,025/308,075 -/-
James D. McNally............... - - 117,916//98,334 $58,016/$961
Richard N. Thunen.............. - - 20,207/24,793 $10,891/$641
Todd J. Krautkremer............ - - 96,483/-0- $53,355/-$0-
Richard White.................. 7,879 $23,719 33,662/41,618 -/-
</TABLE>
- -----------------------------
(1) No stock appreciation rights (SARs) were outstanding during 1998.
(2) Based on the closing price of the Company's Common Stock as reported on
the Nasdaq National Market on December 31, 1998 of $0.97 See "Executive
Compensation and Related Information-Compensation of Executive
Officers-Option/SAR Grants in Fiscal Year 1998," footnotes
16
<PAGE>
4 and 5, for discussion of option repricing program which was
effected in October 1998.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
The Company enters into Change of Control Severance Agreements with
each of its officers. These agreements provide that upon a change of control of
the Company, fifty percent (50%) of the officer's unvested options shall
immediately vest. The remaining unvested options shall continue to vest at the
same rate as the officer's original vesting schedule, so that the same number of
options continue to vest per month as did prior to the change in control. In
addition, the agreements provide that the Company will enter into consulting
arrangements with each such officer if he or she is involuntary terminated
without cause or has his or her duties significantly reduced or is otherwise
constructively terminated within twelve (12) months after a change of control of
the Company. These consulting arrangements will last for up to twelve months
after such officer's termination. The agreements provide that, during the
consultation period, the officer will continue to receive compensation at the
rate at which he or she was previously compensated during the twelve months
prior to such termination. In addition, the terminated officer's unvested
options will continue to vest during the consultancy period.
On October 24, 1997, the Company entered into a Change of Control
Severance Agreement with Gregorio Reyes, Chairman of the Board of Directors
and Consultant to the Company. Pursuant to this agreement, if Mr. Reyes is
terminated without cause or otherwise involuntarily terminated within twelve
(12) months following a change in control of the Company, one hundred percent
(100%) of Mr. Reyes' unvested options shall immediately vest.
On September 28, 1998 the Company entered into a Settlement Agreement
and Mutual Release with John Rademaker. Pursuant to this agreement, in
consideration for a release of all claims against the Company, the Company paid
Mr. Rademaker $216,666.67, less applicable taxes and withholding.
On December 28, 1998, the Company entered into a Settlement Agreement
and Mutual Release with Karen Ratta. Pursuant to this agreement, in
consideration for a release of all claims against the Company, the Company has
agreed to pay Ms. Ratta $10,833.33 per month, less applicable taxes and
withholding for a period not to exceed 6 months from the date of her
resignation.
The Company entered into a Management Agreement with Richard W.
Martin on November 6, 1998, as amended on April 9, 1999. Pursuant to this
agreement, upon a merger, sale or other change of control of the Company, the
Company has agreed to pay Mr. Martin up to the greater of $250,000 or cash
equal to 2% of the value of stock or cash received by stockholders of the
Company in a sale, merger or change of control transaction provided that such
payment shall not exceed $500,000. In addition, the amended Management
Agreement provides that if Mr. Martin is terminated in connection with a
sale, merger or other change of control transaction, he will continue to
receive his base salary and benefits for a period not to exceed three months
following the closing of such transaction.
The 1991 Plan provides that in the event of a merger or sale of all
or substantially all of the assets of the Company, outstanding options or
stock purchase rights shall be assumed or an equivalent option or stock
purchase right shall be substituted by the successor corporation or the
administrator of the 1991 Plan may, in lieu of such assumption or
substitution, grant all optionees, including executive officers of the
Company, the right to exercise the options or stock purchase right as to some
or all of the underlying shares including those that would not otherwise be
exercisable.
REPORT ON REPRICING OF OPTIONS/SARS
In October 1998 the Company allowed all employees except Richard W.
Martin to cancel outstanding options that had not yet been exercised and that
had an exercise price in excess of the then-current fair market value and
replace them with new options for an equal number of shares with an exercise
price equal to such fair market value. Such new options were granted at a price
of $1.125 per share, the closing sales price and fair market value of the
Company's Common Stock on the effective date of the repricing, October 8, 1998.
The new options were subject to the same vesting rate as the canceled options,
but the optionees who elected to participate in the repricing agreed to suspend
the exercisibility of these options for a period of six (6) months after October
8, 1998. See "Report of Compensation Committee-Option Repricing." The following
table sets forth all repricings of options held by the Company's executive
officers since the Company's initial public offering.
17
<PAGE>
<TABLE>
<CAPTION>
10-YEAR OPTION/SAR REPRICING
----------------------------
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE ORIGINAL
UNDERLYING OF STOCK AT EXERCISE PRICE OPTION TERM
OPTIONS/SARS TIME OF AT TIME OF REMAINING AT
REPRICED OR REPRICING OR REPRICING OR NEW DATE OF
AMENDED AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE (#) ($) ($) PRICE($) AMENDMENT
---- ---- ------------ ------------ -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard N. Thunen 10/8/98 10,000 $1.125 $3.9375 $1.125 8.5 years
Vice President of 10/8/98 10,000 $1.125 $3.9375 $1.125 9.2 years
Engineering 10/8/98 10,000 $1.125 $3.6250 $1.125 9.7 years
James D. McNally 10/8/98 70,000 $1.125 $3.3750 $1.125 8.5 years
Senior Vice President of 10/8/98 75,000 $1.125 $3.9375 $1.125 9.2 years
Worldwide Sales
Todd J. Krautkremer 10/8/98 50,000 $1.125 $3.9375 $1.125 8.5 years
Vice President of 10/8/98 20,000 $1.125 $3.6250 $1.125 9.7 years
Marketing
4/14/97 50,000 $3.9375 $22.25 $3.9375 9 years
Richard White 10/8/98 30,000 $1.125 $3.3750 $1.125 8.5 years
Vice President of 10/8/98 40,000 $1.125 $3.9375 $1.125 8.5 years
Customer Service 10/8/98 1,576 $1.125 $3.1700 $1.125 6.0 years
10/8/98 394 $1.125 $3.1700 $1.125 6.4 years
10/8/98 1,576 $1.125 $3.1700 $1.125 6.6 years
10/8/98 158 $1.125 $3.1700 $1.125 7.2 years
10/8/98 1,576 $1.125 $3.1700 $1.125 7.5 years
4/14/97 25,000 $3.9375 $13.25 $3.9375 8.5 years
4/14/97 15,000 $3.9375 $14.8725 $3.9375 9.75 years
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1995, the Company entered into a Consulting Agreement with
Gregorio Reyes, the Chairman of the Board of Directors. This agreement provides
for a monthly consulting fee of $6,000 per month to be paid to Mr. Reyes. For
the year ended December 31, 1998, Mr. Reyes earned $72,000 under this contract.
This agreement may be terminated by either party upon thirty days' prior written
notice.
The Company has entered into change-of-control severance agreements
with each of its officers and with one of its directors, Gregorio Reyes. See
"Employment Contracts, Termination of Employment and Change-in-Control
Arrangements."
On September 28, 1998 the Company entered into a Settlement Agreement
and Mutual Release with John Rademaker. See "Employment Contracts, Termination
of Employment and Change-in-Control Agreements."
18
<PAGE>
On December 28, 1998, the Company entered into a Settlement Agreement
and Mutual Release with Karen Ratta. See "Employment Contracts, Termination of
Employment and Change-in-Control Agreements."
On November 6, 1998, the Company entered into a Management Agreement
with Richard W. Martin. See "Employment Contracts, Termination of Employment and
Change-in-Control Agreements."
The Company has granted shares of restricted stock and options to
purchase stock to certain executive officers and outside directors. See
"Compensation of Executive Officers," and "Compensation of Directors."
The Company has entered into indemnification agreements with its
officers and directors containing provisions which may require the Company,
among other things, to indemnify its officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a culpable
nature) and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
In October 1998, the Company repriced certain options to purchase
Common Stock granted to employees, including executive officers. See "Executive
Compensation and Related Information Report of Compensation Committee" and
"Report on Repricing of Options/SARs."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Messrs. Haggerty, O'Meara and Schroeder comprised the
Compensation Committee of the Board of Directors None of these persons has ever
been an officer or employee of the Company or any of its subsidiaries. There
were no compensation committee interlocks or other relationships during 1998
requiring disclosure under Item 402(j) of Regulation S-K of the Securities and
Exchange Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by
SEC regulations to furnish the Company with copies of all Section 16(a)
reports they file. To the Company's knowledge, based solely on its review of
the copies of such reports received or written representations from certain
Reporting Persons that no other reports were required, the Company believes
that during its fiscal year ended December 31, 1998, all Reporting Persons
complied with all applicable filing requirements, except as follows: Mr.
Martin did not file a Form 5 with respect to his grant of 100,000 shares of
Common Stock in November 1998. Mr. Martin subsequently reported this
transaction on a Form 4 in April 1999 and in March 1998, Ms. Ratta, who was
then the Company's Vice President of Manufacturing, filed a Form 4 late with
respect to the same day exercise and sale of the Company's Common Stock in
February 1998, did not file a Form 5 reflecting her exercise of the Company's
Common Stock in November 1998 and did not file a Form S reflecting her grant
of repriced options in October 1998.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting, then the persons
named in the enclosed form of proxy will vote the shares they represent in such
manner as the Board may recommend.
By Order of the Board of Directors
William K. Guerry
Secretary
Dated: April 30, 1999
19
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SYNC RESEARCH, INC.
1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Sync Research, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 30, 1999, and hereby
P appoints Richard W. Martin and William K. Guerry or either of them, proxies
and attorneys-in-fact, with full power to each of substitution, on behalf and
R in the name of the undersigned, to represent the undersigned at the 1999
Annual Meeting of Stockholders of Sync Research, Inc. to be held on June 11,
O 1999 at 2:00 p.m. local time, at the Marriott Suites located at 500 Bayview
Circle, Newport Beach, California 92660, and at any adjournment or
X postponement thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present,
Y on the matters set forth on the reverse side and, in their discretion, upon
such other matter or matters that may properly come before the meeting and
any adjournment(s) thereof.
--------------------
SEE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE REVERSE
SIDE
--------------------
<PAGE>
/ x / PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
<TABLE>
<CAPTION>
FOR ALL WITHHOLD
NOMINEES AUTHORITY TO
LISTED TO THE VOTE FOR ALL
RIGHT NOMINEES
(EXCEPT AS LISTED TO THE
INDICATED) RIGHT
<S> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. Election of Nominees: 2. Proposal to approve an amendment to
Directors / / / / --------- the Certificate of Incorporation to / / / / / /
Gregorio Reyes effect a one-for-five reverse
Charles A. Haggerty split of the Company's Common Stock.
William J. Schroeder
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE
LIST TO THE RIGHT ABOVE.
FOR AGAINST ABSTAIN
3. Proposal to ratify the appointment
of Ernst & Young LLP as the / / / / / /
Company's independent public
accountants for the fiscal year
ending December 31, 1999.
</TABLE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF DIRECTORS; (2) FOR APPROVAL OF
THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION; (3) FOR THE APPOINTMENT OF
ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
SIGNATURE _______________ DATE: _______ SIGNATURE _______________ DATE: _______
NOTE: This Proxy should be marked, dated, signed by the stockholder(s) exactly
as his or her name appears hereon, and returned in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.
